Wild Rider Pizza v. Prizm Properties, Inc.
The Cartwright family have successfully owned and operated cowboy-themed pizzeria restaurants for more than twenty years. Reed Cartwright identified Cornerstone Park, a high-traffic shopping center owned by Prizm Properties, as a possible site for a new restaurant, Wild Rider Pizza. Cornerstone Park housed three successful restaurants and had a vacant restaurant building available for lease. The Cartwrights began negotiating a potential lease of the vacant restaurant building with Prizm’s property management director, Charlie Kelly.
During the lease negotiations, Charlie told Reed Cartwright that the building was practically new and had no problems. In particular, Charlie told him “the building was in beautiful condition, never had a real problem.” Charlie also said, “[T]his is my baby and I was here from the first day when they put the first brick until the last one. The size—it’s in great condition. There are no major problems . . . . [It is] a perfect building.” Charlie said that “this was a very new building and he had been present at the very beginning of this building and watched it all the way through,” that “[i]t was somewhat of his baby,” and that “it’s a great place to do business.”
Excited, Cartwright signed a lease with the following provisions:
Representations: Tenant acknowledges that neither Landlord nor Landlord’s agents, employees or contractors have made any representations or promises with respect to the Site, the Shopping Center or this Lease except as expressly set forth herein.
Entire Agreement: This lease constitutes the entire agreement between the parties hereto with respect to the subject matter hereof, and no subsequent amendment or agreement shall be binding upon either party unless it is signed by each party….
The Cartwrights began remodeling the property after signing the lease. During this time, the Cartwrights first heard that a severe odor had plagued the previous tenant, BestGrill. A few days later, a former patron stopped by the restaurant and said to “be very careful…. [There] used to be a place called BestGrill here and they used to serve excellent hamburgers, but there was a very, very bad odor.”
Upon hearing these statements, Cartwright contacted Charlie and specifically asked whether Bell’s Grill had experienced an odor problem. Charlie answered that he had been working with the building “all the time,” and that “[n]ever before” had there been a problem—this was the “first time” he heard something was wrong.
A persistent odor materialized a few months later, a week before the planned “soft opening” of the restaurant. A cleanup crew removed a layer of hardened grease that had been blocking the inlet pipe to the grease trap, and a constant foul sewer gas odor became evident immediately. Cartwright then contacted Charlie again because “the odor started to come inside … the restaurant” from the grease trap, which was located outside the restaurant building. Cartwright told Charlie they had a big problem. Charlie acknowledged that he smelled the odor, though he never admitted the same problem had occurred with BestGrill.
Attempts to remedy the persistent sewer gas odor began immediately and continued for months. Cartwright and Charlie inspected the plumbing and seals for leaks. Charlie contacted plumbers who replaced toilet rings in a restroom, installed new roof vents, and examined parts along the bathroom wall corridor. The Cartwrights hired a trusted repair man, who “put [in] some extra pipes [to extend the sewer vents] to maybe get the odor out.” The Cartwrights hired mechanical contractors, who continued efforts to remedy the odor by focusing on the grease trap, including its seals and covers. All of these attempts were unsuccessful.
Due to the odor the restaurant was unable to draw customers. Soon, the City shut down the restaurant following a customer’s complaint to the health department.
Throughout this time, Charlie continually denied knowledge of previous odor problems. However, the Cartwrights soon learned from a former manager of BestGrill that the sewer gas odor was not only present during her tenancy and that attempts to remedy it at the time were also unsuccessful, but that Charlie was aware of the odor at that time because BestGrill regularly complained about the odor to Charlie.
Upon receiving this information, Cartwrights immediately ceased paying rent and closed the restaurant. Cartwright then sued Prizm Properties, its CEO Frank and Charlie, asserting claims for fraud, including both a theory of fraud in the inducement of the lease, as well as fraud based on later misrepresentations. Cartwright further asserted claims for negligent misrepresentation, breach of the implied warranty of suitability, and constructive eviction, and also sought rescission of the lease.
Instructions: Use the FIRAC model to analyze Cartwright’s claim of Fraud against Charlie and Frank. Will this claim be successful? If so, what damages can be recovered?
Within this jurisdiction, the elements of fraud are as follows:
(1) That a material representation was made;
(2) the representation was false;
(3) when the representation was made, the speaker knew it was false or made it recklessly without any knowledge of the truth and as a positive assertion;
(4) the speaker made the representation with the intent that the other party should act upon it;
(5) the party acted in reliance on the representation; and
(6) the party thereby suffered injury.
