Online Merchant Has No Duty to Protect Victims From Criminal Acts – Seventh Circuit 8.12.14

armslistThe Seventh Circuit recently examined the nature and scope of the legal duty owed by an Internet retailer to prevent a criminal attack on a third party.  In Vesely v. Armslist, LLC, (http://docs.justia.com/cases/federal/appellate-courts/ca7/13-3505/13-3505-2014-08-12.pdf) the plaintiff filed a wrongful death suit on behalf of his sister who was murdered by someone who purchased a handgun on Armslist.com (http://www.armslist.com), an electronic “firearms marketplace” that brokers gun sales between private parties.

The assailant (now serving a life sentence and not party to the civil suit) bought a gun off of Armslist from a private seller in Seattle, Washington.  He later shot the plaintiff’s sister after she spurned his (the gun buyer’s) advances.  Plaintiff sued the website operator, alleging wrongful death (predicated on negligence), statutory survival and a family expense claims.  All of plaintiff’s claims were premised on the allegation that the defendant had a duty to protect third parties from the criminal acts of users of the website.  The District court found there was no duty and granted the defendant’s motion to dismiss (12(b)(6) motion)).  The plaintiff appealed.

Held: Affirmed.  Gun selling site owes no duty to control the conduct of on-line purchasers.

Reasons:

The website operator didn’t owe the plaintiff a duty to protect third parties from the criminal acts of gun buyers.  In Illinois, the essential negligence elements are a duty of care owed by a defendant to the plaintiff, violation of that duty and an injury resulting from the violation.  Breach of duty and proximate cause are fact questions for a jury while the existence of a duty is a matter of law for the court to decide.

A private individual normally doesn’t owe a duty to affirmatively protect another from a criminal attack unless there is a ‘special relationship’ between the parties.  The four categories of special relationships are: (1) common-carrier and passenger (i.e. a train); (2) innkeeper and guest (i.e. hotel); (3) custodian-ward; and (4) business invitor and invitee.  (Armslist, p. 5).

Aside from the special relationship duty rule, courts can find a legal duty on public policy grounds.  The public policy factors that inform the court’s duty calculus are (1) reasonable foreseeability of the injury; (2) likelihood of the injury; (3) the magnitude of the burden of guarding against the injury; and (4) the consequences of placing the burden (of guarding against the injury) on the defendant. (p. 6).

A defendant also has a duty to refrain from “affirmative conduct” that creates a risk of injury to others and from actively assisting someone’s wrongful act.  But where the act that causes harm is criminal conduct (like the murder, here), there must be a special relationship for liability to attach. (p. 6).

The Court found the Armslist web operator had no legal duty to the plaintiff or his sister.  Since the operative act was a crime – a shooting – the special relationship rule applied.  The Court made a distinction between actively assisting gun buyers’ to commit crimes and simply serving as conduit for on-line gun purchases.  Since the defendant merely enabled consumers to use its site to buy guns, this didn’t equate to actively encouraging the buyers to commit illegal acts.  (p. 7).  And since there is no special relationship involving on-line merchants and consumers, there was no duty as a matter of law.

To bolster its holding, the Seventh Circuit noted that the Armslist site is a legal service and that the site contains profuse disclaimers that require the user’s acknowledgement that the defendant isn’t responsible for looking into whether parties to the on-line transaction have legal capacity to buy and sell guns.  Armslist’s standard terms also require the gun advertiser to certify that he/she will obey all applicable gun laws and will consult the ATF with firearms questions. (p. 2).  In light of these disclaimers and because there was no special relationship between Armslist and any of its users’ future crime victims, plaintiff was unable to establish that the defendant website operator owed a legal duty.

Afterwords:

A victory for on-line merchants who traffic in dangerous things and a corresponding  loss for gun control advocates.  The Court refused to saddle a classified advertising site with a legal duty to unknown third parties.  The Court enforced the defendant’s clear disclaimers that emphasized that it was not vetting either the gun seller’s or buyer’s qualifications for gun purchases or any red flags in their personal histories.

The Court solidifies the negligence law proposition that the existence and reach of a duty has limits – especially in the Internet sales context. If there is no recognized special relationship, there is no legal duty to protect against intervening criminal acts.

 

Fraud In the Inducement and Fraudulent Concealment – Illinois Primer

hoodwinkIn Thorne v. Riggs, 2013 IL App (3d) 120244-U (September 3, 2013), the trial court rescinded a real estate contract and the Third District affirmed.  In doing so, the Court examined Illinois fraud in the inducement and fraudulent concealment law and discussed the “special relationship” fiduciary duty rule.

Facts: Plaintiffs sued two LLC members alleging they fraudulently induced them into investing in a realty development.  Plaintiffs claimed the defendants misstated the deal’s status, timing, and whether an easement existed on the property. After trial, the trial court rescinded the contract and ordered defendants to return plaintiffs’ $1.2M investment.

Holding: Appellate Court affirmed trial court.

Reasoning/rules:  Plaintiffs’ fraud claims were premised on defendants’ misrepresentations and concealing material information about the project.

To show fraud in the inducement,  a plaintiff  must show (1) a defendant’s false statement of material fact, (2) known or believed to be false by the defendant; (3) intended to induce the plaintiff to act; (4) plaintiff acted in reliance on the truth of the representation; and (5) resulting damage ¶ 45.

Fraudulent concealment requires a showing that: (1) defendant concealed a material fact under circumstances creating a duty to speak; (2) defendant intended to induce a false belief; (3) plaintiff couldn’t have discovered truth through reasonable inquiry or inspection (or was prevented from doing so); (4) justifiable reliance by the plaintiff; (5) plaintiff would have acted differently if he was aware of the hidden information; and (6) damages. ¶ 62.

A fraudulent concealment plaintiff must also show a fiduciary relationship between him and the defendant.  Fiduciary relationships can exist (a) as a matter of law; or (b) where there is a special or confidential relationship.  The former (as a matter of law) category includes attorneys and clients, principals and agents and partners in a partnership and joint venturers in a joint venture.  Thorne, ¶ 63.

The “special relationship” fiduciary duty rule applies where one party puts trust and confidence in another who stands in a dominant position in terms of age, education, mental status or business acumen. (¶ 64).

Applying these elements, the Court held that the plaintiffs proved fraud in the inducement and fraudulent concealment at trial.

(1) Misrepresentation/concealment: defendants misrepresented status of the project and failed to alert plaintiffs that part of the property was subject to an easement and repurchase agreement (¶¶ 47-63);

(2) Knowledge of falsity – multiple witnesses testified that defendants knew of storm water issues affecting the parcels for several years but never told plaintiffs (¶¶ 52, 57);

(3) Justifiable reliance: defendants controlled the flow of information from the municipality concerning the project’s status.  Defendants divulged only selective information to plaintiffs concerning governmental requirements necessary to complete the project.  The defendants control of information made it reasonable for plaintiffs to rely on defendants.  (¶ 69, 82-83).

The court rejected defendants argument that the information was public record and therefore prevented a finding of justifiable reliance.  The court stressed that plaintiffs were neophyte investors who relied on defendants’ real estate experience.

Another factor relied on by the Court was the absence of record evidence that the easement or the storm water issues were recorded public documents.  (¶ 82).

(4) Fiduciary Duty: while plaintiffs were highly educated, they were real estate novices compared to defendants and completely relied on defendants’ expertise.  This led the Court to sustain the trial court’s “special relationship” fiduciary duty finding.  The Court also found that since defendants controlled the project information they received from the Municipality, they owed plaintiffs a precontractual fiduciary duty.  (¶ 69);

(5) Inducement – there was no other reason for defendants to represent that there were no impediments to plat approval other than to entice plaintiffs to sign the purchase agreement (¶¶ 73-75);

(6) Injury/Damages – plaintiff paid $1.2M for an investment that was promised not to exceed $550,000.  (¶¶ 85-86).

Take-aways: Both plaintiffs had multiple post-graduate degrees.  Still, the court found that they relied on and were in a vulnerable position compared to the defendants, experienced real estate developers.

Thorne also illustrates that where a defendant monopolizes the flow of a deal’s information from outside sources (i.e. a governmental agency), the plaintiff can establish the justifiable reliance prong of his fraud claim.