Brigitte Schlange-Schoeningen v. James A. Parrish and W. Daniel Whitehurst

Citations: 767 F.2d 788; 1985 U.S. App. LEXIS 21115Docket: 84-8443

Court: Court of Appeals for the Eleventh Circuit; August 2, 1985; Federal Appellate Court

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Brigitte Schlange-Schoeningen, a German resident, filed a complaint against James A. Parrish and W. Daniel Whitehurst, alleging fraud related to her purchase of an 862-acre farm in Georgia. Following a three-day trial, the jury ruled in favor of Schlange-Schoeningen, awarding her compensatory and punitive damages against Whitehurst and the English entities involved in the transaction. The court also granted her attorneys' fees and entered judgment against all defendants. Parrish and Whitehurst sought a judgment notwithstanding the verdict, with Parrish additionally requesting to amend the judgment and for a new trial, all of which were denied.

On appeal, the defendants raised three arguments: first, they claimed that the contract with Schlange-Schoeningen barred her fraud claim; second, they asserted that the evidence was insufficient to establish a prima facie case of fraud; and third, they contended that the trial court erred by allowing a witness's deposition into the jury room and misinstructed the jury regarding a partnership between Parrish and Whitehurst.

The facts revealed that in May 1978, Parrish obtained a nonrefundable option to purchase the farm for $12,000, later forming a partnership with Whitehurst for property development. Parrish purportedly assigned his interest in the farm to Whitehurst, but evidence indicated the assignment was made to Whitehurst's father-in-law, W.G. Castleberry, for $10,000, while Parrish maintained a $200,000 beneficial interest contingent on the property's sale.

In July 1978, Whitehurst commissioned English to drill a test well on a farm to determine the depth required for a center pivot irrigation system that needed 1,250 gallons of water per minute. The test well was drilled to 827 feet, revealing that a depth of 800 feet was necessary to achieve the required water volume. English sent a log of this data to Whitehurst on August 19, 1978. Subsequently, Whitehurst requested English to create a false log indicating that sufficient water could be found at 400 to 450 feet, which English complied with, referring to it as the "phony log." This document falsely stated that a well at 350 to 375 feet would yield 1,200 gallons per minute. English later confirmed that this log misrepresented the findings of the actual test well, which required drilling deeper for adequate water supply. 

The creation and use of this false log constitutes the fraud central to the case. During trial, deposition testimony from H.C. Dodson, a local farmer, revealed that he inquired about purchasing the farm and was shown the "phony log" by Parrish. Despite his skepticism based on prior experience, Dodson made an offer of approximately $1,000 per acre, but no sale occurred. Concurrently, realtor Al Thompson, working with Parrish and Whitehurst, engaged with Bernard DeWulf to broker the sale of the Boyce and Morris tract, leading to an inspection of the land by DeWulf and others in December 1978.

DeWulf inspected a property with significant ongoing development and inquired about irrigation water availability. Parrish assured him there was abundant water at a depth of 300 to 400 feet, citing a test well report. DeWulf requested this report, which was retrieved by realtor Thompson from Dodson’s office and shared with DeWulf and Anderson. DeWulf, based on this report, advised the appellee and her family that sufficient water existed for irrigation at a feasible cost. By November 1978, Parrish and Whitehurst's option on the property was set to expire, leading to an extension until September 1979. In February 1979, the appellee and her husband visited the tract, relying on the "phony log" and representations about water availability made through DeWulf. Parrish and Whitehurst formalized their partnership to sell the tract, and the option was eventually assigned to DeWulf's organization, which sold the property to the appellee in June 1979. Shortly after the purchase, Anderson discovered that the test well report was inaccurate, leading to this lawsuit. The jury found all defendants liable for fraud, awarding $155,000 in compensatory damages, with additional punitive damages against Whitehurst and English. Defendants appealed. The court noted that the situation involved more than typical contract negotiations, highlighting a deceptive arrangement by the sellers to misrepresent a crucial fact about water availability, which the appellee nearly fell victim to.

The appellee confirmed the contract of sale for the Boyce, Morris tract, leading the appellants to argue that the appellee is bound by the contract's terms, including a merger clause that incorporates the entire agreement and excludes any external representations. The appellants assert that since the alleged misrepresentation regarding groundwater availability is not included in the written contract, the appellee cannot pursue legal action based on it. However, this interpretation misapplies Georgia law on promissory fraud, which allows a plaintiff to either rescind the contract and sue for deceit or affirm the contract and sue for breach. The merger clause serves as a reaffirmation of the parol evidence rule, maintaining that any representations relied upon must be explicitly included in the contract to be enforceable. Consequently, in cases of promissory fraud, buyers must ensure that representations they rely on are incorporated into the contract, as failure to do so may prevent them from claiming fraud. Georgia courts emphasize that individuals have a responsibility to protect themselves from fraud by utilizing reasonable means to understand their agreements, although this requirement may be waived if one party obstructs the other's ability to comprehend the transaction.

The case does not involve fraud as defined by the Georgia election of remedies doctrine. The appellants' actions, specifically creating a false test log for exploratory water drilling, constitute a more severe form of deceit than a mere unfulfilled promise. This fraudulent conduct compromised the integrity of the negotiation process, leaving the appellee unaware of the deception. Unlike typical promissory fraud, there were no contractual protections that a reasonable buyer could have expected against this type of wrongdoing. Consequently, the election of remedies under Georgia law does not apply.

Judge Owens reached a similar conclusion, stating that the election of remedies requirement is irrelevant in this case due to the absence of any representations made by the contracting parties. While it can be argued that the false well log acts as a constructive representation, the ruling hinges on the nature of the fraud, likening it to fraud in execution rather than fraud in inducement. As such, the parole evidence rule and merger clause doctrine do not apply, allowing the appellee to proceed with her claim despite the merger clause in the land sales contract.

The appellants contended that there was inadequate evidence for the jury to determine reliance on the false well log. However, upon reviewing the trial transcript, it was determined that evidence of reliance was indeed present, and the jury's finding of reliance will not be challenged.

Additionally, the appellants claimed that the trial court mistakenly allowed H.C. Dodson's written deposition to be sent to the jury room. While many state cases address this issue, there are no federal cases directly on point. Under Federal Rule of Civil Procedure 32(a)(1), depositions can be used as permitted by the Rules. The court must balance the jury's access to admissible evidence with the risk of giving undue weight to written testimony. The trial judge is best positioned to make this determination, and their decision should only be overturned for abuse of discretion.

In this case, the jury requested portions of Mr. Dodson's deposition after deliberation, and the trial court complied after ensuring only relevant testimony was included. After reviewing the disputed excerpts, it was concluded that no harm was done to the appellants, who also failed to demonstrate specific prejudice. Therefore, the trial judge's decision stands without evidence of abuse of discretion.

The appellants contend that the trial judge incorrectly instructed the jury regarding the existence of a partnership between them concerning third parties, asserting that the partnership issue was a factual matter for the jury. This argument was deemed meritless. Under Georgia law, the court may determine the existence of a partnership as a matter of law if the case facts are conclusive. The relevant Georgia statute permits partnerships to form through written or oral contracts or from joint ownership and profit-sharing of undivided property. Evidence presented at trial demonstrated that the appellants, Parrish and Whitehurst, actively collaborated in developing and marketing the Boyce, Morris tract, and they acknowledged their partnership in a written agreement dated February 2, 1979, which referred to their relationship as a "joint venture." This substantial evidence supports the conclusion that a partnership existed as a matter of law, validating the trial judge's instruction.

Additionally, there is a cross-claim regarding liability between Parrish and Whitehurst, which is not under review. The jury found joint and several liability among the original defendants, and it was determined that Parrish's cross-claim does not hinder the judgment's execution and collection against all defendants. The district court's judgment is affirmed. The document also references broader legal principles regarding consumer transactions, liability, and the balance between contractual obligations and tortious responsibilities, although these discussions are not essential to the primary ruling.