Summary
In Meschke, the court found that no such duty existed because the parties were experienced in the business and were not fundamentally unequal in their bargaining or negotiating power.
Summary of this case from Great Plains Christian Radio, Inc. v. Central Tower, Inc.Opinion
No. 01-1365-JTM
June 24, 2002
ORDER
Plaintiff John D. Meschke, D.D.S, and defendant OrthAlliance, Inc. entered into an agreement under which OrthAlliance agreed to provide various services to assist Dr. Meschke in his practice as an orthodontist. Meschke instituted in state court the present action alleging the breach of the contract, along with several additional claims. OrthAlliance removed the action to this court.
Currently before the court is the motion by OrthAlliance seeking dismissal of the fraud allegations of Count V of the complaint on the grounds that the allegations of fraud are not set forth with particularity, in violation of Fed.R.Civ.Pr. 9(b). OrthAlliance also seeks to dismiss the charges of fraud by silence and negligent misrepresentation in Count V, on the grounds that it had no duty to reveal the allegedly misrepresented facts. OrthAlliance agrees, in its reply brief, that fraud has been pleaded with particularity in Meschke's amended complaint, which was filed subsequent to the motion to dismiss. The sole issue remaining before the court, therefore, is whether under the facts OrthAlliance has a duty to avoid negligent misrepresentations or fraud by omission.
Meschke contends that a duty to avoid misrepresentations arose because OrthAlliance supposedly had superior access to information — here, OrthAlliance's alleged knowledge that the services to be provided do in fact give little benefit to Meschke's practice. OrthAlliance argues on the basis of the facts that no duty arose because both it and the plaintiff are experienced in the field of dental services. Under the relevant Kansas cases, the additional claims will be dismissed. That is, Meschke still has claims for breach of contract, breach of convenant of good faith and fair dealing, and actual fraud, but the additional claims of negligent misrepresentation and fraud by omission are not actionable under the present facts.
The question of what gives rise to a legal or equitable obligation to communicate is not always an easy question to resolve, but generally the duty must arise from a relationship existing between the parties when the suppression or concealment is alleged to have occurred. It may arise between two contracting parties when there is a disparity of bargaining powers or of expertise [or if] the parties to a bargain are in a fiduciary relationship to one another. . . .
DuShane v. Union Nat'l Bank, 223 Kan. 755, 760, 576 P.2d 674 (1978) (citations omitted). The
Supreme Court of Kansas subsequently wrote that a
party to a transaction also has a duty to disclose material facts if the he or she "knows that the other is about to enter into the transaction under a mistake as to such facts, and that the other, because of the relationship between them, the customs in the trade, or other objective circumstances, would reasonably expect a disclosure of such facts."
OMI Holdings v. Howell, 260 Kan. 305, 918 P.2d 1274 (1996) (quoting Boegel v. Colorado Nat'l Bank of Denver, 18 Kan. App. 2d 546, 550, 857 P.2d 1362, rev. denied, 253 Kan. 856 (1993)).
Here, there is no contention that OrthAlliance was acting as a fiduciary for Dr. Meschke. Plaintiff therefore focuses his argument on the contention that OrthAlliance was under a duty to convey accurate information because of its superior knowledge. Although plaintiff cites parts of Kansas cases indicating a duty may arise where one party has "superior knowledge," this by itself does not give a fair construction of the case law. If it did, what was explicitly characterized in DuShane as a difficult question, would in fact be a very easy one: the "silence" in the term "fraud by silence" presupposes the existence of some unequal access to information. Under plaintiff's interpretation, this by itself would be enough to create a duty to reveal all such information. But the Kansas Supreme Court in OMI Holdings expressly rejected such a broadening of the duty of parties to commercial transactions. In that case, the plaintiff argued that a duty to disclose could arise on the basis of general equity and good conscience. "This argument can be immediately dispensed with," the court wrote, "because it has no authority." 260 Kan. at 347. While the Kansas Supreme Court has written about a duty arising from special knowledge, this has been explicitly connected — as in the language quoted from both OMI Holdings and DuShane above — with the relationship between the parties, and whether there is a disparity of bargaining power or expertise reflected in the relationship. Here, both parties are experienced in the provision of orthodontic care, both as a science and a business. Plaintiff Meschke is a licensed orthodontist. According to the amended complaint, he had created a "successful orthodontic practice," (Am. Complaint, at ¶ 9). The practice had an established customer base, and was formed as a professional corporation. The amended complaint details Meschke's negotiations, including his solicitation of additional assurances and representations from OrthAlliance. These assurances, if knowingly false, may form the basis for a triable claim of actual fraud. But their advancement, at Meschke's insistence, is a further indication that the parties were not fundamentally unequal in their bargaining or negotiating power, or in their expertise as to the subjection of the transaction.
IT IS ACCORDINGLY ORDERED this ____ day of June 2002, that the defendant's Motion to Dismiss (Dkt. No. 8) the claims of fraud by silence and negligent misrepresentation is hereby granted.