CARROW et al v. FEDEX GROUND PACKAGE SYSTEMS, INC.

Filing 33

OPINION FILED. Signed by Judge Robert B. Kugler on 3/30/17. (js)

NOT FOR PUBLICATION

(Doc. No. 12)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY
CAMDEN VICINAGE
___________________________________
:
Michael CARROW, Michael FENNELL, :
and Nicholas STEFANOU, individually
:
and on behalf of all others similarly
:
situated,
:
Case No. 16-3026 (RBK/JS)
:
Plaintiff(s), :
Opinion
:
v.
:
:
FEDEX GROUND PACKAGE
:
SYSTEMS, INC.,
:
:
Defendant.
:
___________________________________ :
KUGLER, United States District Judge:
Plaintiffs Michael Carrow, Michael Fennell, and Nicholas Stefanou, individually and on
behalf of all others similarly situated (“Plaintiffs”), bring claims against Defendant Fedex
Ground Package Systems, Inc. (“Defendant”) arising under the New Jersey Consumer Fraud Act
(“NJCFA”), N.J. Stat. Ann. 56:8-1 et seq., misrepresentation, rescission, New Jersey Wage
Payment Law (“NJWPL”), N.J. Stat. Ann. 34:11-4.1 et seq., and breach of the covenant of good
faith and fair dealing. This matter is before the Court upon Defendant’s Motion to Dismiss
pursuant to Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6) (Doc. No. 12). For the
reasons set forth in this Opinion, Defendant’s Motion is GRANTED IN PART.
I.

FACTUAL BACKGROUND AND PROCEDURAL HISTORY
Defendant is a national company that picks up and delivers packages. Am. Compl. ¶ 19.

Defendant engages approximately three hundred truck and van drivers in New Jersey, among
them Plaintiffs. Id. ¶¶ 3, 21. Drivers work for the Ground or Home Delivery division: the Ground
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division picks up and delivers packages to businesses, and the Home Delivery division provides
the same services to residential locations. Id. ¶ 20. The contract between Defendant and drivers,
the Operating Agreement (“OA”), classifies drivers as independent contractors. Id. ¶ 29. For
some agreements, Defendant allegedly first required the driver to create a limited liability
company or corporation and sign the OA through the business entity. See id. ¶¶ 9–14, 28. Carrow
and Fennell each created a corporate entity at Defendant’s request. Id. ¶¶ 9–14. Each OA
contains a choice of law clause that states the agreement “shall be governed by and construed in
accordance with” Pennsylvania law. Def.’s Br., Daley Decl. Ex. 1, § 19.
Prior to and after entering into the OAs, Defendant allegedly makes several
representations regarding the nature of the drivers’ jobs. Am. Compl. ¶ 22. It tells drivers they
can “be [their] own boss,” “grow [their] own business,” and “partner” with Defendant. Id. The
OA states that drivers are independent contractors, have sole control over the business, and have
a proprietary and entrepreneurial interest in the delivery routes. Id. ¶¶ 23, 26. In reality, Plaintiffs
contend, Defendant treats drivers as employees. The OA regulates or controls vehicle
appearance, vehicle maintenance, liability insurance, driver reports, driver uniforms, and driver
service areas. Id. ¶ 30. Defendant also determines the prices charged for services, route
schedules, electronic equipment used, forms for paperwork, and approval of substitutes and
assistants. Id. ¶ 36. To ensure drivers are following policies, Defendant actively monitors how
drivers operate their vehicles, carry packages, and complete paperwork. Id.
Plaintiffs brought a Complaint in the Superior Court of New Jersey, Camden County on
March 17, 2016, bringing claims under the NJCFA, misrepresentation, rescission, NJWPL, and
breach of the covenant of good faith and fair dealing. Defendant timely removed the Complaint

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on May 25, 2016 (Doc. No. 1). Plaintiffs filed an Amended Complaint on June 15, 2016 (Doc.
No. 10), and Defendant brought the present Motion to Dismiss on July 29, 2016 (Doc. No. 12).
II.

LEGAL STANDARD
A motion to dismiss based on lack of standing must be brought under Federal Rule of

Civil Procedure 12(b)(1) because standing is jurisdictional. Ballentine v. United States, 486 F.3d
806, 810 (3d Cir. 2007). A motion to dismiss for lack of subject-matter jurisdiction pursuant to
Rule 12(b)(1) may be brought at any time and may either (1) “attack the complaint on its face” or
(2) “attack the existence of subject matter jurisdiction in fact, quite apart from any pleadings.”
Mortensen v. First Fed. Sav. & Loan Ass’n, 549 F.2d 884, 891 (3d Cir. 1977). In the second type
of 12(b)(1) motion, the court does not presume that the allegations in the plaintiff’s complaint are
true, and “the trial court is free to weigh the evidence and satisfy itself as to the existence of its
power to hear the case.” Id. Furthermore, the plaintiff has the burden of proving that the court
has subject matter jurisdiction. Id. If a court lacks subject matter jurisdiction, it must dismiss the
case without prejudice. In re Orthopedic “Bone Screw” Prods. Liab. Litig., 132 F.3d 152, 155–
56 (3d Cir. 1997).
Under Federal Rule of Civil Procedure 12(b)(6), a court may dismiss an action for failure
to state a claim upon which relief can be granted. When evaluating a motion to dismiss, “courts
accept all factual allegations as true, construe the complaint in the light most favorable to the
plaintiff, and determine whether, under any reasonable reading of the complaint, the plaintiff
may be entitled to relief.” Fowler v. UPMC Shadyside, 578 F.3d 203, 210 (3d Cir. 2009)
(quoting Phillips v. Cty. of Allegheny, 515 F.3d 224, 233 (3d Cir. 2008)). A complaint survives a
motion to dismiss if it contains sufficient factual matter, accepted as true, to “state a claim to
relief that is plausible on its face.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007). It
is not for courts to decide at this point whether the non-moving party will succeed on the merits,
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but “whether they should be afforded an opportunity to offer evidence in support of their
claims.” In re Rockefeller Ctr. Props., Inc. Sec. Litig., 311 F.3d 198, 215 (3d Cir. 2002). While
“detailed factual allegations” are not necessary, a “plaintiff’s obligation to provide the grounds of
his entitle[ment] to relief requires more than labels and conclusions, and a formulaic recitation of
the elements of a cause of action will not do.” Twombly, 550 U.S. at 555 (internal quotations
omitted); see also Ashcroft v. Iqbal, 556 U.S. 662, 678–79 (2009).
In making this determination, the court conducts a three-part analysis. Santiago v.
Warminster Twp., 629 F.3d 121, 130 (3d Cir. 2010). First, the court must “tak[e] note of the
elements a plaintiff must plead to state a claim.” Id. (quoting Iqbal, 556 U.S. at 675). Second, the
court should identify allegations that, “because they are no more than conclusions, are not
entitled to the assumption of truth.” Id. (quoting Iqbal, 556 U.S. at 679). “[T]hreadbare recitals
of the elements of a cause of action, supported by mere conclusory statements,” do not suffice.
Id. at 131 (quoting Iqbal, 556 U.S. at 678). Finally, “where there are well-pleaded factual
allegations, a court should assume their veracity and then determine whether they plausibly give
rise to an entitlement for relief.” Id. (quoting Iqbal, 556 U.S. at 679). This plausibility
determination is a “context-specific task that requires the reviewing court to draw on its judicial
experience and common sense.” Iqbal, 556 U.S. at 679. A complaint cannot survive a motion to
dismiss where a court can only infer that a claim is merely possible rather than plausible. Id.

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III.

DISCUSSION
Defendant moves to dismiss all Counts of the Complaint under Federal Rules of Civil

Procedure 12(b)(1) and 12(b)(6). The Court will address each count in turn, proceeding from the
contract claims (breach of the covenant of good faith and fair dealing and rescission), to the
statutory claims (NJCFA and NJWPL), and lastly to the tort claim (misrepresentation).
A.

Count V — Breach of the Covenant of Good Faith and Fair Dealing
1.

Choice of Law

A federal court sitting in a diversity case must “apply the substantive law of the state
whose laws govern the action.” Kleinknecht v. Gettysburg Coll., 989 F.2d 1360, 1365 (3d Cir.
1993) (citations omitted). In order to determine which state’s substantive law applies, a federal
court exercising diversity jurisdiction will apply the conflict of law rules of the forum state.
Bayer Chems. Corp. v. Albermarle Corp., 171 F. App’x. 392, 398 (3d Cir. 2006). New Jersey
generally upholds choice-of-law clauses, so long as the clause “does not violate New Jersey’s
public policy.” North Bergen Rex Transp., Inc. v. Trailer Leasing Co., 730 A.2d 843, 847 (N.J.
1999) (citations omitted). A choice-of-law provision will be enforced unless:
(a) the chosen state has no substantial relationship to the parties or
the transaction and there is no other reasonable basis for the
parties’ choice, or
(b) application of the law of the chosen state would be contrary to
a fundamental policy of a state which has a materially greater
interest than the chosen state in the determination of the particular
issue and which . . . would be the state of the applicable law in the
absence of an effective choice of law by the parties.
Id. at 847–48 (citations omitted).
In this case, the OA contains a choice of law provision that states the contract is
“governed by and construed in accordance with” Pennsylvania law. Def.’s Br., Daley Decl. Ex.
1, § 19. Plaintiffs are drivers in New Jersey, and the Court does not see any reason that the

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selection of Pennsylvania law violates New Jersey’s public policy. Thus, the Court will enforce
the provision as to Plaintiff’s claim for breach of the covenant of good faith and fair dealing. See
Noye v. Hoffmann-La Roche Inc., 570 A.2d 12, 15 (N.J. Super. Ct. App. Div. 1990) (holding
that, in the employment context, breach of an implied covenant of good faith and fair dealing lies
in contract and not tort law).
2.

Rule 12(b)(1)

Defendant argues that Carrow and Fennell lack standing to bring contractual claims
because they are not parties to the OAs. It is a basic principle of agency law that, “unless
otherwise agreed, an agent for a disclosed principal is not a party to a contract that the agent
enters on behalf of the principal.” McCarthy v. Recordex Serv., Inc., 80 F.3d 842, 858 (3d Cir.
1996). Where “the alleged contract is in the name of the agent, but the name of the principal is
disclosed, there exists a strong presumption that it is the intention of the contracting parties that
the principal and not the agent should be a party to the contract.” Viso v. Werner, 369 A.2d 1185,
1187 (Pa. 1977). A principal is a disclosed principal if the plaintiff has “notice that the agent is
acting for a principal and of the principal’s identity.” Sweitzer v. Whitehead, 173 A.2d 116, 119
(Pa. 1961) (quoting Restatement of Agency § 4(1)). Here, every page of the OAs signed by
Carrow and Fennell contains the names of the entity formed by each respective Plaintiff. See
Def.’s Br., Daley Decl. Exs. 1, 6. There thus exists a strong presumption that Carrow and Fennell
signed as agents on behalf of their respective corporate entities, and Plaintiffs proffer no
evidence to rebut that presumption.
It is a familiar principle that “[p]rivity of contract is generally required for enforcement of
a contractual agreement.” Unique Techs., Inc. v. Micro Stamping Corp., No. Civ. 02-CV-6649,
2003 WL 21652284, at *2 (E.D. Pa. Apr. 15, 2003); see also Evans v. Otis Elevator Co., 168
A.2d 573, 575 (Pa. 1961). To have privity of contract, there must exist a contractual relationship
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between the parties. Phillips v. Cricket Lighters, 841 A.2d 1000, 1006 (Pa. 2003). Therefore,
“[i]n the absence of a contractual relationship between [the parties], there is no basis for asserting
the breach of good faith and fair dealing doctrine.” Southeastern Pa. Transp. Auth. v. Holmes,
835 A.2d 851, 859 (Pa. Commw. Ct. 2003). In the present matter, Carrow and Fennell are not
parties to the OAs and thus do not have a contractual relationship with Defendant. They have no
basis to assert breach of the covenant of good faith and fair dealing, and their claims under Count
V are dismissed.
3.

Rule 12(b)(6)

Pennsylvania courts do not recognize an independent cause of action for breach of the
covenant of good faith and fair dealing, except in “very limited circumstances.” See, e.g.,
Northview Motors, Inc. v. Chrysler Motors Corp., 227 F.3d 78, 91 (3d Cir. 2000) (noting the
duty is limited to “insurers’ dealings with insureds, franchisors’ dealings with franchisees and
other narrow situations”). A breach of the covenant “is, in actuality, a claim for breach of
contract.” Diehl v. Elec. Data Sys. Corp., No. Civ. 1:07-CV-1213, 2008 WL 2705540, at *2
(M.D. Pa. July 10, 2008) (citations omitted). To state a valid breach of contract claim under
Pennsylvania law, the plaintiff must establish: “(1) the existence of a contract, including its
essential terms, (2) a breach of a duty imposed by the contract and (3) resultant damages.” Pa.
Supply, Inc. v. Am. Ash Recycling Corp. of Pa., 895 A.2d 595, 600 (Pa. Super. Ct. 2006)
(citations omitted). The Amended Complaint in this case fails to plead the breach of a contractual
duty. See Am. Compl. ¶¶ 109–12. Because Plaintiffs cannot maintain an independent cause of
action for breach of the covenant of good faith and fair dealing, and they do not make out a
plausible breach of contract claim, the Court dismisses Count V with prejudice. The Court,
however, will permit Plaintiffs to amend the Complaint to assert a breach of contract claim.

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B.

Count III — Rescission
1.

Choice of Law

Plaintiffs also seek rescission of the contract. Rescission is designed “to restore the
parties to the status quo ante” before the contract was formed, Bonnco Petrol, Inc. v. Epstein,
560 A.2d 655, 662 (N.J. 1989)), and a choice of law clause assumes the existence of a valid
agreement. A choice of law provision does apply to the remedy of rescission, however, where it
states that the “validity . . . of [the] Policy will be governed by” a state’s laws. H.J. Heinz Co. v.
Starr Surplus Lines Ins. Co., No. 16-1447, 2017 WL 108006, at *3 (3d Cir. Jan. 11, 2017); see
also Coram Healthcare Corp. v. Aetna U.S. Healthcare, Inc., 94 F. Supp. 2d 589, 596 (E.D. Pa.
1999). Here, the choice of law clause in the OA does not state that a specific state’s laws will
govern issues regarding validity. Thus, the Court finds that the choice of law provision does not
apply to Count III.
When jurisdiction is based upon diversity of citizenship, federal district courts must apply
the choice of law principles of the forum state. Warriner v. Stanton, 475 F.3d 497, 499–500 (3d
Cir. 2007). In contract disputes, New Jersey courts use the “most significant relationship” test set
out in the Restatement (Second) of Conflict of Laws. See Amica Mut. Ins. Co. v. Fogel, 656 F.3d
167, 171–72 (3d Cir. 2011), as amended (Dec. 9, 2011). The first step in a choice of law analysis
is determining whether an actual conflict exists between the laws of the two states, which is done
“by examining the substance of the potentially applicable laws to determine whether there is a
distinction between them,” P.V. ex re T.V. v. Camp Jaycee, 962 A.2d 453, 460 (N.J. 2008)
(quoting Lebegern v. Forman, 471 F.3d 424, 430 (3d Cir. 2006)) (internal quotation marks
omitted). If no conflict exists, then the court applies the law of the forum state and ends the
conflicts inquiry. See Rowe v. Hoffman–La Roche, Inc., 917 A.2d 767, 771 (N.J. 2007). If a

8

conflict does exist, then the court must weigh the factors enumerated in the section of the Second
Restatement that correspond to the cause of action. See Camp Jaycee, 962 A.2d at 460.
Defendant moves to dismiss Plaintiffs’ rescission claim for lack of standing. New Jersey
courts appear to limit the remedy of rescission to where a contractual agreement or privity exists
between the plaintiff and defendant. See Ventura v. Ford Motor Corp., 433 A.2d 801, 807 (N.J.
Super. Ct. App. Div. 1981) (surveying cases). In Pennsylvania, a non-party to a contract is not
entitled to sue for rescission. Johnson v. MetLife Bank, N.A., 883 F. Supp. 2d 542, 551 (E.D. Pa.
2012). There does not appear to the Court any distinction between New Jersey and
Pennsylvania’s treatment of the availability of rescission as remedy. In this case, Plaintiffs are
not parties to the OAs. They thus cannot bring a claim for rescission, and the Court dismisses
Count III with prejudice.
C.

Count I — NJCFA
1.

Choice of Law

In addition to the contractual claims, the Complaint also alleges two statutory causes of
action under the NJCFA and the NJWPL. The Third Circuit has hesitated to construe a plaintiff’s
assent to a choice of law provision to constitute waiver of the right to pursue statutory claims. A
court should “require an employee to waive her statutory rights unambiguously in order to
enforce a choice of law provision against her.” Nuzzi v. Aupaircare, Inc., 341 F. App’x 850,
852–53 (3d Cir. 2009). In Nuzzi, language that the contract was to be “governed and construed in
accordance with” a state’s laws did not clearly indicate the signee intended to waive her statutory
claims. Id. Here, the OA’s choice of law clause contains identical wording. The Court thus finds
that the NJCFA claim can proceed despite the OA.

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2.

Rule 12(b)(6)

The NJCFA “is intended to protect consumers by eliminating sharp practices and
dealings in the marketing of merchandise and real estate.” Cetel v. Kirwan Fin. Grp., Inc., 460
F.3d 494, 514 (3d Cir. 2006) (quoting Lemelledo v. Beneficial Mgmt. Corp. of Am., 696 A.2d
546, 550 (N.J. 1997)). New Jersey courts have repeatedly emphasized that “the [NJ]CFA seeks
to protect consumers who purchase ‘goods or services generally sold to the public at large.’” Id.
(quoting Marascio v. Campanella, 689 A.2d 852, 856–57 (N.J. Super. Ct. App. Div. 1997)). The
NJCFA is “remedial legislation which should be construed liberally.” Real v. Radir Wheels, Inc.,
969 A.2d 1069, 1075 (N.J. 2009) (quoting Int’l Union of Operating Eng’rs Local No. 68 Welfare
Fund v. Merck & Co., Inc., 929 A.2d 1076, 1079 n.1 (N.J. 2007)).
In relevant part, the NJCFA provides:
The act, use or employment by any person of any unconscionable
commercial practice, deception, fraud, false pretense, false
promise, misrepresentation, or the knowing, concealment,
suppression, or omission of any material fact with intent that others
rely upon such concealment, suppression or omission, in
connection with the sale or advertisement of any merchandise or
real estate, or with the subsequent performance of such person as
aforesaid, whether or not any person has in fact been misled,
deceived or damaged thereby, is declared to be an unlawful
practice.
N.J. Stat. Ann. § 56:8-2. “Merchandise” is defined as “any objects, wares, goods, commodities,
services or anything offered, directly or indirectly to the public for sale.” N.J. Stat. Ann. § 56:81(c).
The thrust of Plaintiffs’ case is that they and Defendant had an employment relationship.
See Am. Compl. ¶¶ 49, 50. The averments in the Amended Complaint, and Count I in particular,
center around Defendant’s control over Plaintiffs’ jobs. See generally Am. Compl.; id. ¶¶ 65–79.
The New Jersey Appellate Division, however, has specifically held that employment
10

relationships are not governed by the NJCFA. Winslow v. Corp. Express, Inc., 834 A.2d 1037,
1046–47 (N.J. Super. Ct. App. Div. 2003) (“[P]laintiff’s relationship with defendant was not
governed by the CFA but rather by the myriad of statutory provisions designed to protect
employees . . . .”). Plaintiffs’ fraud allegations thus are not cognizable under the NJCFA.
Plaintiffs attempt to argue that Defendant sold and advertised merchandising by offering
the “opportunity to obtain a FXG route.” Pl.’s Opp’n 31. The Third Circuit, however, has held
that business opportunities do not constitute merchandise under the NJCFA. J & R Ice Cream
Corp. v. Ca. Smoothie Licensing Corp., 31 F.3d 1259, 1272–74 (3d Cir. 1994). Some recent
decisions by the New Jersey Appellate Division have rejected the restrictive interpretation in J &
R. See Kavky v. Herbalife Int’l of Am., 820 A.2d 677, 679 (N.J. Super. Ct. App. Div. 2003).
Third Circuit precedent, however, is binding on this Court. The Court grants Defendant’s Motion
to Dismiss as to the NJCFA claim and dismisses Count I with prejudice.
D.

Count IV — NJWPL
1.

Rule 12(b)(1)

The NJWPL “governs the time and mode of payment of wages due to employees.”
Hargrove v. Sleepy’s, LLC, 106 A.3d 449, 457 (N.J. 2015). Defendant argues at length that
Plaintiffs cannot bring a claim under the NJWPL because they are not parties to the OAs. The
NJWPL defines “employer” as “any individual, partnership, association, joint stock company,
trust, corporation, the administrator or executor of the estate of a deceased individual, or the
receiver, trustee, or successor of any of the same, employing any person in this State.” N.J. Stat.
Ann. § 34:11-4.1(a). This provision does not require an entity to render payment directly to a
person to qualify as an employer. Employee in turn is defined as a “person,” but a person
similarly need not receive wages directly from the employer to constitute an employee. N.J. Stat.
Ann. § 34:11-4.1(b). Rather, courts “are obliged to look behind contractual language to the actual
11

situation-the status in which parties are placed by relationship that exists between them.” Feinsot
v. Bd. of Review, 2007 WL 561326, at *4 (N.J. Super. Ct. App. Div. Feb. 26, 2007) (citations
omitted); see also Echavarria v. Williams Sonoma, Inc., No. Civ. 15-6441, 2016 WL 1047225, at
*6 (D.N.J. Mar. 16, 2016) (finding direct remuneration is not required for a claim under the New
Jersey State Wage and Hour Law). Thus, this Court must analyze beyond the contract formed
between Defendant and the corporate entities formed by Plaintiffs in order to determine whether
Plaintiffs were employees. The Court will not dismiss the NJWPL claim at this juncture.
E.

Count II — Misrepresentation
1.

Choice of Law

The Third Circuit has not clarified whether a choice of law clause in a contract extends to
govern tort claims, such as misrepresentation, that arise from the contract. In Sullivan v.
Sovereign Bancorp., Inc., the Third Circuit found that the language, “governed by and construed
in accordance with,” was “broad and all-encompassing” and thereby reached claims sounding in
tort. 33 F. App’x 640, 642 (3d Cir. 2002) (quoting Sullivan v. Sovereign Bancorp., Inc., No.
Civ.A. 99-5990, 2001 WL 34883989, at *6 (D.N.J. Jan. 19, 2001)); see also In re Allegheny
Int’l, Inc., 954 F.2d 167, 178 (3d Cir. 1992) (applying the contractually chosen law to fraud and
material misrepresentation claims without explaining why). In a more recent decision, however,
the Third Circuit characterized the “will be governed by, and construed and enforced in
accordance with” clause to be narrowly drawn. Black Box Corp. v. Markham, 127 F. App’x 22,
25 (3d Cir. 2005). The court decided to “limit[] [its] application to the underlying agreement
itself, and not to related fraud or non-contractual claim.” Id. Courts in this district have varied in
their approach. Some courts have found the phrase “governed by and construed under” to be
expansive, in reliance on Sullivan. See Barton v. RCI, LLC, No. Civ. 10-3657, 2011 WL
3022238, at *3 (D.N.J. July 22, 2011); Demmick v. Cellco P’ship, No. Civ. 06-2163 (JLL), 2010
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WL 3636216, at *3 (D.N.J. Sept. 8, 2010). Other courts have refrained from applying such
provisions to tort claims. See Palladin Partners v. Gaon, No. 05-CV-3305 (WJM), 2006 WL
2460650, at *16 (D.N.J. Aug. 22, 2006); Axxa Commerce, LLP v. Digital Realty Trust, L.P., No.
Civ. A. 09-653 (NLH)(JS), 2009 WL 3261945, at *4 n.6 (D.N.J. Oct. 8, 2009).
The Court notes that the most recent Third Circuit decision held that the language in the
OA does not suffice to encompass tort claims. Furthermore, where the contract is ambiguous,
“the words are construed against the drafter.” Matter of Cmty. Med. Ctr., 623 F.2d 864, 866 (3d
Cir. 1980). For these reasons, the Court will not apply the OA’s choice of Pennsylvania law to
the tort claim of misrepresentation.
New Jersey courts use the “most significant relationship” test to determine which state’s
law applies in a tort case. Camp Jaycee, 962 A.2d at 460. Plaintiffs bring claims for common law
and equitable fraud, which Defendant argues are barred by the economic loss doctrine and
pleading standard under Rule 12(b)(6). The Court addresses each argument in turn.
2.

Economic Loss Doctrine

The economic loss doctrine in New Jersey acts to bar tort claims that are based on
economic or pecuniary losses arising from a breach of contract, or that are associated with the
contractual relationship. See Jeffrey J. Shampo, Economic-Loss Doctrine—Effect of Doctrine,
74 Am. Jur. 2d Torts § 24 (2013). Simply put, “claims for fraud in the performance of a contract,
as opposed to fraud in the inducement of a contract, are not cognizable under New Jersey law.”
Bracco Diagnostics, Inc. v. Bergen Brunswig Drug Co., 226 F. Supp. 2d 557, 562–64 (D.N.J.
2002). Thus, “fraud claims not extrinsic to underlying contract claims are not maintainable as
separate causes of action.” Network Commodities, LLC v. Golondrinas Trading Co., No. Civ. 113119, 2013 WL 1352234, at *7 (D.N.J. Apr. 1, 2013) (citing Gleason v. Norwest Mortg. Inc.,
243 F.3d 130, 144 (3d Cir. 2001)). New Jersey courts have recognized a fraud claim to be
13

extrinsic either where it involves pre-contractual misrepresentations, Bracco Diagnostics, Inc.,
226 F. Supp. 2d at 563, or where the misrepresentations concern conduct outside a warranty or
guarantee contained in the four corners of the contract, Lithuanian Commerce Corp. v. Sara Lee
Hosiery, 219 F. Supp. 2d 600, 607 (D.N.J. 2002).
Pennsylvania courts also recognize the economic loss doctrine. Its purpose is to
“maintain[] the separate spheres of the law of contract and tort.” N.Y. State Elec. & Gas Corp. v.
Westinghouse Elec. Corp., 564 A.2d 919, 925 (Pa. 1989). Thus, it “prohibits plaintiffs from
recovering in tort economic losses to which their entitlement flows only from a contract.”
Duquesne Light Co. v. Westinghouse Elec. Corp., 66 F.3d 604, 618 (3d Cir. 1995). The Third
Circuit predicted the Pennsylvania Supreme Court would carve out an exception “for fraud
claims, but only where the claims at issue arise independent[ly] of the underlying contract.”
Werwinski v. Ford Motor Co., 286 F.3d 661, 676 (3d Cir. 2002) (citations omitted). A fraud
claim arises independently of the contract if it concerns matters outside the quality or character
of the goods sold. Id. at 679.
The Court finds no relevant difference between New Jersey’s and Pennsylvania’s
approaches to the economic loss doctrine, and therefore will refer interchangeably to the two
states’ laws. The Complaint states that Defendant represented Plaintiffs would be partners, have
an independent business that was fully marketable and transferrable, and own a proprietary
interest that would grow. Defendant also purportedly stated that the routes have value. Some of
these issues are addressed in the OA. The OA states, for example, that drivers are “responsible
for exercising independent discretion and judgment to achieve the business objective and results”
and “no officer, agent or employee of [Defendant] shall have the authority to direct Contractor as
to the manner or means employed to achieve such objectives and results.” Def.’s Br., Daley

14

Decl. Ex. A, § 1.15. Nowhere in the OA, however, does Defendant promise that Plaintiffs’
businesses will be fully marketable and transferrable, that their proprietary interests in the
businesses will grow, or the routes have value. Because Plaintiffs allege that Defendant made
these representations to induce people to enter into the OAs and the representations concern
matters outside the contract, the misrepresentation claim may proceed despite the economic loss
doctrine.
3.

Rule 12(b)(6)

Defendant also argues that the misrepresentation claim fails to state a plausible claim for
relief. To prevail on a claim of common law fraud, a plaintiff must prove: (1) a material
misrepresentation of fact; (2) knowledge or belief by the defendant of its falsity; (3) an intention
that the other person rely upon it; (4) reasonable reliance thereon by the other person, and (5)
resulting damages. Gennari v. Weichert Co. Realtors, 691 A.2d 350, 367–68 (N.J. 1997). To
prevail on a claim of common law fraud under Pennsylvania law, a plaintiff must prove that
there is: “(1) a misrepresentation, (2) a fraudulent utterance thereof, (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 the proximate result.” Savitz v. Weinstein,
149 A.2d 110, 113 (Pa. 1959).
The Court finds no difference between the laws of New Jersey and Pennsylvania
regarding common law fraud. The pleadings allege that Defendant made misrepresentations
regarding the nature of the businesses and routes Plaintiffs were to acquire. See Am. Compl. ¶¶
80–87. They also assert that Defendant knew of their falsity, Defendant intended Plaintiffs to
rely on the statements, reliance by Plaintiffs was reasonable, and Plaintiffs suffered damages. See
id. These allegations are sufficient to meet the standard under Rule 12(b)(6), and the Court
denies the Motion to Dismiss the claim of legal fraud.
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In New Jersey, the elements of equitable fraud are similar to that of common law fraud
except that scienter, or “knowledge of the falsity and an intention to obtain an undue advantage
therefrom,” is not required. Jewish Ctr. of Sussex Cty. v. Whale, 432 A.2d 521, 524 (N.J. 1981).
Unlike in New Jersey, “equitable fraud is no longer a cause of action in Pennsylvania.”
Rahemtulla v. Hassam, 539 F. Supp. 2d 755, 771 (M.D. Pa. 2008). Therefore, the Court finds
there is an actual conflict between the laws of New Jersey and Pennsylvania with respect to
equitable fraud. In determining which state has the most significant relationship to this dispute,
the Court must weigh the factors listed in § 148 of the Second Restatement, which concerns
fraud and misrepresentation. Specifically, “when the plaintiff’s action in reliance on the
defendant’s false representations takes place in the same state where the false representations
were made and received, there is a presumption the law of that state applies.” Cooper v. Samsung
Elecs. Am., Inc., 374 F. App’x 250, 255 (3d Cir. 2010). Here, the Amended Complaint does not
definitively assert where the false representations took place, and the Court cannot conclude that
New Jersey law governs so that equitable fraud is a recognized cause of action. As such, the
Court dismisses the claim for equitable fraud without prejudice.
IV.

CONCLUSION
For the foregoing reasons, Defendant’s Motion to Dismiss is GRANTED IN PART.

Count II (equitable fraud) is DISMISSED WITHOUT PREJUDICE. Count I, Count III, and
Count V are DISMISSED WITH PREJUDICE.

Dated:

3/30/2017

s/ Robert B. Kugler
ROBERT B. KUGLER
United State District Judge

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