Do Contracting Parties Now Have A General Independent Duty Not To Commit Fraud? Probably Not.

As I pointed out in my article last November, in Washington, what used to be known as the economic loss rule and what the Washington Supreme Court has more recently called the independent duty doctrine has traditionally prohibited contracting parties from suing each other for breaches of most tort duties.  The reasoning was that the courts should respect the allocation of risk and responsibilities the parties to transactions negotiate for themselves.

As I also mentioned in that article, there are some long-standing exceptions to that general prohibition, one of which is a claim for fraudulent concealment in a real estate transaction, which the Washington Supreme Court had ruled was still viable in the case of Alejandre v. Bull, 159 Wn.2d 674, 153 P.3d 864 (2007), but where the Court found was not supported by the evidence in that case.  The Court cited Alejandre in Eastwood v. Horse Harbor Foundation, 170 Wn.2d 380, 241 P.3d 1256 (2010), in which it introduced the independent duty doctrine as a replacement for the economic loss rule, saying that the Court in that case “recognized…that Bull’s independent duty not to commit fraud persisted, and we would have allowed [the plaintiffs] to sue for fraudulent concealment if they had offered enough evidence to support that tort claim.”  Id. at 390. 

Most readers of that passage no doubt interpreted it as doing nothing more than stating the well-known fraudulent concealment exception to the economic loss rule in a real estate transaction.  However, in June of this year, in Jackowski v. Borchelt, 174 Wn.2d 720, 278 P.3d 1100 (2012), which was another case involving a real estate transaction, in which the purchaser alleged that the seller had fraudulently concealed the presence of fill on the site, the Washington Supreme Court cited the language from Eastwood quoted above and made the following sweeping statement: “Because the duty not to commit fraud is independent of the contract, the independent duty doctrine permits a party to pursue a fraud claim regardless of whether a contract exists.” Id. at 738.

Some plaintiffs’ lawyers are now arguing the language in Jackowski means they are free to pursue any kind of fraud claim against parties with whom their clients contract in any kind of transaction.   Those lawyers should be cautious, however, because the Washington Supreme Court has never applied that rule to a case that did not involve a claim for fraudulent concealment in a real estate transaction.  Moreover, even in the doubtful event that the Court in Jackowski intended to broaden the fraud exception, it remains the law in Washington that a plaintiff cannot fulfill the requirement that he or she reasonably relied on an alleged falsehood by the defendant if there is language in the parties’ contract that directly contradicts the offending representation.  See, Lawyers Title Ins. Corp. v. Baik, 147 Wn.2d 536, 553-54, 55 P.3d 619 (2002).  Because most contracts between sophisticated parties are usually very detailed in the representations they make and often affirmatively state that the parties are not relying on representations not included in the document, fraud claims would still be a long shot among contracting parties even if they are now available outside of the real estate fraudulent concealment context, which the Court has certainly not explicitly held to date.

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