Easterbrook, Circuit Judge. Gerald Rissman formed TigerElectronics to make toys and games. In 1979 Gerald gave his sonsArnold, Randall, and Samuel large blocks of stock in the firm:Gerald kept 400 shares and gave Randall 400, Arnold 100, and Samuel100. In 1986 both Gerald and Samuel withdrew from the venture.Tiger bought Gerald’s stock, and Arnold bought Samuel’s, leavingRandall with 2/3 of the shares and Arnold with the rest. Randallmanaged the business while Arnold served as a salesman. Arnold didnot elect himself to the board of directors, though Tiger employedcumulative voting, which would have enabled him to do so. When the brothers had a falling out, Arnold sold his shares to Randall for$17 million. Thirteen months later, Tiger sold its assets(including its name and trademarks) for $335 million to Hasbro,another toy maker, and was renamed Lion Holdings. Arnold contendsin this suit under the federal securities laws (with state-lawclaims under the supplemental jurisdiction) that he would not havesold for as little as $17 million, and perhaps would not have soldat all, had Randall not deceived him into thinking that Randallwould never take Tiger public or sell it to a third party. Arnoldsays that these statements convinced him that his stock wouldremain illiquid and not pay dividends, so he sold for whateverRandall was willing to pay. Arnold now wants the extra $95 millionhe would have received had he retained his stock until the sale toHasbro. Because the district judge granted summary judgment to thedefendants, see 1999 U.S. Dist. Lexis 10611 (N.D. Ill.), we mustassume that Randall told Arnold that he was determined to keepTiger a family firm. Likewise we must assume that Randall secretlyplanned to sell after acquiring Arnold’s shares. But we need notassume that Arnold relied on Randall’s statements (equivalently,that the statements were material to and caused Arnold’s decision),and without reliance Arnold has no claim under sec. 10(b) or Rule10b-5. See 15 U.S.C. sec. 78j(b); 17 C.F.R. sec. 240.10b-5; Basic,Inc. v. Levinson, 485 U.S. 224, 243 (1988). Arnold asked Randall toput in writing, as part of the agreement, a representation thatRandall would never sell Tiger. Randall refused to make such a representation. Instead he warranted (accurately) that he was notaware of any offers to purchase Tiger and was not engaged innegotiations for its sale. Contrast Jordan v. Duff & Phelps, Inc.,815 F.2d 429 (7th Cir. 1987). The parties also agreed that if Tigerwere sold before Arnold had received all installments of thepurchase price, then payment of the principal and interest would beaccelerated. Having sought broader assurances, and having beenrefused, Arnold could not persuade a reasonable trier of fact thathe relied on Randall’s oral statements. See Karazanos v. MadisonTwo Associates, 147 F.3d 624, 628-31 (7th Cir. 1998). Having signedan agreement providing for acceleration as a consequence of sale,Arnold is in no position to contend that he relied on theimpossibility of sale. Indeed, Arnold represented as part of the transaction that hehad not relied on any prior oral statement: The parties further declare that they have not relied upon anyrepresentation of any party hereby released [Randall] or of theirattorneys [Glick], agents, or other representatives concerning thenature or extent of their respective injuries or damages. That is pretty clear, but to foreclose quibbling Arnold made thesewarranties to Randall: (a) no promise or inducement for this Agreement has been made tohim except as set forth herein; (b) this Agreement is executed by[Arnold] freely and voluntarily, and without reliance upon anystatement or representation by Purchaser, the Company, any of theAffiliates or O.R. Rissman or any of their attorneys or agentsexcept as set forth herein; (c) he has read and fully understandsthis Agreement and the meaning of its provisions; (d) he is legallycompetent to enter into this Agreement and to accept fullresponsibility therefor; and (e) he has been advised to consultwith counsel before entering into this Agreement and has had theopportunity to do so. Arnold does not contend that any representation in the stockpurchase agreement is untrue or misleading; his entire case restson Randall’s oral statements. Yet Arnold assured Randall that hehad not relied on these statements. Securities law does not permita party to a stock transaction to disavow such representations–tosay, in effect, “I lied when I told you I wasn’t relying on yourprior statements” and then to seek damages for their contents.Stock transactions would be impossibly uncertain if federal lawprecluded parties from agreeing to rely on the written word alone.”Without such a principle, sellers would have no protection againstplausible liars and gullible jurors.” Carr v. CIGNA Securities,Inc., 95 F.3d 544, 547 (7th Cir. 1996). Two courts of appeals have held that non-reliance clauses inwritten stock-purchase agreements preclude any possibility ofdamages under the federal securities laws for prior oralstatements. Jackvony v. RIHT Financial Corp., 873 F.2d 411 (1stCir. 1989) (Breyer, J.); One-O-One Enterprises, Inc. v. Caruso, 848F.2d 1283 (D.C. Cir. 1988) (R.B. Ginsburg, J.). Several of thiscircuit’s opinions intimate agreement with these decisions, thoughwe have yet to encounter a situation squarely covered by them. SeeSEC v. Jakubowski, 150 F.3d 676, 681 (7th Cir. 1998); Pommer v.Medtest Corp., 961 F.2d 620, 625 (7th Cir. 1992); Astor ChauffeuredLimousine Co. v. Runnfeldt Investment Corp., 910 F.2d 1540, 1545-46(7th Cir. 1990). Jackvony and One-O-One fit Arnold’s claim like aglove, and we now follow those cases by holding that a writtenanti-reliance clause precludes any claim of deceit by priorrepresentations. The principle is functionally the same as adoctrine long accepted in this circuit: that a person who hasreceived written disclosure of the truth may not claim to rely oncontrary oral falsehoods. See Carr and, e.g., Associates InAdolescent Psychiatry, S.C. v. Home Life Insurance Co., 941 F.2d561, 571 (7th Cir. 1991); Dexter Corp. v. Whittaker Corp., 926 F.2d617, 620 (7th Cir. 1991); Teamsters Local 282 Pension Trust Fund v.Angelos, 762 F.2d 522, 530 (7th Cir. 1985). A non-reliance clauseis not identical to a truthful disclosure, but it has a similarfunction: it ensures that both the transaction and any subsequentlitigation proceed on the basis of the parties’ writings, which areless subject to the vagaries of memory and the risks offabrication. Memory plays tricks. Acting in the best of faith, people may”remember” things that never occurred but now serve theirinterests. Or they may remember events with a change of emphasis ornuance that makes a substantial difference to meaning. Express orimplied qualifications may be lost in the folds of time. Astatement such as “I won’t sell at current prices” may be recalledyears later as “I won’t sell.” Prudent people protect themselvesagainst the limitations of memory (and the temptation to shade thetruth) by limiting their dealings to those memorialized in writing,and promoting the primacy of the written word is a principalfunction of the federal securities laws. Failure to enforce agreements such as the one between Arnoldand Randall could not make sellers of securities better off in thelong run. Faced with an unavoidable risk of claims based on oralstatements, persons transacting in securities would reduce theprice they pay, setting aside the difference as a reserve for risk.If, as Arnold says, Randall was willing to pay $17 million and nota penny more, then a legal rule entitling Arnold to an extra $95million if Tiger should be sold in the future would have scotchedthe deal (the option value of the deferred payment exceeds 1�),leaving Arnold with no cash and the full risk of the venture.Arnold can’t have both $17 million with certainty and a continuingright to 1/3 of any premium Randall negotiates for the firm, whilebearing no risk of loss from the fickle toy business; that wouldmake him better off than if he had held his shares throughout. Negotiation could have avoided this litigation. Instead oftaking the maximum Randall was willing to pay unconditionally,Arnold could have sought a lower guaranteed payment (say, $10million) plus a kicker if Tiger were sold or taken public. Becauserandom events (or Randall’s efforts) would dominate Tiger’sprosperity over the long run, the kicker would fall with time.Perhaps Arnold could have asked for 25% of any proceeds on a salewithin a year, diminishing 1% every other month after that (so thatRandall would keep all proceeds of a sale more than 62 months afterthe transaction with Arnold). Many variations on this formula werepossible; all would have put Randall to the test, for if he reallyplanned not to sell, the approach would have been attractive to himbecause it reduced his total payment. Likewise it would have beenattractive to Arnold if he believed that Randall wanted to sell assoon as he could receive more than 2/3 of the gains. Yet Arnoldnever proposed a payment formula that would share the risk (andrewards) between the brothers, and the one he proposes after thefact in this litigation–$17 million with certainty and a perpetualright to 1/3 of any later premium–is just about the only formulathat could not conceivably have been the outcome of bargaining. Arnold calls the no-reliance clauses “boilerplate,” and theywere; transactions lawyers have language of this sort stored up forreuse. But the fact that language has been used before does notmake it less binding when used again. Phrases become boilerplatewhen many parties find that the language serves their ends. That’sa reason to enforce the promises, not to disregard them. Peoplenegotiate about the presence of boilerplate clauses. The sort ofno-reliance clauses that appeared in the Rissmans’ agreement weremissing from other transactions, such as the ones in AstorChauffeured Limousine and Acme Propane, Inc. v. Tenexco, Inc., 844F.2d 1317 (7th Cir. 1988). Still other transactions, such as theone discussed in LHLC Corp. v. Cluett, Peabody & Co., 842 F.2d 928(7th Cir. 1988), include “strict reliance” clauses, entitling oneparty to rely on every representation ever made by the other.Arnold could have negotiated for the elimination of the no-relianceclauses, or the inclusion of a strict-reliance clause, but inexchange he would have had to accept a price lower than $17million. Judges need not speculate about the reason a clauseappears or is omitted, however; what matters when litigation breaksout is what the parties actually signed. Contractual language serves its functions only if enforcedconsistently. This is one of the advantages of boilerplate, whichusually has a record of predictable interpretation and application.If as Arnold says the extent of his reliance is a jury questioneven after he warranted his non-reliance, then the clause has beennullified, and people in Arnold’s position will be worse offtomorrow for reasons we have explained. Rowe v. Maremont Corp., 850F.2d 1226 (7th Cir. 1988), on which Arnold principally relies, doesnot assist him. Maremont contended that as a matter of law no oralrepresentations survive a written contract; we rejected thatconclusion in Rowe, 850 F.2d at 1234, and again in AstorChauffeured Limousine, but in neither Rowe nor Astor ChauffeuredLimousine had the parties included a no-reliance warranty in theirwritten agreement. Arnold, by giving Randall such a warranty, puthimself in a different position. Only one case offers Arnold even a glimmer of support:Contractor Utility Sales Co. v. Certain-Teed Products Corp., 638F.3d 1061, 1083 (7th Cir. 1981), concluded that an integrationclause did not preclude reliance on prior fraudulent statementsunder the common law of Pennsylvania. To the extent that ContractorUtility Sales rests on a belief that state law allocates issuesbetween judge and jury in diversity litigation (for the opinioncites only state cases in the critical passages), it has beenovertaken by subsequent decisions. See Mayer v. Gary Partners &Co., 29 F.3d 330 (7th Cir. 1994) (overruling a line of cases thatapplied state law to determine which issues must be presented tojuries). To the extent that Contractor Utility Sales states aproposition of federal practice, it does not extend beyond simpleintegration clauses–and must be deemed of doubtful validity evenwith respect to them, given the wealth of later decisions such asJackvony, One-O-One, Angelos, and Carr. But we need not decidewhether this aspect of Contractor Utility Sales is sound, for theagreement between Arnold and Randall contained the clauses set outabove, in addition to an integration clause. Perhaps the partiesadded the language to make sure that Contractor Utility Sales couldnot be used to upset their deal. No matter their motives, however,their language forecloses any damages based on oralrepresentations. In order to get anywhere, Arnold must rid himself of theno-reliance clauses, and to this end he argues that the entirestock-sale agreement is voidable because signed under duress. Theparties agree that Illinois law supplies the definition of duress.Arnold contends that he signed under duress because: Randall threatened to fire him from his job at Tiger. His stock was illiquid and worthless unless Randall couldbe persuaded to buy it (or to sell Tiger), and Randall threatenednever to buy the stock if Arnold caused trouble. He feared that Randall would cause Tiger to stopreimbursing the shareholders for taxes that had to be paid onTiger’s profits. (Tiger became a Subchapter S corporation in 1991,so its profits were taxable to the shareholders. Part of the 1991agreement required Tiger to distribute dividends equal to theshareholders’ tax obligations, and Arnold professes fear thatRandall would not honor this commitment.) Late in 1996 Randall caused Tiger to eliminate cumulativevoting, depriving Arnold of the entitlement to elect himself to theboard. Glick told Arnold that he would be subject to penaltiesif he revealed confidential information to third parties in orderto stir up acquisition bids. Tiger filed suit against Arnold in an Illinois court toresolve a dispute about Arnold’s right to review Tiger’s corporaterecords. Randall (according to Arnold) threatened to “drag himthrough the courts forever” unless Arnold sold his stock. The district court concluded that none of these assertions callsinto question the validity of the agreement under Illinois law, andwe agree. Illinois defines duress as “a condition where one is inducedby a wrongful act or threat of another to make a contract undercircumstances which deprive him of the exercise of his free will”.Curran v. Kwon, 153 F.3d 481, 489 (7th Cir. 1998), quoting fromKaplan v. Kaplan, 25 Ill. 2d 181, 185, 182 N.E.2d 706, 709 (1962).The essential question is whether a “threat has left the individualbereft of the quality of mind essential to the making of acontract.” Kaplan, 25 Ill. 2d at 186, 182 N.E.2d at 709. Arnold wasof sound mind and readily could understand his options. He hadlegal and financial advice–and, despite what Arnold now says, hehad many alternatives to the sale. He could, for example, havedissented from the decision to eliminate cumulative voting anddemanded that Tiger repurchase his stock at a price to be set by aneutral appraiser. 805 ILCS 5/11.65(a)(3)(iii), 5/11.70. This washis absolute right; it did not depend on demonstrating thatelimination of cumulative voting was “oppressive” or the like. Ifhe thought $17 million too low, he had only to present thatposition to the state judiciary. Likewise with his fear that Tigerwould stop distributing the money necessary to cover taxes on itsprofits. Tiger’s failure to keep its promises would have led to aremedy in state court, and Arnold’s lawyers surely could haveinformed him that although litigation (including the records-accesssuit then under way) may seem to last “forever,” it ends muchfaster. At oral argument Arnold’s lawyer said that Arnold wanted toavoid risk; after all, the appraisal might have concluded that hisstock was worth less than $17 million. True enough; many sensiblepeople want to curtail risk (and all litigation is risky); but thatobjective could not be achieved if courts refused to enforceagreements like the one between Arnold and Randall, for thenlitigation would be the only way to resolve disputes. No legalsystem can accept an assertion that “this contract was signed underduress because my only alternative was a lawsuit.” That wouldeliminate settlement–and to a substantial degree the institutionof contract itself. This is not to say that a remote possibility of litigation asan alternative to settlement always scotches a claim of duress.Illinois uses formulaic words such as “free will,” but when forcedto choose it applies a functional approach under whichopportunistic exploitation of options that contracts were designedto foreclose equals duress. The party that performs first incurssunk costs, which the other may hold hostage by demanding greatercompensation in exchange for its own performance. The movie starwho sulks (in the hope of being offered more money) when productionis 90% complete, and reshooting the picture without him would beexceedingly expensive, is behaving opportunistically. The classiccase, though not from Illinois, is Alaska Packers’ Ass’n v.Domenico, 117 F. 99 (9th Cir. 1902) (admiralty). After a fishingvessel reached a remote location, the crew refused to work (andthreatened to sail home) unless paid double the wage to which theyhad agreed immediately before leaving port. The court held that thevessel owner’s promise to double the wage was unenforceable becauseobtained under duress: the remote location and lack of an alternatecrew had enabled the sailors to behave opportunistically. See alsoVarouj A. Aivazian, Michael J. Trebilcock & Michael Penny, The Lawof Contract Modifications: The Uncertain Quest for a Benchmark ofEnforceability, 22 Osgoode Hall L.J. 173 (1984); Timothy J. Muris,Opportunistic Behavior and the Law of Contracts, 65 Minn. L. Rev.521 (1981). No one would have thought that the owner’s ability tofile a lawsuit could have helped; the fishing season would be overbefore the case could be adjudicated, and the seamen might havebeen judgment-proof anyway. Illinois cases holding that particularagreements were made under duress because litigation was not afeasible alternative are in the same vein. See People ex rel.Carpentier v. Daniel Hamm Drayage Co., 17 Ill. 2d 214, 161 N.E.2d318 (1959); Kaplan v. Keith, 60 Ill. App. 3d 804, 377 N.E.2d 279(1st Dist. 1978). But for Arnold litigation (especially anappraisal action under which a state court would have compelledTiger to buy his shares for their full value) would have been asensible option. People under indictment for murder, and facing the deathpenalty, may settle their dispute and avoid the risk with a guiltyplea and a term of imprisonment. North Carolina v. Alford, 400 U.S.25 (1970). People facing discharge at an advanced age may agree toearly retirement and resolve their dispute with a severancepackage. See Henn v. National Geographic Society, 819 F.2d 824 (7thCir. 1987). Neither the criminal defendant nor the older worker mayaccept the benefits of the bargain and later seek to avoid thedetriments on the theory that unpleasant options mean duress. Ineach situation litigation offers a civilized, and proper,alternative: the innocent person may stand trial, and the workermay pursue a claim under the ADEA. Arnold could have litigated butchose to settle instead. If people in Arnold’s position can’tassure their antagonists that a settlement will bring peace, thenthere will be many fewer settlements, and those that still occurwill be concluded on altered terms. Randall would not have paid $17million had he thought that Arnold remained free to carry on theirdisputes–to drag Randall through the courts forever.The agreement between Randall and Arnold contains a globalsettlement and release. Our conclusion that the agreement is validmeans that the agreement extinguishes all of Arnold’s claims, underboth state and federal law. Affirmed ROVNER, Circuit Judge, concurring. I join in the majorityopinion, and agree that under the facts of this case, thenon-reliance clause precludes damages for the prior oralstatements. I write separately only to explain further the basisfor, and scope of, that holding. As the majority opinion notes, ourholding follows that of the courts of appeals in Jackvony v. RIHTFinancial Corp., 873 F.2d 411 (1st Cir. 1989) (Breyer, J.) andOne-O-One Enterprises, Inc. v. Caruso, 848 F.2d 1283 (D.C. Cir.1988) (R.B. Ginsburg, J.). The reasoning in those cases, as well asother cases in this court, reveals that all circumstancessurrounding the transaction are relevant in determining whetherreliance on prior oral statements can be deemed reasonable. Thus,although it may be determinative in many–and perhaps most–cases,the existence of a non-reliance clause will not automaticallypreclude damages for prior oral statements. In Jackvony, the First Circuit set forth eight factors thatare relevant in determining whether an investor’s reliance on priorstatements was reasonable: (1) the sophistication and expertise ofthe plaintiff in financial and securities matters; (2) theexistence of long standing business or personal relationships; (3)access to the relevant information; (4) the existence of afiduciary relationship; (5) concealment of the fraud; (6) theopportunity to detect the fraud; (7) whether the plaintiffinitiated the stock transaction or sought to expedite thetransaction; and (8) the generality or specificity of themisrepresentations. 873 F.2d at 416. The court then held that thereliance on the prior statements in Jackvony was unreasonablebecause the prior statements were vague, Jackvony was asophisticated investor, the written proxy statement instructedJackvony not to rely on any other statements, Jackvony seemedanxious to expedite the transaction, and Jackvony helped draft thewritten acquisition documents. Thus, the Jackvony court did nothold that a non-reliance statement precludes a fraud claim in allcases, but notes that it is a factor that may defeat a claim ofreliance. Similarly, the D.C. Circuit in One-O-One, in holding that anintegration clause rendered reliance on prior representationsunreasonable, set forth the context in which that written agreementwas reached. Specifically, the court noted that the parties reachedthe written agreement after eight months of vigorous negotiationsinvolving many offers, promises and representations, and that theintegration clause was included to avoid misunderstandings as towhat was agreed upon in the course of those extensive negotiations.848 F.2d at 1286. The court also rejected the plaintiffs’ claim offraud in the inducement based on the circumstances present in thatparticular case, holding that “[w]e have here the case of ‘a partywith the capacity and opportunity to read a written contract, who[has] execute[d] it, not under any emergency, and whose signaturewas not obtained by trick or artifice;’ such a party, if the parolevidence rule is to retain vitality, ‘cannot later claim fraud inthe inducement.’” Id. at 1287, quoting Management Assistance, Inc.v. Computer Dimensions, Inc., 546 F. Supp. 666, 671-72 (N.D. Ga.1982 ___, aff’d mem. sub nom. Computer Dimensions, Inc. v. BasicFour, 747 F.2d 708 (11th Cir. 1984). In fact, in Whelan v. Abell,48 F.3d 1247, 1258 (D.C. Cir. 1995), the court explicitlyrecognized that the conclusion in One-O-One “was plainly notintended to say that an integration clause barsfraud-in-the-inducement claims generally or confines them to claimsof fraud in execution. . . . Such a reading would leave swindlersfree to extinguish their victims’ remedies simply by sticking in abit of boilerplate.” Id. Thus, both Jackvony and One-O-One recognize that courts mustconsider all of the surrounding circumstances in determiningwhether reliance on a prior oral settlement is reasonable, and thatthe existence of a non-reliance clause is but one factor, albeit afairly convincing one in many cases. This is also consistent withour decision in Carr v. CIGNA Securities, Inc., 95 F.3d 544, 547(7th Cir. 1996), which held that “[i]f a literate, competent adultis given a document that in readable and comprehensible prose saysX . . . and the person who hands it to him tells him, orally, notX . . . our literate competent adult cannot maintain an action forfraud against the issuer of the document.” In discussingdisclaimers in the context of a fiduciary relationship, Carr notedthat a written disclaimer may not provide a safe harbor in everycase, because “[n]ot all principals of fiduciaries are competentadults; not all disclaimers are clear; and the relationshipinvolved may involve such a degree of trust invited by andreasonably reposed in the fiduciary as to dispel any duty ofself-protection by the principal.” Id. at 548. The reasonablenessof the reliance thus depends on an analysis of the surroundingcircumstances. Just as it would be unreasonable to expect a personto pore through a 427 page document looking for “nuggets ofintelligible warnings,” a person may not claim reasonable reliancewhen a written disclaimer is apparent in an eight page document.Id. This is nothing new. The issue of reasonable reliance hasalways depended upon an analysis of all relevant circumstances. Iwrite separately merely to avoid the inevitable quotes in futurebriefs characterizing our holding as an automatic rule precludingany damages for fraud based on prior oral statements when anon-reliance clause is included in a written agreement. The worldis not that simple, and our holding today cannot be interpreted sosimplistically. On the facts in this case, involving extensivenegotiations aided by counsel and with numerous rejections ofefforts to include the oral representations in the writtenagreement, the non-reliance clause rendered any reliance on theprior statements unreasonable.
Rissman v. Rissman In the United States Court of Appeals For the Seventh Circuit No. 99-2719 Arnold R. Rissman, Plaintiff-Appellant, v. Owen Randall Rissman and Robert Dunn Glick,Defendants-Appellees. Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 98 C 3656–Blanche M. Manning, Judge. Argued April 7, 2000–Decided May 23, 2000 Before Bauer, Easterbrook, and Rovner, Circuit Judges.
