Independent due diligence blunts justifiable reliance argument in real estate purchase transaction.

The Pennsylvania Superior Court recently affirmed the trial court’s dismissal of intentional misrepresentation, negligent misrepresentation, and fraud in the inducement claims asserted against a sales agent who prepared a prospectus and the owner of a real estate complex where the purchaser undertook his own due diligence prior to consummating a transaction, which was ultimately financially unsound. The plaintiff requested additional documentation (which disclosed financial discrepancies) and consulted an accountant and an attorney prior to the purchase. The prospectus also stated in relevant part that the broker had not audited the books or records and did not warrant the accuracy of the information and that the lease agreement disclaimed any claims were made outside of the document. 

Thus, the court found that the plaintiff could not meet the requisite element of justifiable reliance where he completed his own due diligence after receiving the prospectus. 

From a practical standpoint, this case bolsters the defense of lack of justifiable reliance at the summary judgment phase where a plaintiff has undertaken its own due diligence, including requesting additional information, noting discrepancies in financial records and engaging third-party professionals in an advisory capacity. These activities undermine a plaintiff’s purported reliance on representations or misrepresentations where independent efforts were undertaken to independently verify or investigate the information provided.

Justifiable reliance is a requisite element of a claim for negligent misrepresentation, intentional misrepresentation and fraud. Thus, the availability of this argument, i.e. a party’s failure to meet the prong of justifiable reliance for one of the aforesaid causes of action, has far-reaching implications for dispositive motion practice in Pennsylvania, particularly in the context of defense of professionals who are often charged with disseminating information to enable customers to make financially driven decisions. 
 

^{Case Law Alerts, 1st Quarter, January 2022 is prepared by Marshall Dennehey Warner Coleman & Goggin to provide information on recent developments of interest to our readers. This publication is not intended to provide legal advice for a specific situation or to create an attorney-client relationship. Copyright © 2022 Marshall Dennehey Warner Coleman & Goggin, all rights reserved. This article may not be reprinted without the express written permission of our firm.}