The Court of Appeals of Maryland recently reversed much of a billion dollar Baltimore County jury verdict awarded to hundreds of Jacksonville, Maryland homeowners and businesses for injuries they claimed stemmed from an underground gasoline leak in 2006 at a nearby Exxon gas station. In this and the next several blog posts, we will examine various aspects of the court's ruling in the two companion cases -- Exxon Mobil Corporation v. Ford et al. and Exxon Mobil Corporation v. Albright et al. In this post, we take a look at the appellate court's reversal of the jury's verdict for the plaintiffs for fraud.
To establish fraud, a plaintiff must prove by clear and convincing evidence that "(1) the defendant made a false representation to the plaintiff, (2) the falsity of the representation was either known to the defendant or the representation was made with reckless indifference to its truth, (3) the misrepresentation was made for the purpose of defrauding the plaintiff, (4) the plaintiff relied on the misrepresentation and had the right to rely on it, and (5) the plaintiff suffered compensable injury as a result of the misrepresentation.
Exxon challenged the Baltimore County jury's fraud verdicts and the punitive damage awards that stemmed from that decision. Among other things, Exxon contended that the Jacksonville homeowners' and business owners' failed to prove detrimental reliance - one of the requirements -- as to any of the six categories of fraudulent conduct they claimed Exxon committed. Exxon also contended that the punitive damages awards were constitutionally excessive.
At trial, the plaintiffs argued that Exxon engaged in an ongoing fraud designed to deceive both public authorities and the community, beginning in 1983 with the construction of the apparently defective containment system and continuing through the remediation efforts following the discovery of the 26,000 gallon gasoline leak. They presented evidence of six instances of alleged fraud: (1) Exxon's engineer's 1983 testimony before the Baltimore County Board of Appeals that the underground system would not be a source of contamination and that the company's efforts in putting together a containment system were "extraordinary" (construction fraud); (2) failure to inform the Maryland Department of the Environment (MDE) that the 1992 retrofitting of the station under the Clean Air Act would involve destruction of the overliner for the containment system (1992 permit fraud); (3) the posting of a sign after the discovery of the leak that described the closing of the gas station as being due to the upgrade of the station (sign fraud); (4) a 2001 statement by Exxon to the MDE that the underground piping at the Jacksonville Exxon was double-walled piping, when actually it was single-walled piping (2001 double-walled piping fraud); (5) inaccuracies in remediation reports regarding the quantity of leaked product recovered and the alleged flow of the leak (remediation fraud); and (6) deception of the MDE during the remediation process.
In what some say was a "somewhat predictable" decision, the state's top court reversed the jury's decision, ruling that the homeowners hadn't proven one of the requirements - reliance -- needed to make a case for fraud. In addition, because the jury's decision on fraud was reversed, the court said the billion dollar award for punitive damages (to be discussed in the next blog) had to be thrown out because the damages awards flowed from that decision.
Detrimental reliance involves reliance by one party on the acts, representations or promises of another that cause the first person to allow or effect a change for the worse in his or her position, according to Barron's Law Dictionary.
Here, the court said, there was no dispute that (1) Exxon did not direct any of the three allegedly fraudulent representations to any of the Jacksonville homeowners and businesses; and (2) that none of the Jacksonville homeowners and businesses relied personally on the three allegedly fraudulent misrepresentations. None contended they were present at the 1983 meeting of the Board of Appeals at which the Exxon engineer testified, knew about the 1992 permit application, or saw, prior to the leak, the 2001 MDE document representing that the Exxon station employed double-walled piping, the court observed. The court similarly found fault with the other types of alleged fraud.
In the absence of personal reliance, however, the Jacksonville homeowners and businesses asserted what the court described as "an attenuated third-party reliance theory" under which they claimed they need not show evidence of personal reliance in order to establish fraud. Rather a cause of action for fraud could be successful under a theory of third-party reliance by demonstrating that Exxon made intentionally or recklessly false statements to public officials, which the public officials then relied on to the detriment of the plaintiffs - rather like fraud on the people's government constitutes fraud on the people, the court observed.
"Maryland law does not permit a third party to recover damages for fraud purely on the basis of a false statement made to a governmental entity," the court said, explaining that the theory of third-party reliance failed to satisfy the requirement that personal reliance be demonstrated.
Baltimore, Maryland-based Belsky, Weinberg & Horowitz has been fighting for clients who have been the victims of negligence and personal injury for many years. Call us at 410-234-0100 or email us for a free consultation and let us help you.