United States District Court, E.D. Pennsylvania
July 19, 2004.
LONGVIEW DEVELOPMENT LP,
THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
The opinion of the court was delivered by: HERBERT HUTTON, District Judge
MEMORANDUM AND ORDER
Currently before the Court are Defendants's Motion for Partial
Judgment on the Pleadings (Docket No. 13) and Plaintiff's Answer
thereto (Docket Nos. 14 & 15).
On February 22, 2001, Plaintiff Longview Development LP
("Longview") and Defendant The Great Atlantic and Pacific Tea
Company, Inc. ("A&P") entered into a contract in which A&P agreed
to sell to Longview property located at Baltimore Pike and Union
Avenue in Upper Darby, Pennsylvania. A&P operated a supermarket
there and Longview planned to either sell or lease the property
to another supermarket operator.
Before the contract was signed, Longview alleges that A&P
represented that the sale of the property would not conflict with
any other agreement to which A&P was a party. A&P's
representation was memorialized in the contract.*fn1
Nonetheless, on July 13, 2001, Longview learned that the United Food and Commercial Workers
Union ("Union") had a right of first refusal to purchase the
property under a collective bargaining agreement with A&P. On
July 18, 2001, the Union filed a grievance regarding the sale of
the property as a result of A&P's failure to honor the Union's
right of first refusal. Longview and A&P thereafter amended their
agreement to extend the due diligence period to allow A&P to
resolve the Union's grievance. A&P never conveyed the property to
Longview alleges that A&P's pre-contractual representation that
A&P's right to sell the property was unencumbered constitutes
fraud. Longview further alleges that at the time A&P made the
representation, A&P knew that the Union had a right of first
refusal. Longview believes that A&P intentionally concealed the
existence of the Union's collective bargaining agreement to
induce Longview to enter into the contract.
Longview filed the Complaint on September 6, 2002, in the
Delaware County Court of Common Pleas alleging fraud and breach
of contract and seeking specific performance. The case was
removed to this Court on September 23, 2002. After 11 months in
civil suspension, the case was returned to the active docket on
October 7, 2003. In the instant motion, A&P asserts that Longview's fraud
claim must be dismissed because Pennsylvania's "gist of the
action" doctrine bars tort claims when a cause of action is based
on a breach of contract. Longview opposes.
II. LEGAL STANDARDS
Federal Rule of Civil Procedure 12(c) allows any party to move
for judgment on the pleadings "after the pleadings are closed but
within such time as not to delay the trial. . . ." Fed.R. Civ.
P. 12(c). When only the pleadings have been presented to the
Court for consideration, a Rule 12(c) motion receives the same
standard as a motion to dismiss under Rule 12(b)(6). See Inst.
for Scientific Info., Inc. v. Gordon & Breach, Sci. Publ'ers,
Inc., 931 F.2d 1002, 1005 (3d Cir. 1991); Bowman v. Am. Med.
Sys., No. 96-7871, 1998 U.S. Dist. LEXIS 16082, at *4 (E.D. Pa.
Oct. 9, 1998). Thus, the Court's role is to evaluate the legal
sufficiency of the complaint. See Holder v. City of
Allentown, 987 F.2d 188, 194 (3d Cir. 1993); Harvey v.
Pilgrim's Pride Corp., No. 03-3500, 2003 U.S. Dist. LEXIS 23274,
at *3 (E.D. Pa. Dec. 1, 2003). The Court must accept as true all
facts alleged in the complaint and any reasonable inferences that
can be drawn from them. See, e.g., H.J. Inc. v. Nw. Bell Tel.
Co., 492 U.S. 229, 249-50 (1989); Doe v. Delie, 257 F.3d 309,
313 (3d Cir. 2001); Fairfax v. Sch. Dist. of Phila., No.
03-4777, 2004 U.S. Dist. LEXIS 7750, at *5-6 (E.D. Pa. Apr. 26,
When pleading a claim for fraud or mistake, Rule 9(b) requires that "the circumstances constituting fraud or mistake shall be
stated with particularity." Fed.R.Civ.P. 9(b). Rule 9(b) is
satisfied when a plaintiff pleads the "date, place, or time" of
the fraud, but the plaintiffs may also satisfy the rule "by
injecting precision and some measure of substantiation into their
allegations of fraud." Seville Indus. Mach. Corp. v. Southmost
Mach. Corp., 742 F.2d 786, 791 (3d Cir. 1984).
In applying Rule 9(b) the United States Court of Appeals for
the Third Circuit has cautioned that district courts must take
into account the "general simplicity and flexibility contemplated
by the rules" and "be sensitive to the fact that [the Rule] . . .
may permit sophisticated defrauders to successfully conceal the
details of their fraud. Christidis v. First Penn. Mortgage
Trust, 717 F.2d 96, 99-100 (3d Cir. 1983). Thus, application of
Rule 9(b) is relaxed when the factual information regarding the
fraud is peculiarly within the defendant's control. Weiner v.
Quaker Oats Co., 129 F.3d 310, 319 (3d Cir. 1997). Even in
situations where a relaxed application applies, a plaintiff must
at least outline "the nature and scope of [the] effort to obtain
. . . the information needed to plead with particularity. . . ."
Shapiro v. UJB Fin. Corp., 964 F.2d 272, 285 (3d Cir. 1992).
A&P argues that Longview's fraud claim, Count I of the
Complaint, must be dismissed under Pennsylvania's "gist of the action" doctrine. The gist of the action doctrine bars an
aggrieved party to a contract from bringing a tort claim against
the other party where the essential nature of the claim, the
"gist" of the claim, is contractual. See Owen J. Roberts Sch.
Dist. v. HTE, Inc., No. 02-7830, 2003 U.S. Dist. LEXIS 2997, at
*2 (E.D. Pa. Feb. 28, 2003). In eToll, Inc. v. Elias/Savion
Adver., Inc., the Pennsylvania Superior Court explained the
distinction between tort claims and contract claims: "Tort
actions lie for breaches of duties imposed by law as a matter of
social policy, while contract actions lie only for breaches of
duties imposed by mutual consensus agreements between particular
individuals." 811 A.2d 10, 14 (Pa. Super. 2002) (citing Bash v.
Bell Tel. Co., 601 A.2d 825, 829 (Pa. Super. 1992)). The legal
distinction is important because "[t]o permit a promisee to sue
his promisor in tort for breaches of contract inter se would
erode the usual rules of contractual recovery and inject
confusion into our well-settled forms of actions." Id.
The doctrine does not provide for an absolute prohibition of
tort claims when a breach of contract is alleged. "[A]lthough
mere non-performance of a contract does not constitute fraud[,]
it is possible that a breach of contract also gives rise to an
actionable tort[.] To be construed as in tort, however, the wrong
ascribed to defendant must be the gist of the action, the
contract being collateral." Id. In other words, a party to a
contract should be limited to a contract claim only when "`the parties' obligations
are defined by the terms of the contracts, and not by the larger
social policies embodied by the law of torts.'" Id. (quoting
Bohler-Uddeholm Am., Inc. v. Ellwood Group, Inc., 247 F.3d 79,
104 (3d Cir. 2001)). This distinction is illustrated in
Bohler-Uddeholm. There, the minority shareholder of a
corporation brought suit against the majority shareholder
alleging a contract claim for breach of the shareholder
agreement, a tort claim for breach of the majority shareholder's
fiduciary duty, and a tort claim for misappropriation of trade
secrets. See Bohler-Uddeholm, 247 F.3d at 87. The Third
Circuit held that when a majority shareholder breaches his
fiduciary duty to minority shareholders, the gist of the action
doctrine does not apply, even if the duty was expressly part of a
shareholder agreement, because the fiduciary duty has grown out
of social policy defining the relationships among shareholders.
See id. at 105. On the other hand, the Third Circuit reasoned
that the duty not to use the minority shareholder's trade secrets
arose out of the mutual agreement between the parties. See id.
at 107. Thus, to the extent the jury verdict reflected damages
from the misappropriated trade secrets expressly listed in the
contract, the Court vacated the jury verdict. See id.
There is no steadfast rule to determine whether a plaintiff is
simply recasting an ordinary breach of contract claim as a tort
claim. See eToll, 811 A.2d at 16. Many courts that have
grappled with the gist of the action doctrine, including this Court, have
focused on a distinction between fraud in the inducement and
fraud in the performance of a contract. Courts tend to dismiss
tort claims where the alleged "fraud" occurred during performance
of the contract because they do not imply the larger social
policies discussed in Bohler-Uddeholm. In these cases, the gist
of the action doctrine applies because the fraud claim is
interwoven with the contract claim.
For example, in Advanced Tubular Products, Inc. v. Solar
Atmospheres, Inc., No. 03-946, 2004 U.S. Dist. LEXIS 4111 (E.D.
Pa. Mar. 12, 2004), the plaintiff alleged a fraudulent inducement
claim based on the defendant's misrepresentations concerning its
ability to produce stainless steel tubing in accordance with the
plaintiff's product specifications. The court dismissed the fraud
claim finding it was "inextricably intertwined" with the
Plaintiff's breach of contract claim. Id. at *23. The gravamen
of the litigation derived from the defendant's failure to perform
some duty it promised to do in the future, i.e., produce certain
steel tubing. Under Pennsylvania law, "the breach of a promise to
do something in the future is not fraud. . . . [A]n unperformed
promise does not give rise to a presumption that the promisor
intended not to perform when the promise was made." Id. at *24
(quoting eToll, 811 A.2d at 13 n. 6). Thus, the gist of the
action doctrine barred the plaintiff's tort claim because the
alleged "fraud" was only a failure to perform contractual duties. See
also Williams v. Hilton Group, PLC, 261 F. Supp.2d 334 (W.D.
Pa. 2003), aff'd by 2004 U.S. App. LEXIS 4980 (3d Cir. March
17, 2004) (holding that doctrine bars tort claims arising out of
defendants' failure to negotiate in good faith with plaintiff
during an exclusivity period of a contract to purchase
defendants' gaming rights); Galdieri v. Monsanto Co.,
245 F. Supp.2d 636, 650 (E.D. Pa. 2002) (failing to fulfill a promise
to create a long-term incentive plan for new employees after they
began working constitutes breach of the employment contract, not
In contrast, fraud in the inducement is not necessarily covered
by the gist of the action doctrine because fraud to induce a
person to enter a contract is generally collateral to the terms
of the contract itself and implicates society's desire to avoid
the fraudulent inducement of contracts. Fraudulent inducement
involves more than a mere failure to perform contractual duties;
it involves a misrepresentation about a defendant's objective
qualifications to adequately perform those duties. See Air
Prods. & Chems., Inc. v. Eaton Metal Prods. Co., 256 F. Supp.2d 329,
342 (E.D. Pa. 2003); see also Flynn v. Health Advocate,
Inc., No. 03-3764, 2004 U.S. Dist. LEXIS 293 (E.D. Pa. Jan. 13,
2004); Greenhouse v. About.com, No. 02-7983, 2003 U.S. Dist.
LEXIS 9732, at *12 (E.D. Pa. May 8, 2003); Foster v. Nw. Mut.
Life, No. 02-2211, 2002 U.S. Dist. LEXIS 15078, at *7 (E.D. Pa.
July 25, 2002). For example, in Air Products the court distinguished between
the defendant's promise to manufacture specific products in
compliance with the contract terms and its promise that it was
legally certified to produce such products. See 256 F. Supp.2d
at 338. The court found that the former was a promise to perform
its contract duties in the future, while the latter was an
objective misrepresentation concerning the defendant's legal
status at the time the contract was formed. The distinction
allowed the plaintiff to state claims for both breach of contract
and fraudulent inducement. Likewise, this Court ruled in
Greenhouse that, despite significant factual overlap between
the plaintiff's fraudulent inducement and contract claims, the
gist of the action was not exclusively contract-based because the
fraud claim derived from the defendants' conduct during
pre-contractual negotiations, rather than on the terms of the
contract itself. See 2003 U.S. Dist. LEXIS 9732, at *14
(employment contract setting).
Further, courts have shown a reluctance to dismiss claims for
fraud in the inducement early in the litigation. See, e.g.,
Little Souls, Inc. v. State Auto Mut. Ins. Co., No. 03-5722,
2004 U.S. Dist. LEXIS 4569, at *7-8 (E.D. Pa. March 15, 2004)
(allowing fraud claim to survive motion to dismiss even though
the court conceded that after discovery the gist of the action
doctrine may bar the claim); Weber Display & Packaging v.
Providence Washington Ins. Co., No. 02-7792, 2003 U.S. Dist.
LEXIS 2187, at *11-12 (E.D. Pa. Feb. 10, 2003) (refusing to decide, on a motion to dismiss,
whether the fraudulent inducement claim and the breach of
contract claim were so interwoven as to bar the fraud claim).
Here, Longview alleges that A&P fraudulently misrepresented
that its property for sale was unencumbered by any other
agreement to which A&P was a party. Based on this
misrepresentation, Longview entered into a contract to purchase
the property only to discover that the United Food and Commercial
Workers Union had a right of first refusal on the property.
The Court finds that the gist of the action doctrine does not
apply to Longview's allegations. According to the facts alleged
in the Complaint, A&P not only failed to perform its contractual
duty to sell the property to Longview; it misrepresented its
objective ability to perform its duty by concealing the Union's
right of first refusal, inducing Longview to enter into the
contract. As explained, case law indicates that where fraud is
used to induce the other party to enter into a contract, the
contract becomes collateral to the fraud. Thus, if Longview can
prove after discovery that it entered into the contract because
A&P committed fraud, Longview's action will be based in tort law,
not contract law. Accordingly, A&P's motion to dismiss Longview's
fraud claim under the gist of the action doctrine is denied
An appropriate Order follows. ORDER
AND NOW, this day of July, 2004, upon consideration of
Defendants's Motion for Partial Judgment on the Pleadings (Docket
No. 13), Plaintiff's Answer thereto (Docket Nos. 14 & 15), and
for the reasons stated in the accompanying Memorandum, IT IS
HEREBY ORDERED that Defendant's Motion is DENIED without