Richard N. Moseman, an Individual Daniel Rousseau v. Blake Van Leer, an Individual Garnet, Incorporated Garnetof Virginia, Incorporated, Now Known as King George Landfill, Incorporated Garnetof Maryland, Incorporated Garnet Enterprises, Incorporated Cross Road Trail, Incorporated, Rollins Avenue, Incorporated King George Land Company, Incorporated Bkjb Partnership, a Georgia Corporation Robert D. Cheeley, an Individual James E. Butler, Jr., an Individual Bobby M. Thomas, an Individual Keith R. Breedlove, an Individual
Docket: 00-2072
Court: Court of Appeals for the Fourth Circuit; August 27, 2001; Federal Appellate Court
Richard Moseman and Daniel Rousseau appealed the district court's summary judgment favoring defendants, which included Blake Van Leer and several corporations associated with refuse disposal operations in Maryland and Virginia. The plaintiffs' claims were based on common law fraud and violations of federal and state securities statutes. The business was formed in the mid-1980s, with stock divided among Moseman (50%), Rousseau (25%), and Van Leer (25%). Due to financial difficulties, they transferred 25% of their stock to BKJB Partnership for a $5 million loan. Subsequently, Van Leer informed them that the King George landfill site was nearly worthless, which was a precursor to BKJB's demand for an additional 40% of their stock and voting rights in exchange for funding. Ultimately, BKJB gained 65% of the shares and full voting rights, while Moseman and Rousseau allege that Van Leer and BKJB had concealed the landfill's true value of $150 million during negotiations for new investors. The court affirmed the district's ruling, and the opinion was authored by Senior Judge Robert R. Beezer with concurrence from Chief Judge Wilkinson and Judge King.
In December, Van Leer negotiated an agreement with investor William Blanchet, allocating 80% of stock to Blanchet and 20% to Van Leer, while Moseman and Rousseau were promised various financial compensations, including cash and contingent notes. Moseman and Rousseau allege that Van Leer, BKJB, and Blanchet concealed that they would receive less consideration than other parties involved. The Blanchet agreement was not finalized, as BKJB shifted to negotiating a more favorable deal with Sanifill Corporation in January 1996, necessitating that all shareholders execute proxies. The final Sanifill agreement included financial provisions for Moseman, Rousseau, Van Leer, and BKJB, with Moseman and Rousseau receiving significant sums and notes, while BKJB received $6 million in cash and additional repayments.
Moseman, prior to signing, inquired about Van Leer's compensation and signed a release of claims, stating he did not rely on other parties' representations. Rousseau signed a similar release without legal counsel and expressed satisfaction with equal terms from Sanifill as from the Blanchet agreement, also foregoing further inquiries. Months later, Moseman and Rousseau discovered the Sanifill deal was worth $32 million. They initiated legal action against multiple defendants, who moved for summary judgment, which was granted. Moseman and Rousseau claim Van Leer's assertion that the King George landfill was nearly worthless fraudulently induced them to reduce their ownership in the Garnet corporations, leading to less consideration in the Sanifill transaction. They dispute whether a negligence standard applies to their reliance on Van Leer's representations, as justifiable reliance could allow them to rescind their releases and pursue their claims.
The district court applied a negligence standard to assess the justifiability of Moseman and Rousseau's reliance on Van Leer's statements, determining that parties can justifiably rely on another's factual assertions unless the facts are evident or warnings of deception arise. In a claim for equitable adjustment, reliance on representations about conditions is deemed reasonable only if it does not prompt a further investigation by a reasonable person. The court found that neither Moseman nor Rousseau justifiably relied on Van Leer's claims, as they explicitly rejected such reliance when signing releases, and Moseman's attorney had expressed suspicion yet failed to investigate further. Additionally, they did not seek further information despite the absence of barriers to doing so.
Moseman and Rousseau contended that their signed releases are void under federal and state securities laws, which invalidate waivers of compliance with relevant rules. Maryland courts consider federal case law in interpreting state securities statutes, and the district court cited Goodman v. Epstein to support that a release can be valid for known claims at the time of signing, provided the releasing party could have discovered them through reasonable inquiry. Moseman and Rousseau criticized this "reasonable inquiry" standard as inconsistent with securities law's general aversion to releases, advocating instead for the "actual knowledge" test from Burgess v. Premier Corp., which requires that a release is valid only if plaintiffs had actual knowledge of the claims. The court, however, favored the Goodman standard, concluding it adequately aligns with the objectives of the Securities Act when releases are provided as consideration.
Burgess's reliance on Royal Air Properties, Inc. v. Smith is critiqued for its focus on an implicit waiver rather than a signed release. The Royal Air case emphasizes that waiver can occur unilaterally, whereas the release in question here is a product of negotiation, highlighting a crucial distinction. It is established that being asked to sign a release necessitates a reasonable inquiry by the individual to ascertain any potential claims before executing the document. This expectation does not contradict the policy against future waivers of securities claims but ensures that releases are signed with awareness and consideration.
The district court found that neither Moseman nor Rousseau undertook a reasonable inquiry regarding their claims against Van Leer, as both signed releases without investigating essential details of the transaction or seeking clarification from involved parties. Moseman's attorney also failed to act on suspicions of unfair treatment. Consequently, the releases signed by Moseman and Rousseau effectively bar their claims. The case affirms that Maryland law governs the interpretation of these releases, and references additional cases that differentiate between unilateral waivers and negotiated releases, with a focus on the reasonable inquiry standard in the context of securities fraud.
