COUNTERCLAIM FOR FRAUD AND DECEIT AND AFFIRMATIVE DEFENSES

The Further Modification Agreement provided that Ahern was entitled to a share of the royalties of any album completed before October 24, 1984. Had the parties adhered to this provision, Ahern would not be entitled to any moneys from the third album, as it was completed after that date. Instead, Scholz waived the deadline, conveying his waiver through communications between the parties' attorneys in May of 1984. In this action, Scholz drew on his waiver of the deadline in his third counterclaim and several of his affirmative defenses to argue for rescission of the waiver agreement on the grounds of fraud and deceit and, alternatively, its invalidation. On appeal before us, he appeals the district court's directed verdict against him on these claims.

Our standard of review is a familiar one. A motion for judgment as a matter of law "should be granted only when the evidence, and the inferences to be drawn therefrom, viewed in the light most favorable to the nonmovant . . . could lead reasonable persons to but one conclusion." MacQuarrie , 877 F.2d at 128 (quoting Dopico-Fernández v. Grand Union Supermarket , 841 F.2d 11, 12 (1st Cir.), cert. denied , 488 U.S. 864 (1988)). We review the district court's directed verdict de novo . See Fleet Nat'l Bank , 45 F.3d at 552. Accordingly, "'we use the same stringent decisional standards that control the district court.'" Gallagher v. Wilton Enter., Inc. , 962 F.2d 120, 125 (1st Cir. 1992) (quoting Hendricks & Assocs., Inc. v. Daewoo Corp. , 923 F.2d 209, 215 (1st Cir. 1991)).

A. Rescission

In his Third Affirmative Defense and Third Counterclaim, Scholz sought recision of the waiver agreement on the grounds that Ahern fraudulently induced him to enter into the agreement by not disclosing that he had neither accounted for nor paid, since at least 1981, the royalties he owed Scholz under the FMA. Under New York law, applied here pursuant to the FMA choice of law provision, a party seeking to prove common law fraud must show that:

(1) the [cross-]defendant made a material false representation, (2) the [cross-] defendant intended to defraud the [cross-] plaintiff thereby, (3) the [cross-] plaintiff reasonably relied upon the representation, and (4) the [cross-]plaintiff suffered damage as a result of such reliance.

Banque Arabe et Internationale D'Investissement v. Maryland Nat'l Bank , 57 F.3d 146, 153 (2d Cir. 1995) (analyzing elements in context of claim for rescission based on fraud); see also Keywell Corp. v. Weinstein , 33 F.3d 159, 163 (2d Cir. 1994). The first element may be met by demonstrating not only a misrepresentation, but also a concealment or nondisclosure of a material fact. See Allen v. Westpoint-Pepperell, Inc. , 945 F.2d 40, 44 (2d Cir. 1991); Bickhardt v. Ratner , 871 F. Supp. 613, 618 (S.D.N.Y. 1994). In addition, the party claiming fraudulent concealment must demonstrate that the opposing party had a duty to disclose the material information in question and demonstrate each element of the claim by clear and convincing evidence. See Banque Arabe et Internationale , 57 F.3d at 153. We begin our analysis by weighing what duty Ahern owed Scholz, and then turn to the elements listed above, ultimately concluding that the district court erred in directing a verdict.

In the instant case, Scholz argues that Ahern owed Scholz a duty to disclose because he was a fiduciary. See Brass v. American Film Techs. , 987 F.2d 142, 150 (2d Cir. 1993). Ahern contests that at the time the waiver was given in May 1984, the Management Agreement had terminated and so there was no fiduciary duty and, thus, no duty to disclose. "Under New York law, a fiduciary relationship includes 'both technical fiduciary relations and those informal relations which exist whenever one [person] trusts in, and relies upon, another.'" Allen , 945 F.2d at 45 (quoting Penato v. George , 383 N.Y.S.2d 900, 904-05 (N.Y. App. Div. 1976)); see Apple Records, Inc. v. Capitol Records, Inc. , 529 N.Y.S.2d 279, 283 (N.Y. App. Div. 1988) (noting that fiduciary relationship can be found between close friends or where confidence is based upon prior business dealings). "New York courts typically focus on whether one person has reposed trust or confidence in another who thereby gains a resulting superiority or influence over the first." Litton Inds., Inc. v. Lehman Bros. Kuhn Loeb Inc. , 767 F. Supp. 1220, 1231 (S.D.N.Y. 1991), rev'd on other grounds , 967 F.2d 742 (2d Cir. 1992).

Scholz points us to the decision in Apple Records, Inc. v. Capitol Records, Inc. , where the court found that plaintiffs, the New York corporation of the Beatles, stated a claim that a fiduciary relationship existed.

The business dealings between Capitol Records and the Beatles date back to 1962, when the still unacclaimed Beatles entrusted their musical talents to defendant Capitol records. It is alleged that this relationship proved so profitable to defendant that at one point the Beatles constituted 25 to 30 percent of its business. Even after the Beatles attained their remarkable degree of popularity and success, they still continued to rely on Capitol Records for the manufacture and distributing of their recordings. It can be said that from such a long enduring relationship was borne a special relationship of trust and confidence, one which existed independent of the contractual duties, and one which plaintiffs argue was betrayed by fraud . . . .

529 N.Y.S.2d at 283. Like the parties in Apple Records , at the time of the waiver in 1984 Ahern and Scholz had a long history of business dealings, marked by a series of agreements and modification agreements. Also as in that case, the relationship between the parties here was a profitable one for Ahern. However, unlike that case, Ahern no longer, as of several years previously, was Scholz' manager. Indeed, Scholz testified that in 1978, when he first started the process that culminated in the FMA, he was no longer on speaking terms with Ahern. While we do not doubt -- and Ahern admitted at trial -- that Ahern had a fiduciary duty to Scholz until 1981, the question remains whether there was such a special relationship of trust and confidence between the parties at the time of the waiver that a fiduciary relationship, at least as regards Ahern's duty to pay Scholz' share of the royalties from the first and second albums, remained. Since a reasonable juror could find that it did, however, a directed verdict is inappropriate on the question of whether Ahern owed Scholz a fiduciary duty. Therefore, we continue our analysis and turn to the evidence presented on the elements listed above.

First, as for the material false misrepresentation or nondisclosure, it is undisputed that Ahern did not disclose his failure to pay, a fact which a reasonable juror could easily find material. On the other hand, both Ahern and Barbara Sherry ("Sherry"), who provided business management services for Ahern and BOSTON while Ames served as their business manager and served as Ahern's business manager from 1982 up through the time of trial, testified that they were not aware money was owed until after the waiver was made, and Scholz points to no evidence of concealment. Second, Scholz would have us read an intent to deceive into Sherry's testimony agreeing with Engel's statement that today, looking at a royalty statement from the company charged with administrating the publishing, "it's immediately plain to anyone who knows this business, that [the administration company] was not paying" the proper percentage to Scholz. (Day 6, pages 61-62). Scholz cannot rely on this as an admission that Sherry knew Scholz was not receiving all his moneys, however, since her actual testimony was that she did not know of the failure at the time. Instead, he seeks to build on her admission that one could have known from the face of the royalty statements that there was an error, as well as the fact that there was no evidence that letters of direction were prepared for the foreign sub-publishers, to support his contention that Ahern "had to have known" he was not making all his payments. Ahern presented no evidence indicating that he could not have known of the error, just that he did not. In essence, therefore, determining whether Ahern intended to deceive Scholz becomes an issue of credibility, one which of necessity is a question for the jury.