In Pennsylvania, a prima facie case of fraudulent misrepresentation consists of the following five elements: (1) a misrepresentation, (2) a fraudulent utterance of the misrepresentation, (3) an intention by the maker that the recipient will thereby be induced to act, (4) justifiable reliance by the recipient upon the misrepresentation, and (5) damage to the recipient as a proximate result. Mellon Bank, 951 F.2d at 1409; Snell v. State Examining Board, 490 Pa. 277, 281, 416 A.2d 468, 470 (1980). The trial court must determine whether the plaintiff has presented evidence that "'is sufficiently clear, precise and convincing to make a prima facie case.'" Mellon Bank, 951 F.2d at 1409.
The first element -- a misrepresentation -- is established if the misrepresentation was made knowingly, in conscious ignorance of the truth, or with reckless disregard of the truth or falsity of the statement. Delahanty v. First Pennsylvania Bank, 318 Pa.Super. 90, 107-08, 464 A.2d 1243, 1252 (1993). If the misrepresentation was made innocently, the misrepresentation element is established when the misrepresentation "related to a matter material to the transaction involved." Id., 318 Pa.Super. at 108, 464 A.2d at 1252. Accord, Hughes v. Consol-Pennsylvania Coal Co., 945 F.2d 594, 614 (3rd Cir. 1991); Smith v. Renaut, 387 Pa.Super. 299, 305-06, 564 A.2d 188, 192 (Pa. Super. Ct. 1989). As explained in Boyle v. Odell, 413 Pa. Super. 562, 569-70, 605 A.2d 1260 (1992) innocently providing false information that is material to the transaction may be actionable if the defendant had the ability to know the truth before making the representation. A matter is material to the transaction when it is of such a character that it determines whether the transaction occurs. See Delahanty, 318 Pa.Super. at 107-08, 464 A.2d at 1252.
There is no dispute in the matter sub judice that Kmart repeatedly represented that it would take action necessary to begin construction of the food store. There is also no dispute that Kmart repeatedly failed to honor these assurances. What the parties do dispute is whether the representations of future performance were false when made. Kmart relies upon self-serving declarations of those persons who made the representations. Fox's relies upon evidence supporting the existence of motives for Kmart to delay construction of the food store or to attempt to induce Fox's to cancel the lease. For example, a former Kmart employee testified during deposition that the Fox's lease presented "a break-even deal, not a great deal but a break-even deal" for Kmart. (Dkt. Entry # 25 at 60.) In September of 1990 and in the spring of 1991, Kmart approached Fox's in order to negotiate an increase in rent for the Fox's location, which, as explained above, was not yet constructed. (Dkt. Entry # 25 at 41-43; Dkt. Entry # 27 at 106-08; Dkt. Entry # 37 at Ex. "F.") Leroy Fox testified that in attempting to negotiate a rent increase, Kmart representatives indicated that Kmart could not "construct it under the present lease." (Dkt. Entry # 27 at 107.) A Kmart representative indicated during deposition testimony that there had been some interest expressed" by other "prospects" in the Fox's location. (Dkt. Entry # 26 at 120. See Dkt. Entry # 37 at Ex. "H," pg. 19-20.) Evidence exists in the record that Kmart's real estate broker had been contacted by Fox's competitors interested in the Fox's location. (Dkt. Entry # 26 at 118-20.) Evidence also exists in the record to indicate that Kmart intended to coordinate construction of the Fox's store with other small retail stores in the shopping center and that the construction needs for those small stores did not coordinate with the relevant deadline dates of the Fox's lease. (Dkt. Entry # 23 at 185-87; Dkt. Entry # 26 at 125-26.)
Under these circumstances, the question of whether Kmart intentionally misrepresented its intentions cannot be resolved on a summary judgment motion.
Sufficient evidence has also been presented on the question of whether Kmart's representations were made in conscious ignorance of the truth or recklessly without caring whether they were true or false. See Browne v. Maxfield, 663 F. Supp. 1193, 1202 (E.D.Pa. 1987); Briggs v. Erie Ins. Group, 406 Pa.Super. 560, 568, 594 A.2d 761, 764 (1991). Although Kmart argues that because Kmart representatives "never intended to mislead anyone," the alleged misrepresentations "do not rise to the level. . . of 'fraudulently uttered misrepresentations'" (Def.'s Br. Supp. Mot. Summ. J. at 27), sufficient evidence of ongoing promises made by Kmart representatives exists for a jury to believe that they were made in conscious ignorance of the truth or recklessly without caring whether they were true or false.
Sufficient evidence also exists to show that Kmart intended to induce Fox's to act on the basis of the misrepresentations. The very fact that the delays brought Fox's closer to the election between a time extension or cancellation, which Kmart argues Section 5.6 required and which Kmart may have desired, would allow a jury to find intent.
Fox's reliance on Kmart's representations cannot be said, as a matter of law, to have been unreasonable. Although Kmart argues that Fox's cannot show "that it did anything differently to its detriment because of any alleged representations by Kmart" (Def.'s Br. Supp. Mot. Summ. J. at 30), Fox's may establish justifiable reliance and damages resulting from decisions to not pursue opportunities to construct stores at other locations as a result of Kmart's misrepresentations. (Pl.'s Br. Opp. Mot. Summ. J. at 47.)
Kmart argues that its promises, even if knowingly false when made, cannot support a fraud claim since they relate to existing contractual obligations. (Def.'s Br. Supp. Summ. J. at 23.) Citing Bash v. Bell Telephone Co., 411 Pa.Super. 347, 601 A.2d 825 (1992), Kmart claims that "Fox's cannot ground a fraud claim on Kmart's representation that it would do what it was obligated to do under the Lease." (Br. Supp. at 25 (emphasis in original).) In Bash, a customer, alleging fraud, sued a telephone company for failure to publish the customer's advertisement in the company's yellow pages directory. 411 Pa.Super. at 350. In noting that the customer's pleading failed to allege specific facts in support of the fraud element requiring intent to induce, the court explained that the "breach of a promise to do something in the future is not fraud." Id., 411 Pa.Super at 361. The court also explained that an "unperformed promise does not give rise to a presumption that the promisor intended not to perform when the promise was made." Id. Consequently, because the customer merely alleged that the company "represented that it would perform pursuant to the terms of the advertising contract, and failed to use reasonable care in ensuring its performance of those terms," the customer's fraud claim failed. Id., 411 Pa.Super. at 360-61. In contrast to Bash, which involved a mere unperformed promise, sufficient evidence exists in this record for a jury to believe that Kmart intended "not to perform when the promise was made." Id. Furthermore, Kmart's assurances were made after Fox's gave notice of default under the Lease, and may thus be viewed as intending to induce Fox's to delay asserting contractual rights.
Finally, Fox's alleges that "Kmart failed and omitted to state" certain statements when Fox's was under "a duty to make such statement" and knew that "Fox's was relying upon the completeness, accuracy and truthfulness of Kmart's representations." (Amend. Compl. (Dkt. Entry # 33) at P 31.) Those allegedly omitted statements by Kmart included, inter alia, that Kmart did not intend to construct the Fox's store until Kmart's own store and other stores in the project were constructed, that Kmart delayed construction of the Fox's store in order to divert resources to other projects to which Kmart assigned higher priorities, and that Kmart delayed construction of the Fox's store "until a sufficient number of tenants for the small shops could be identified and their construction needs determined." (Pl.'s Br. Opp. Mot. Summ. J. at 9-10.)
In arguing for summary judgment with respect to this claim, Kmart cites Sevin v. Kelshaw, 417 Pa.Super. 1, 9, 611 A.2d 1232, 1236 (1992), (Br. Supp. Mot. Summ. J. at 31), in which the Sevin court, citing Smith v. Renaut, 387 Pa.Super. 299, 306, 564 A.2d 188, 192 (1989), explained that mere "silence in the absence of a duty to speak. . . cannot suffice to prove fraudulent concealment." Citing 37 C.J.S. Fraud § 15, the court in Smith explained that although "concealment may constitute fraud, . . . mere silence is not sufficient in the absence of a duty to speak." 564 A.2d at 192. Kmart thus argues that it is not liable for a fraudulent omission because it had no "confidential or fiduciary relationship with Fox's" and only such a relationship would create a duty to speak. (Def.'s Br. Supp. Mot. Summ. J. at 36-37.)
Kmart's argument ignores the fact that "the suppression of a material fact which a party is bound in good faith to disclose is equivalent to a false misrepresentation." 37 C.J.S. Fraud § 16 (a) (footnotes omitted). "If the fact concealed is peculiarly within the knowledge of one party and of such a nature that the other party is justified in assuming its nonexistence, there is a duty of disclosure, and deliberate suppression of such fact is fraud." 37 C.J.S. Fraud § 16(b) (footnotes omitted). It also "is a well established rule that deliberate nondisclosure of a material fact amounts to culpable misrepresentation no less than an intentional false affirmation." Marian Bank v. Intern. Harvester Credit Corp., 550 F. Supp. 456, 461 (E.D.Pa. 1982), aff'd, 725 F.2d 669 (3rd Cir. 1983). Kmart's argument, therefore, must fail, as there are sufficient facts for a jury to believe that Kmart suppressed "a material fact which [Kmart was] bound in good faith to disclose." 37 C.J.S. Fraud § 16(a).
Kmart also cites City of Harrisburg v. Bradford Trust Co., 621 F. Supp. 463 (M.D.Pa. 1985)(Rambo, J.), to argue for summary judgment with respect to Fox's fraudulent omission claim. (Br. Supp. Mot. Summ. J. at 31.) In City of Harrisburg, the court addressed a plaintiff's allegation that the defendant not only committed common law fraudulent omission, but also committed a fraudulent omission in violation of Rule 10b-5, which is an antifraud provision promulgated under Section 10-5 of the Securities and Exchange Act, 15 U.S.C. § 78k(b).
City of Harrisburg concerned a plaintiff who purchased securities from a Florida corporation pursuant to a "repurchase agreement," whereby the corporation would repurchase the securities from the plaintiff at a future date. 621 F. Supp. at 466. Because the defendant acted as a clearing agent for the securities, the plaintiff alleged that the defendant's failure to disclose to the plaintiff "that it was or would become a substantial creditor of [the corporation selling the securities] thereby [created] a conflict of interest with its duties as a fiduciary." The court observed:
In general, an omission is actionable only when there is an independent duty to disclose the omitted information. 'Mere bystanders, even if aware of the fraud, cannot be held liable for inaction since they do not. . . associate themselves with the venture or participate in it as something they wish to bring about. Such an independent duty exists, for example, where the party who is alleged to be under an obligation to disclose stands in a fiduciary relationship to the party seeking to disclose. . . . Finally, even without a fiduciary relationship or another independent duty to speak, an omission may be actionable 'where the defendant has revealed some relevant, material information even though he had no duty (i.e., a defendant may not deal in half-truths). Id., 621 F. Supp. at 473 (citations omitted).