Rhoads v. Harvey Publications, Inc.
1981 Ariz. App. LEXIS 629, 640 P.2d 198, 131 Ariz. 267 (1981)
Rule of Law:
A summary judgment for fraud is improper when material factual disputes exist regarding the misrepresentation's materiality or the right to rely on a legal opinion, especially when the moving party's arguments for summary judgment were not raised below, thus denying the non-moving party the opportunity to present relevant facts.
Facts:
- Fred Rhoads, a cartoonist, was engaged by Harvey Publications, Inc. (New York corporations and their directors, officers, and principal shareholders) for 23 years, beginning in 1954, to produce cartoons featuring the character “Sad Sack” for publication.
- During this 23-year period, Harvey Publications told Rhoads that he was an employee of their business.
- Believing he was an employee and legally unable to reserve copyrights for work done for his employers, Rhoads executed endorsements on payment checks waiving all copyrights.
- Upon termination of his relationship with Harvey Publications in 1977, Rhoads learned that he had actually been an independent contractor.
- Rhoads subsequently alleged that Harvey Publications had fraudulently represented his employment status to prevent him from retaining the copyrights to his work.
- Harvey Publications contended they had not told Rhoads he was an employee, that he had no other reason to believe he was an employee, and that he knew his independent contractor status.
- Rhoads presented controverting affidavits alleging repeated statements from Harvey Publications calling him an employee, receipt of 'vacation pay' on ten occasions, insurance under a group policy issued to appellees, and a reference to him as an 'employee' by Alfred Harvey in correspondence.
Procedural Posture:
- Fred Rhoads sued Harvey Publications, Inc. in the trial court for fraud.
- The trial court dismissed Rhoads' complaint for lack of personal jurisdiction over Harvey Publications, Inc.
- Rhoads appealed the dismissal order to the Court of Appeals of Arizona (first appeal).
- The Court of Appeals of Arizona reversed the dismissal and remanded the case for further proceedings (Rhoads v. Harvey Publications, Inc., 124 Ariz. 406, 604 P.2d 670 (App.1979)).
- Upon remand, Harvey Publications, Inc. moved for summary judgment in the trial court.
- The trial court granted Harvey Publications, Inc.'s motion for summary judgment, concluding that Rhoads was an independent contractor and that Rhoads' statements about being referred to as an employee were unsupported conclusions.
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Issue:
Does the trial court's finding regarding Fred Rhoads' independent contractor status, coupled with appellees' new arguments concerning materiality and misrepresentation of law, justify granting summary judgment against Rhoads' fraud claim, even if those arguments were not raised in the trial court and material factual disputes remain?
Opinions:
Majority - BIRDSALL, Judge
No, the trial court's grant of summary judgment against Rhoads' fraud claim was not justified because it improperly resolved disputed material facts and the new arguments raised by appellees on appeal do not overcome these defects. The court first noted that the trial court's judgment, which concluded Rhoads was an independent contractor, was effectively a finding on a disputed fact, which is inappropriate for summary judgment. The true questions before the trial court were whether appellees told Rhoads he was an employee and whether Rhoads believed he was an employee, both requiring the weighing of conflicting evidence. Addressing new arguments raised by appellees on appeal, the court held that these arguments could not support summary judgment because they involved factual questions not developed below. First, regarding appellees' argument that the misrepresentation was not material under federal copyright law, the court explained that materiality in a fraud claim depends on whether 'the maker of the representation knows or has reason to know that its recipient regards or is likely to regard the matter as important in determining his choice of action, although a reasonable man would not so regard it' (Restatement of the Law of Torts 2d § 538(2)(b)). Since the record lacked facts about Rhoads' specific belief regarding the importance of his status or the publishers' knowledge of that belief, the court could not conclude, as a matter of law, that the representation was immaterial. Second, regarding appellees' argument that the alleged misrepresentation was one of law or legal opinion and thus not actionable fraud, the court clarified that this general rule has exceptions, as established in Waugh v. Lennard. Reliance on a legal opinion can be justified if (1) the party making the representation is especially skilled in the law and the recipient is not, or (2) a relationship of trust and confidence exists between the parties. These exceptions present questions of fact that were not resolved by the record. Given the absence of facts demonstrating the parties' legal skill or a relationship of trust, the court could not presume, as a matter of law, that Rhoads had no right to rely. Therefore, the summary judgment was reversed and remanded for further proceedings.
Analysis:
This case significantly reinforces the high bar for granting summary judgment, particularly in fraud cases where intent, knowledge, and reliance are central. It provides crucial guidance on the 'materiality' element of fraud, emphasizing a subjective standard based on the representor's knowledge of the recipient's likely regard for the matter, rather than an objective 'reasonable person' standard. Furthermore, the decision clarifies that misrepresentations of law are not automatically immune from fraud claims, outlining specific exceptions rooted in disparate legal expertise or relationships of trust. The ruling also serves as a warning to appellate litigants that new arguments, not fully developed at the trial level, will be scrutinized closely and will not automatically justify affirming a summary judgment if they necessitate further factual findings.
