Schrager v. Bailey

Appellate Court of Illinois
973 N.E.2d 932, 2012 IL App (1st) 111943 (2012)

ELI5:

Rule of Law:

A nonreliance clause in a settlement agreement, where a party expressly disclaims reliance on any representations outside the agreement, bars a subsequent fraud claim based on prior oral or written misrepresentations because it negates the element of justifiable reliance.

Facts:

Plaintiff Barry Schrager hired attorneys James M. Bailey, David P. Schippers, and Schippers and Associates (defendants) to represent him in a federal lawsuit.
The defendants voluntarily dismissed the federal lawsuit on Schrager's behalf.
During negotiations for a subsequent legal malpractice suit Schrager filed against them, the defendants represented to Schrager that they had relied on advice from attorney James T. Hynes in deciding to dismiss the federal suit.
Schrager requested affidavits from the defendants to support their representation about Hynes's advice.
In June 2006, Schrager and the defendants entered into a settlement agreement (the Agreement) to dismiss the malpractice suit, which included an integration/nonreliance clause.
The nonreliance clause stated, in pertinent part, that Schrager 'is solely relying upon the information contained in this Agreement and not in reliance upon any other information' and disclaimed reliance on 'any prior letters of intent, agreement, promises, negotiations, statements or representations not expressly set forth in this Agreement'.
On July 6, 2006, after the Agreement was signed, attorney Bailey executed an affidavit stating he received and 'relied in part' on recommendations from attorney Hynes regarding Schrager's case.
On October 6, 2009, attorney Schippers provided an affidavit stating that he and Bailey made all litigation decisions for the federal suit, their recommendations were not based on Hynes's advice, and he did not recall receiving a memorandum from Hynes regarding the federal suit.
The settlement agreement required the defendants to pay Schrager $985,000.
Schrager's legal malpractice suit against attorney Hynes continued independently and was eventually dismissed.

Procedural Posture:

In 2002, Barry Schrager (plaintiff) filed a legal malpractice suit against James M. Bailey, David P. Schippers, Schippers and Associates (defendants), and attorney James T. Hynes in the circuit court of Cook County (trial court), alleging legal malpractice for voluntarily dismissing a federal suit.
The legal malpractice suit against the defendants was refiled in the circuit court of Cook County (trial court) after an initial dismissal based on the single-refiling rule.
In June 2006, Schrager agreed to dismiss the malpractice suit and settle claims against Bailey, Schippers, and Schippers and Associates through a settlement agreement.
On July 6, 2006, the circuit court (trial court) found the settlement agreement had been made in good faith and dismissed Schrager’s claims against the defendants.
Schrager's legal malpractice suit continued against attorney Hynes in the circuit court of Cook County.
On February 2, 2010, the circuit court (trial court) granted summary judgment to attorney Hynes due to the preclusion of expert witness testimony.
Schrager's motion for reconsideration against Hynes was denied by the circuit court.
The Appellate Court of Illinois, First District, affirmed the grant of summary judgment to attorney Hynes.
On January 4, 2011, Schrager filed his second amended complaint against Bailey, Schippers, and Schippers and Associates in the circuit court of Cook County (trial court), alleging fraud based on misrepresentations about the basis for dismissing the federal suit and aiding and abetting Hynes.
The defendants filed combined motions under sections 2-615 and 2-619 of the Code of Civil Procedure to dismiss Schrager's second amended complaint.
The circuit court (trial court) dismissed the second amended complaint with prejudice, finding the integration/nonreliance clause in the prior settlement agreement precluded Schrager's claims.
Barry Schrager (plaintiff-appellant) appealed the circuit court's dismissal to the Appellate Court of Illinois, First District, with James M. Bailey, David P. Schippers, and Schippers & Associates as defendants-appellees.

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Issue:

Does a nonreliance clause in a settlement agreement, explicitly stating a party's sole reliance on the agreement's contents, preclude a subsequent claim of common-law fraud based on prior oral or written misrepresentations made outside the agreement?

Opinions:

Majority - Justice Hall

Yes, a nonreliance clause in a settlement agreement, where Barry Schrager explicitly stated he relied solely on the agreement's contents, bars his subsequent fraud claim because it negates the element of justifiable reliance. The court affirmed the dismissal, holding that a nonreliance clause in a contract bars a cause of action for fraud by preventing a plaintiff from proving justifiable reliance on outside representations. Citing Benson v. Stafford, Tirapelli v. Advanced Equities, Inc., and Adler v. William Blair & Co., the court reiterated that it is 'hardly justifiable for someone to rely on something that they have agreed not to rely on,' and without justifiable reliance, there can be no fraud. This principle, reinforced by Greer v. Advanced Equities, Inc. and Extra Equipamentos E Exportação Ltda. v. Case Corp., is not limited to securities transactions but applies broadly to contract drafting to reduce faulty memories and fabrication. Since Schrager explicitly agreed he was 'solely relying upon the information contained in this Agreement and not in reliance upon any other information,' he could not justifiably rely on the defendants' prior representations about Hynes's advice, which were not contained within the Agreement. The court rejected Schrager's argument that enforcing the clause would allow defendants to profit from wrongdoing, noting the $985,000 payment to Schrager as part of the settlement agreement.

Analysis:

This case significantly broadens the application of nonreliance clauses beyond securities transactions, affirming their potent ability to bar common-law fraud claims when a party explicitly disclaims reliance on outside representations. It emphasizes contractual autonomy and the importance of precise written agreements in preventing future disputes over alleged oral or unwritten misrepresentations, thereby strengthening the enforceability of such clauses in various contractual settings, including settlement agreements. Future cases will likely cite this decision for the proposition that clear nonreliance language can defeat the essential element of justifiable reliance in fraud claims across diverse contractual contexts, promoting finality in settlements.

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