Key Business Court Decisions

Business’ Reliance on False Application Information Must Still Be Reasonable

Where an employee makes material misstatements pre- and post-employment, the business must still allege facts showing how its reliance on the employee’s statements was reasonable to maintain certain tort claims.  Quidore v. Alliance, 2020 N.C.B.C. 87 (J. Bledsoe).  As a result, the business could not maintain claims for fraud or negligent misrepresentation against the employee where the business failed to allege facts showing its reliance on the statements was reasonable. 

Plaintiff applied to be Defendant’s COO. During the interview process, Plaintiff allegedly misrepresented his prior employment, the reasons he left earlier jobs, and his contacts within the industry.  Relying on these misrepresentations, Defendant hired Plaintiff.   Thereafter, Plaintiff allegedly performed poorly on the job, including failing to implement certain quality control measures in Defendant’s business that he assured other employees he had implemented.  When the quality control issues failed to improve, Defendant learned Plaintiff had actually never implemented the measures. Defendant terminated Plaintiff, who subsequently sued Defendant for breach of contract and promissory estoppel. Defendant counterclaimed, asserting claims for fraud and negligent misrepresentation related to Plaintiff’s pre- and post-employment statements that Defendant claimed had caused it harm. Plaintiff moved to dismiss, contending that Defendant’s counterclaim failed to plead facts showing that its reliance on his misstatements was reasonable.

The Business Court agreed.  Recognizing that claims for fraud and negligent misrepresentations require a party to allege facts showing that its reliance on the other party’s statements was reasonable, the Business Court noted that the counterclaim failed to allege any steps Defendant had taken or was prevented from taking to verify Plaintiff’s inaccurate employment history. Relying on an opinion from the Delaware Chancery Court, the Business Court held that Defendant’s failure to take any steps to try and verify Plaintiff’s prior work history meant its reliance on his pre-employment statements was unreasonable as a matter of law.  (Opinion, ¶¶ 34-37).   Similarly, Defendant’s blind acceptance of Plaintiff’s statement about the quality control measures he purportedly implemented was likewise unreasonable given that Defendant only had to check with a few people internally to determine whether Plaintiff had, in fact, implemented the procedures, but failed to allege that it had. (Id., ¶¶49-50).

Based upon this decision, a business hiring for a position within its organization (especially at the C-Suite level) would be well served to try and check the applicant’s work history, even if such steps are typically frustrated by the former employer’s refusal to provide the requested information.  Absent such efforts to discover the false information, the business may be precluded from later seeking damages related to the employee’s misstatements.

Additional legal points from this decision:

  • Statements which are mere puffery are not considered material and cannot be relied upon for purposes of fraud or negligent misrepresentation claims (Opinion, ¶ 24);
  • A claim for negligent misrepresentation must satisfy the specificity requirements of NC Rule Civ. Pro. 9(b), including the who, what, when, where, and what concerning the statement (Id., ¶51);
  • The court has the discretion to dismiss with prejudice claims of fraud and negligent misrepresentation that fail to satisfy the specificity requirements of Rule 9(b), especially where the claims may have already been amended one prior time (albeit, as a matter of right) (Id., ¶55, fn.7).

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