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Judges: Integration clause doesn’t preclude introduction of parol evidence

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The 7th Circuit Court of Appeals held Tuesday that in the absence of a factual inquiry, the mere presence of an integration clause doesn’t preclude a party from introducing parol evidence that it was fraudulently induced to enter into the agreement as a whole. The decision came in a dispute involving a settlement agreement that one party sought to invalidate based on claims of fraudulent inducement.

Judson Atkinson Candies Inc. and Kenray Associates Inc. settled two lawsuits through an agreement that required Kenray to pursue its insurer for coverage of Atkinson’s claims that Kenray failed to satisfy certain technology agreements and representations. But after Kenray’s insurer Hoosier Insurance Co. won judgments that it did not have to provide coverage for Atkinson’s claims, Atkinson alleged that it had been fraudulently induced to enter into the agreement by relying on oral representations made by Kenray that its insurer would cover the claims when in fact it already knew it would not.

As part of the settlement, the parties entered into a covenant not to execute, which contained language the District Court concluded was an integration clause: “The parties agree this agreement represents the parties’ sole agreement.”

Magistrate Judge William G. Hussmann Jr. held that because the covenant contained an unambiguous integration clause, parol evidence could not be considered to vary the terms of the agreement. But if Atkinson could show there was fraud in the inducement specific to the integration clause, then it may still be able to circumvent the parol evidence rule and prevail on its claim.  

“The question before us then lies at the intersection of … two legal principles. To wit, where a party to a contract alleges fraudulent inducement and the contract in question has a valid integration clause, must the party demonstrate that it was fraudulently induced to agree to the integration clause itself before it can rely upon prior representations to vitiate the contract, or is it sufficient for a party to show that it was fraudulently induced to enter into the contract as a whole? Relying upon Circle Centre(Dev. Co. v. Y/G Ind., L.P., 762 N.E.2d 176, 179 (Ind. Ct. App. 2002), the district court found that, before Atkinson could invoke any parol evidence, it had to show that it had been fraudulently induced to agree to the integration clause itself. Because we believe that this is too narrow a reading of Indiana law, we reverse,” wrote Judge John Z. Lee, of the Northern District of Illinois, sitting by designation.

“The imposition of an inflexible rule that would require a party claiming fraudulent inducement to demonstrate that he or she was fraudulently induced to agree to the integration clause itself would unreasonably restrict the trial court’s ability to conduct the factual analysis that the Indiana Supreme Court requires,” he continued in Judson Atkinson Candies, Incorporated v. Kenray Associates, Incorporated, Charles A. McGee and Kenneth J. McGee, 12-1035, 12-1036.

The Circuit Court ruled that by invoking a categorical rule without conducting a case-by-case analysis,  the magistrate judge’s decision is inconsistent with the Indiana Supreme Court’s pronouncements in Franklin v. White, 493 N.E.2d 161, 166 (Ind. 1986) and the Indiana Court of Appeals decisions of Prall v. Ind. Nat’l Bank, 627 N.E.2d 1374, 1378 (Ind. Ct. App. 1994), and its progeny.  

The case goes back to the District Court for further proceedings.

 

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  1. The voices of the prophets are more on blogs than subway walls these days, Dawn. Here is the voice of one calling out in the wilderness ... against a corrupted judiciary ... that remains corrupt a decade and a half later ... due to, so sadly, the acquiescence of good judges unwilling to shake the forest ... for fear that is not faith .. http://www.ogdenonpolitics.com/2013/09/prof-alan-dershowitz-on-indiana.html

  2. So I purchased a vehicle cash from the lot on West Washington in Feb 2017. Since then I found it the vehicle had been declared a total loss and had sat in a salvage yard due to fire. My title does not show any of that. I also have had to put thousands of dollars into repairs because it was not a solid vehicle like they stated. I need to find out how to contact the lawyers on this lawsuit.

  3. It really doesn't matter what the law IS, if law enforcement refuses to take reports (or take them seriously), if courts refuse to allow unrepresented parties to speak (especially in Small Claims, which is supposedly "informal"). It doesn't matter what the law IS, if constituents are unable to make effective contact or receive any meaningful response from their representatives. Two of our pets were unnecessarily killed; court records reflect that I "abandoned" them. Not so; when I was denied one of them (and my possessions, which by court order I was supposed to be able to remove), I went directly to the court. And earlier, when I tried to have the DV PO extended (it expired while the subject was on probation for violating it), the court denied any extension. The result? Same problems, less than eight hours after expiration. Ironic that the county sheriff was charged (and later pleaded to) with intimidation, but none of his officers seemed interested or capable of taking such a report from a private citizen. When I learned from one officer what I needed to do, I forwarded audio and transcript of one occurrence and my call to law enforcement (before the statute of limitations expired) to the prosecutor's office. I didn't even receive an acknowledgement. Earlier, I'd gone in to the prosecutor's office and been told that the officer's (written) report didn't match what I said occurred. Since I had the audio, I can only say that I have very little faith in Indiana government or law enforcement.

  4. One can only wonder whether Mr. Kimmel was paid for his work by Mr. Burgh ... or whether that bill fell to the citizens of Indiana, many of whom cannot afford attorneys for important matters. It really doesn't take a judge(s) to know that "pavement" can be considered a deadly weapon. It only takes a brain and some education or thought. I'm glad to see the conviction was upheld although sorry to see that the asphalt could even be considered "an issue".

  5. In response to bryanjbrown: thank you for your comment. I am familiar with Paul Ogden (and applaud his assistance to Shirley Justice) and have read of Gary Welsh's (strange) death (and have visited his blog on many occasions). I am not familiar with you (yet). I lived in Kosciusko county, where the sheriff was just removed after pleading in what seems a very "sweetheart" deal. Unfortunately, something NEEDS to change since the attorneys won't (en masse) stand up for ethics (rather making a show to please the "rules" and apparently the judges). I read that many attorneys are underemployed. Seems wisdom would be to cull the herd and get rid of the rotting apples in practice and on the bench, for everyone's sake as well as justice. I'd like to file an attorney complaint, but I have little faith in anything (other than the most flagrant and obvious) resulting in action. My own belief is that if this was medicine, there'd be maimed and injured all over and the carnage caused by "the profession" would be difficult to hide. One can dream ... meanwhile, back to figuring out to file a pro se "motion to dismiss" as well as another court required paper that Indiana is so fond of providing NO resources for (unlike many other states, who don't automatically assume that citizens involved in the court process are scumbags) so that maybe I can get the family law attorney - whose work left me with no settlement, no possessions and resulted in the death of two pets (etc ad nauseum) - to stop abusing the proceedings supplemental and small claims rules and using it as a vehicle for harassment and apparently, amusement.

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