Golden Cone Concepts, Inc. v. Villa Linda Mall, Ltd.

Majority - Franchini, Justice

Yes, an integration clause in a commercial lease does not preclude claims for fraud, negligent misrepresentation, and constructive fraud based on a landlord's misrepresentations of future projected revenues and nondisclosure of existing low traffic complaints, thereby allowing the tenant to rescind the lease and recover damages. The Court affirmed the district court's decision that the integration clause in Article 33 of the lease did not bar Golden Cone's claims. Citing Berrendo Irrigated Farms Co. v. Jacobs, the Court stated that a party cannot use a contract provision to prevent another party from seeking redress for fraud that induced them into the contract, whether for rescission or damages. New Mexico law generally holds that exculpatory clauses do not preclude liability for fraud. Regarding representations of projected revenues, the Court agreed with the district court that these could be actionable. While fraud typically does not apply to promises of future events, exceptions exist, as established in Register v. Roberson Construction Co., when promises are based on facts peculiarly within the promisor’s knowledge, involve concealment of known facts, or are part of a deceptive pattern, especially if opinions about future occurrences lack factual support. The Mall's $300,000 sales projection, unsupported by known facts, fell within these exceptions. Concerning nondisclosure, the Court found that the Mall had a duty to disclose information about low mall traffic. A duty to disclose arises when one party reposes trust and confidence in another, as highlighted in R.A. Peck, Inc. v. Liberty Federal Savings Bank. The Mall had established a pattern of gaining prospective tenants' confidence and possessed information about low traffic (from other tenant complaints) that was peculiarly within its knowledge, thus creating a continuing duty to disclose these material facts. The Court found substantial evidence supported the district court’s conclusions of negligent misrepresentation, constructive fraud, and fraud. Golden Cone's principals, being new to mall retail, justifiably relied on the Mall's representations about traffic and food court function, which were within the Mall's exclusive knowledge. Constructive fraud was supported by the Mall's pattern of conduct contrary to equitable principles, and actual fraud was proven by clear and convincing evidence of misrepresentations made with intent to deceive and induce detrimental reliance. The dismissal of the Mall's counterclaim for unpaid rent was affirmed due to the valid rescission of the lease. However, the Court remanded the case with instructions to reduce the restitutionary special damages by the $10,939.32 Golden Cone owed in unpaid rent and charges, as this offset was found but not incorporated into the judgment. The award of punitive damages was affirmed because the substantial evidence supporting fraud, which includes intentional deceit and reckless conduct (such as making projected revenue figures with intent to deceive), met the standard for punitive damages, which can be awarded for conduct that is malicious, fraudulent, oppressive, or reckless. The award of attorney fees was reversed. The Court reasoned that the rescission of the lease negated any basis for an attorney fee award found within the lease itself, and absent a specific statute or agreement, each party typically bears its own attorney fees.