CONTINENTAL MATERIALS, INC. v. ROBETEX, INC. et al
Filing
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MEMORANDUM AND ORDER THAT DEFENDANTS MOTION (DOC. 34) IS GRANTED IN PART AND DENIED IN PART AS OUTLINED HEREIN. DEFENDANTS SHALL ANSWER THE AMENDED COMPLAINT ON OR BEFORE 6/24/15.. SIGNED BY HONORABLE MARK A. KEARNEY ON 6/10/15. 6/10/15 ENTERED AND COPIES EMAILED.(rf, )
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
CONTINENTAL MATERIALS, INC.
CIVIL ACTION
vs.
NO: 14-6941
ROBETEX, INC. and KERRY TALBOT
ORDER-MEMORANDUM
AND NOW, this 10th day of June 2015, upon consideration of Defendants' Motion to
Dismiss Count III (Fraud) (ECF Doc. No. 34), Plaintiff's Opposition (ECF Doc. No. 36) and
Defendants' Reply (ECF Doc. No. 37), it is ORDERED Defendants' Motion (ECF Doc. No. 34)
is GRANTED IN PART AND DENIED IN PART. As plead, Plaintiff states a claim for fraud
in Count III for the August 10 and 11, 2014 payments on the altered bills of lading but not for the
July 14, 2014 payment of a fifty percent (50%) deposit.
Defendants shall answer the Amended Complaint on or before June 24, 2015.
Analysis
The gist of the action doctrine "is designed to maintain the conceptual distinction
between breach of contract claims and tort claims." Etoll, Inc. v. Elias/Savion Adver., Inc., 811
A.2d 10, 14-17 (Pa. Super. 2002) (examining whether "duties in question are intertwined with
contractual obligations").
"[T]he nature of the duty alleged to have been breached [is] the
critical determinative factor in determining whether the claim is truly one in tort, or for breach of
contract." Bruno v. Erie Ins. Co., 106 A.3d 48, 68 (Pa. 2014) ("underlying averments supporting
the claim in a plaintiff's complaint" classify nature of duty). The gist of the action doctrine does
not exclude a tort claim if the defendant violates "a broader social duty owed to all individuals,
which is imposed by the law of torts." Id. (misfeasance "sounds in tort" but nonfeasance sounds
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in contract). In contrast, if the "duty breached is one created by the parties by the terms of their
contract" then the claim is viewed as one for breach of contract and the tort claim is barred under
the gist of the action doctrine. Id. (classifying claim as breach of contract with alleged tort
collateral).
To avoid the "gist of the action" doctrine, "an independent event" must give rise to the
fraud claim collateral to the parties' contractual relationship. Synthes, Inc. v. Emerge Medical,
Inc., 25 F.Supp.3d 617, 724 (E.D.Pa. 2014) (holding "independent event" evidenced by
fraudulent performance during contract); see also Orthovita, Inc. v. Erbe, No. 07-2395, 2008 WL
423446, at *8 (E.D.Pa. Feb. 14, 2008) (finding fraud claim "analytically separate from breach of
the contract claim itself'). In Synthes, the court reasoned the "gist of the action" doctrine did not
bar the fraud claim because the defendant engaged in "extra-contractual fraud." Synthes, 25
F.Supp. 3d at 726 (defendant's "submission of fraudulent expense reports constitutes extracontractual fraud"). In holding the doctrine did not bar plaintiffs claim, the court reasoned the
defendant's "affirmative efforts to conceal his efforts in forming" another company stripped the
plaintiff of contractual rights. Id. (statements, if proven true, could support separate claim of
fraudulent misrepresentation); see also Orthovita Inc., at *8 (defendant's affirmative steps to
hide fraudulent behavior by deleting files is sufficient to establish fraud claim).
The defendant's fraud during the performance of the contract must induce the plaintiffs
performance of the contract or explain the plaintiffs failed assertion of contractual rights against
the defendant. Synthes, 25 F.Supp.3d at 725 (determining plaintiff continued performance of
contractual duties without knowledge of fraudulent behavior); see also Sizemore v. Hotwire
Commc'ns, No. 14-5543, 2015 WL 2381059, *8-*9 (E.D. Pa. May 18, 2015) (denying motion to
dismiss fraud and conversion claims under gist of the action doctrine); My Space Preschool and
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Nursery, Inc. v. Capitol Indem. Corp., No. 14-2826, 2015 WL 118595, *8 (E.D.Pa. Mar. 13,
2015) (declining, "at this early stage of proceeding" and "before the parties have engaged in
meaningful discovery," to dismiss negligent misrepresentation claim under gist of the action
doctrine).
Here, Plaintiff alleges an "analytically separate" fraud claim based on "an independent
event" of inducing a fifty percent (50%) deposit on July 14, 2014 and sending altered bills of
lading concealing the manufacturer and inducing the August 10 and August 11 _nayments.
Plaintiff alleges Defendants purposefully misrepresented the manufacturing facility to prevent it
from terminating the contract and buying the Secure Grip directly from Veer. Am. Compl. at
~~16-17;
21 ( ECF Doc. No. 31).
We examine the fraud claim in light of when Plaintiff learned Robotex breached the
contract. Under Synthes, we look for plausible facts to support the allegation of "the
unsuspecting plaintiff continued the contractual relationship or failed to assert its contractual
rights against the defendant." Synthes, 25 F.Supp. 3d at 725. For "several months" after signing
the May 1, 2013 agreement, Robetex supplied "conforming products". Am.Compl.
at~
13. On
July 1, 2014, Plaintiff issued five purchase orders for an approximate total amount due of
$332,640.00 to be paid fifty percent (50%) upon placement of order and fifty percent (50%)
upon issuance of a bill of lading from the Veer facility. Id. On July 14, 2014, Plaintiff paid
Robotex $166,320.00 representing fifty percent (50%) of the purchase price. Id. at
~18.
After
two attempts, Plaintiff cannot plead Robotex knew and fraudulently concealed the loss of the
Veer relationship on or before July 14, 2014. As such, the duty to provide conforming products
is particular to the parties' contract and not derived from a broader social duty. Accordingly,
Defendant's motion to dismiss the fraud claim as to the July 14, 2014 payment is granted.
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On August 6, 2014, Plaintiffs employee visited Robetex's warehouse and noted the
packaging for its requested product was different than the specifications in the parties'
agreement. Id. at
if 20. Robetex corrected Plaintiffs employee. Id. Plaintiff pleads Robotex,
now knowing of Plaintiffs suspicions, altered or "whited out" August 10 and August 11 bills of
lading misrepresenting the products were manufactured in accordance with Plaintiffs
specifications. Id. at iii! 21-23.
Plaintiff pleads paying Robotex based on fraudulent bills of lading "whited out" to
conceal evidence of the different manufacturing facility: Plaintiff "believed the ... Bills of Lading
to be legitimate" and paid Robotex $33,264 on August 10, 2014 and $66,528 on August 11,
2014. Id at
iii! 22, 24. These claims arise from a broader social duty owed to all individuals
imposed by the law of torts. Bruno, 106 A.3d at 68.
Accordingly, the Amended Complaint
states a claim for fraud relating to the inducements to pay on August 10 and August 11, 2014.
As presently pled in Count III, Plaintiff states a claim for fraud based on money paid on
August 10 and 11, 2014 based on a specific allegation Robotex actively concealed the known
loss of Veer in altered bills of lading. 1
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Robetex additionally moves to dismiss Defendant Talbot based solely on the gist of the action
doctrine. For the reasons set forth herein, we deny this dismissal request based on the
inapplicable gist of the action doctrine to the presently pled Count III of the Amended
Complaint.
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