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LONGVIEW DEVELOPMENT LP v. GREAT ATLANTIC & PACIFIC TEA CO.

United States District Court, E.D. Pennsylvania


July 19, 2004.

LONGVIEW DEVELOPMENT LP,
v.
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).

I. BACKGROUND

  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.

  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, 2004).

  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).

  III. DISCUSSION

  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 fraud).

  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 without prejudice.

  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 prejudice.


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