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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. I gave tempparry guardship to a friend of my granddaughter in 2012. I went to prison. I had custody. My daughter went to prison to. We are out. My daughter gave me custody but can get her back. She was not order to give me custody . but now we want granddaughter back from friend. She's 14 now. What rights do we have

  2. This sure is not what most who value good governance consider the Rule of Law to entail: "In a letter dated March 2, which Brizzi forwarded to IBJ, the commission dismissed the grievance “on grounds that there is not reasonable cause to believe that you are guilty of misconduct.”" Yet two month later reasonable cause does exist? (Or is the commission forging ahead, the need for reasonable belief be damned? -- A seeming violation of the Rules of Profession Ethics on the part of the commission) Could the rule of law theory cause one to believe that an explanation is in order? Could it be that Hoosier attorneys live under Imperial Law (which is also a t-word that rhymes with infamy) in which the Platonic guardians can do no wrong and never owe the plebeian class any explanation for their powerful actions. (Might makes it right?) Could this be a case of politics directing the commission, as celebrated IU Mauer Professor (the late) Patrick Baude warned was happening 20 years ago in his controversial (whisteblowing) ethics lecture on a quite similar topic: http://www.repository.law.indiana.edu/cgi/viewcontent.cgi?article=1498&context=ilj

  3. I have a case presently pending cert review before the SCOTUS that reveals just how Indiana regulates the bar. I have been denied licensure for life for holding the wrong views and questioning the grand inquisitors as to their duties as to state and federal constitutional due process. True story: https://www.scribd.com/doc/299040839/2016Petitionforcert-to-SCOTUS Shorter, Amici brief serving to frame issue as misuse of govt licensure: https://www.scribd.com/doc/312841269/Thomas-More-Society-Amicus-Brown-v-Ind-Bd-of-Law-Examiners

  4. Here's an idea...how about we MORE heavily regulate the law schools to reduce the surplus of graduates, driving starting salaries up for those new grads, so that we can all pay our insane amount of student loans off in a reasonable amount of time and then be able to afford to do pro bono & low-fee work? I've got friends in other industries, radiology for example, and their schools accept a very limited number of students so there will never be a glut of new grads and everyone's pay stays high. For example, my radiologist friend's school accepted just six new students per year.

  5. I totally agree with John Smith.

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