The Pennsylvania Courts have had several opportunities to
elaborate on those actions which would constitute fraudulent
behavior and have stated that "fraud consists in anything
calculated to deceive, whether by single act or combination, or
by suppression of truth, or a suggestion of what is false,
whether it be by direct falsehood or by innuendo, by speech or
silence, word of mouth or look or gesture. It is any artifice by
which a person is deceived to his disadvantage." Tunis Brothers
Co., Inc. v. Ford Motor Co., 952 F.2d 715, 731 (3rd Cir. 1991);
Smith v. Renaut, 387 Pa. Super. 299, 305, 564 A.2d 188, 191
(1989), both citing, In re McClellan's Estate, 365 Pa. 401,
407, 75 A.2d 595, 598 (1950) and In re Reichert's Estate,
356 Pa. 269, 274, 51 A.2d 615, 617 (1947). A fraud also occurs when
one is induced to assent when he would not otherwise have done
so. Delahanty v. First Pennsylvania Bank, N.A., 318 Pa. Super. 90,
107, 464 A.2d 1243, 1251-1252 (1983).
Thus, fraud arises where the misrepresentation is knowingly
false, where there is an intentional concealment calculated to
deceive, or where there is a nonprivileged failure to disclose.
Smith v. Renaut, 387 Pa.Super. at 306, 564 A.2d at 192. While a
concealment may constitute fraud, however, mere silence is not
sufficient in the absence of a duty to speak. Id.
Pennsylvania courts analyzing whether there was a duty to speak
rely almost exclusively on the nature of the contract between the
parties and the scope of one party's reliance on the other's
representations; in virtually no Pennsylvania case has a
defendant been held to have a duty to speak when both it and the
plaintiff were sophisticated business entities entrusted with
equal knowledge of the facts. Duquesne Light Co. v.
Westinghouse, 66 F.3d at 612. Where, however, a confidential
relationship may be shown to have existed between a plaintiff and
defendant, the duty to speak may arise. Weisblatt v. Minnesota
Mutual Life Insurance Co., 4 F. Supp.2d 371, 380-381 (E.D.Pa.
Whether a confidential relationship exists is a mixed question
of law and fact and must be determined from all the surrounding
facts and circumstances relevant to the case. Id., at 381,
citing, inter alia, Stewart v. Hooks, 372 Pa. 542, 94 A.2d 756
(1953). Such a relationship may be found where there has been a
showing of (1) a relationship of actual closeness; (2) a
substantial disparity in the parties' positions; and (3) actual
reliance by the settlor on the person in the position of trust.
In this case, again, the record clearly reflects that each of
the plaintiffs had relationships of somewhat long standing with
each of the sales agents from whom they purchased their annuity
policies such that each of them relied upon their respective
agents' expertise for general financial advice and for advice and
counsel in deciding to purchase the defendants' annuities. It
further appears that each of the agents, in turn, relied upon the
sales information, brochures, training and educational materials
which they received either from LifeUSA directly or from such
corporate representatives as Ed Omert and Frank Miller, that they
themselves may have been deceived, or at least confused, by the
materials which they received and that this deception or
confusion was relayed to the plaintiffs. We find that the
plaintiffs had close relationships of
trust with the sales agents and that they relied upon the
misinformation in making their buying decisions. While each of
the plaintiffs appear educated and intelligent, they are clearly
not "sophisticated business entities" such that the disparity
between the parties' positions may be discounted. So saying, we
believe that the agents, as LifeUSA representatives, can be held
to have had a duty to disclose the material facts underlying the
operation of the annuities. We shall therefore allow the
fraudulent non-disclosure claims in Counts II and III to stand.
E. Dismissal of Tort Claims of Plaintiffs Baskin, Compaine and
Maze Under the Economic Loss Rules of Florida and New
Defendants next move for the dismissal of the tort claims of
Rita Baskin, Bruce Compaine and Edward Maze set forth in Counts
II, III and V of the complaint as they are barred by the
"Economic Loss Rules" of Florida and New Jersey.
Under Florida's economic loss doctrine, a party may not raise
tort claims to recover solely economic losses arising from a
breach of contract unless there is evidence of physical injury or
damage to other property. R.A.M. Sourcing Agency, Inc. v.
Seaboard Marine, Ltd., 995 F. Supp. 1465, 1467 (S.D.Fla. 1997).
The economic loss rule normally bars tort recovery in an action
that arises out of contractual relations. Stephens v. Nationwide
Mutual Insurance Co., 722 So.2d 208, 209 (Fla.App. 2 Dist.
1998). Although originally, the rule applied only to products
liability cases, it has been extended to apply to service
contracts as well as to contracts for the purchase of goods.
Casa Clara Condominium Association v. Charley Toppino and Sons,
Inc., 620 So.2d 1244 (Fla. 1993); R.A.M. Sourcing, 995 F. Supp.
The economic loss rule, however, has not eliminated causes of
action based upon torts independent of the contractual breach
even though there exists a breach of contract action. Where a
contract exists, a tort action will lie for either intentional or
negligent acts considered to be independent from acts that
breached the contract. HTP, Ltd. v. Lineas Aereas
Costarricenses, S.A., 685 So.2d 1238, 1239 (Fla. 1996). Thus,
the Florida Courts have held that claims for fraudulent
inducement and negligent misrepresentation are not barred by the
economic loss rule. See: Moransais, 1999 WL 462629 at *9; P.K.
Ventures, Inc. v. Raymond James & Associates, Inc.,
690 So.2d 1296, 1297 (Fla. 1997); HTP, Ltd., 685 So.2d at 1239; Woodson
v. Martin, 685 So.2d 1240 (Fla. 1996); Randolph v. Mitchell,
677 So.2d 976, 977 (Fla.App. 5 Dist. 1996).
New Jersey's law in this area appears similar to that of
Florida. The New Jersey Supreme Court first adopted the economic
loss doctrine barring tort remedies for commercial but not
consumer transactions in Spring Motors Distributors, Inc. v.
Ford Motor Co., 98 N.J. 555, 577-578, 489 A.2d 660, 671-672
(1985) when it held that a commercial buyer seeking damages for
economic loss resulting from the purchase of defective goods may
recover from an immediate seller and a remote supplier in a
distributive chain for breach of warranty under the U.C.C., but
not in strict liability or negligence. See Also: Boyes v.
Greenwich Boat Works, Inc., 27 F. Supp.2d 543, 550 (D.N.J. 1998).
In Alloway v. General Marine Industries, L.P., 149 N.J. 620,
695 A.2d 264 (1997), the doctrine was held applicable to consumer
transactions as well. Boyes, 27 F. Supp.2d at 551.
In New Jersey then, economic loss encompasses actions for the
recovery of damages for costs of repair, replacement of defective
goods, inadequate value, and consequential loss of profits,
including the diminution in value of a product because it is
inferior in quality and does not work for the general purposes
for which it was manufactured and sold. Alloway, 149 N.J. at
627, 695 A.2d at 267.
It appears, however, that the New Jersey Courts are not
comfortable with an economic loss rule which is per se
prohibitive and it is for that reason that numerous exceptions
have been carved out over the years. Among these exceptions, is
one where there exists a "special relationship" between the
alleged tortfeasor and the individual or business deprived of its
economic expectations such as occurs where negligent
misrepresentation is averred resulting in liability for specially
foreseeable economic losses. People Express Airlines, Inc. v.
Consolidated Rail Corporation, 100 N.J. 246, 256-257,
495 A.2d 107, 112 (1985); H. Rosenblum, Inc. v. Adler, 93 N.J. 324,
461 A.2d 138, 143 (1983). See Also: Petrillo v. Bachenberg,
139 N.J. 472, 655 A.2d 1354 (1995); Faktor v. American Biomaterials
Corp., 1991 WL 336922 (D.N.J. 1991).
In light of the foregoing authority and given our previous
findings that the plaintiffs have produced sufficient evidence
that they had relationships of trust with the sales agents upon
whose representations they relied in deciding to purchase
defendant's annuities, we likewise decline to enter summary
judgment in defendant's favor on Counts II, III and V of the
complaint on the basis of the economic loss doctrine.
F. Applicability of Doctrine of Contributory Negligence to Bar
the Negligence and Negligent Misrepresentation Claims of
Plaintiffs Benevento, Krapf, Rosenblum, Compaine and Maze.
Defendant next asserts that under Pennsylvania and New Jersey
law, contributory negligence operates to bar the negligence and
negligent misrepresentation claims of all of the plaintiffs save
Rita Baskin, a Florida resident. We disagree.
Simply, contributory negligence is no longer a valid defense
under New Jersey law given its abrogation by the concept of
comparative negligence. Cordy v. Sherwin Williams Co.,
975 F. Supp. 639, 647 (D.N.J. 1997), citing McGrath v. American
Cyanamid Co., 41 N.J. 272, 276, 196 A.2d 238 (1963); N.J.S.A. §
2A:15-5.1. Although there has been no specific pronouncement from
the New Jersey Supreme Court as to the applicability of
comparative negligence principles in cases such as this one, it
has been held that New Jersey has, de facto, adopted the
comparative negligence doctrine for similar cases involving the
alleged negligence of an insurance broker. Gallelli v.
Professional Insurance Management, 1994 WL 45729 (E.D.Pa. 1994)
The Pennsylvania Superior Court, on the other hand, has held
that the Pennsylvania Comparative Negligence Act, 42 Pa.C.S. §
7102, does not apply to negligence actions where the defendant
failed to procure an insurance policy and failed to notify the
plaintiff that the insurance had not been obtained. Rather, that
Court determined that the doctrine of contributory negligence was
properly applied in those cases and operated to bar the plaintiff
from recovery if his negligence contributed to the result. Rizzo
v. Michener, 401 Pa. Super. 47, 584 A.2d 973, 976 (1990). While
it is unclear whether the Pennsylvania Supreme Court would issue
a ruling consistent with that of the Superior Court, the
existence of negligence and of contributory or comparative
negligence is usually a question to be submitted to the jury upon
proper instructions and the trial court should not remove the
issue unless the facts leave no room for doubt. Rizzo, 584 A.2d
at 976-977 citing, Gallo v. Yamaha Motor Corp., 363 Pa. Super. 308,
424 A.2d 359 (1987); East Texas Motor Freight, Diamond Division v.
Lloyd, 335 Pa. Super. 464, 484 A.2d 797 (1984); Robinson v. City
of Philadelphia, 329 Pa. Super. 139, 148, 478 A.2d 1, 5 (1984).
Accordingly, we shall leave the plaintiffs' negligence and
negligent misrepresentation claims to the jury.
G. Dismissal of Plaintiffs' Claims for Breach of the Duty of
Good Faith and Fair Dealing.
Defendant also moves for the dismissal of plaintiffs' claims
for breach of the duty of good faith and fair dealing on the
grounds that all of the conduct on which plaintiffs' claims are
based occurred prior to the formation of the contracts and are
therefore not actionable.