Opinion ID: 6105300
Heading Depth: 5
Heading Rank: 1

Heading: SodexoMAGIC Presents Sufficient Evidence of a

Text: Misrepresentation as Well as Concealment. In attacking SDM’s fraudulent inducement claim, Drexel argues that SDM cannot prove the misrepresentation element. But SDM produces evidence that would allow a jury to find a misrepresentation or concealment by clear and convincing evidence. The theme of SDM’s fraudulent inducement claim is that Drexel provided it with one set of projections for future student enrollment but then used another set of projections for its internal purposes. SDM cites Drexel’s phase-two solicitation from July 2014 that included an estimate of an incoming firstyear class of 3,137 students for the 2014–15 academic year. And SDM also produces other evidence that, less than a month later, in August 2014, Drexel calculated its budget based on an estimated first-year class of 2,800 students, roughly 300 less students than the figure it provided SDM. Ultimately, 2,926 first-year students enrolled at Drexel for the 2014–15 academic year. 23 Those figures show a disconnect between what Drexel told bidders during the summer of 2014 and its actual student enrollment projections. But SDM did not execute the Management Agreement until May 2015 – after it provided oncampus dining services for the 2014–15 academic year. Thus, even if Drexel provided a false projection of its first-year students for the 2014–15 academic year, SDM would struggle mightily to prove that it justifiably relied on that figure in May 2015, when it finalized the Management Agreement. See Toy, 928 A.2d at 207 (explaining that a person “is not justified in relying upon the truth of an allegedly fraudulent misrepresentation if he knows it to be false or if its falsity is obvious”). But that is not SDM’s only evidence of Drexel’s deception regarding its long-term student-enrollment projections. In its initial solicitation for bids, Drexel represented that it would share “as much detail about the desired relationship and facts around the current program as can be reasonably provided.” Request for Proposal (SA131). And in providing information to the bidders, Drexel noted that its Strategic Plan called for an enrollment increase from 26,132 students to 34,000 students by 2021. Similarly, three SDM employees, who were involved in various phases of the bidding and negotiation process for the Management Agreement, signed declarations that Drexel “repeatedly represented . . . that freshman enrollment would continue to grow over the ten-year life of the contract, or at the very least, enrollment would stay flat for the first three years.” Sherman Decl. ¶ 23 (JA247); Riccio Decl. ¶ 23 (JA254–55); Arnett Decl. ¶ 9 (JA259). Those same employees also averred that Drexel never told them during negotiations “that there was a risk of enrollment decline” or “that enrollment was already 24 declining, and that Drexel was budgeting for that decline.” Sherman Decl. ¶ 22 (JA247); Riccio Decl. ¶ 22 (JA254); Arnett Decl. ¶ 9 (JA259). But at their prior depositions those same employees testified somewhat differently, with one of them recounting that Drexel represented that student enrollment “might go up” or “it might go down.” Sherman Dep. 225:17–226:1 (JA200–01). Some of SDM’s strongest evidence of deceit comes not from its own witnesses but from Drexel’s employees. In email correspondence, Drexel’s Executive Vice President recounted that “[w]hen [Drexel] contracted with Sodexo two years ago, we never told them we were dialing back our freshman enrollment.” Email from Helen Bowman, Executive Vice President, Drexel, to Robert Francis, Drexel (Apr. 22, 2016) (SA529). Another internal memorandum prepared in early May 2015 reveals that Drexel expected that its first-year enrollment would decline in 2015–16, leading to an even lower budgetary forecast of a 2,600 student first-year class. But Drexel was not entirely secretive about its plan to decrease first-year student enrollment while it negotiated the Management Agreement. A March 2015 article from a leading industry news provider reported that Drexel was “making major changes in admissions.” Ry Rivard, Drexel U. Charts A New Course For Itself, Inside Higher Ed (Mar. 27, 2015) (SA1546). The article explained that after it received a report from a consulting firm in 2013, Drexel decided to shift approaches away from its enrollment target of 34,000 students by 2021, and it “was now looking to slow growth.” SA1546– 47. 25 Nonetheless, SDM alleges that it did not gain insight into the full extent of Drexel’s student enrollment decline until after it signed the Management Agreement. The same day that the parties executed the Management Agreement, The Philadelphia Inquirer published an article in which Drexel’s Senior Vice President for Enrollment Management reported that in the Spring, Drexel had “overhauled its admission process” and now anticipated a decline in freshman enrollment for Fall 2015. Snyder, Enrollment Change at Drexel, supra (SA1553–54). Shortly afterwards, in June 2015, Drexel’s President emailed the Drexel community, including SDM, with notice not only that it was now expecting a decline in first-year student enrollment but also that Drexel had “focused on attracting a smaller pool of exceptionally qualified applicants.” Email from John A. Fry, President, Drexel, to Drexel Listserv (June 8, 2015) (SA527). In response to the shock of that news, SDM emailed a request for an update on the precise enrollment for the Fall 2015 Semester first-year class, and the Executive Director of one of Drexel’s student centers remarked, “I guess they were going to find out sooner or later.” Email from Donald Liberati, Executive Director, Drexel, to Rita LaRue, Senior Associate Vice President, Drexel (June 9, 2015) (SA526). Ultimately, less than a month after executing the Management Agreement, Drexel informed SDM that its incoming class size would be lower than the year before – projecting it to be between 2,600 and 2,700 students. Considered in aggregate, while not airtight, this evidence would allow a reasonable jury to conclude that Drexel misled SDM or concealed its true intention from SDM until after finalization of the Management Agreement. If a jury resolves this genuine dispute of material fact in SDM’s favor, then SDM 26 could recover compensatory damages. See Neuman, 51 A.2d at 766. But SDM’s evidence does not permit recovery of punitive damages. Under Pennsylvania law, the same evidence used to establish fraud cannot be the sole support for an award of punitive damages. See Smith, 564 A.2d at 193 (“If the rule were otherwise, punitive damages could be awarded in all fraud cases. This is not the law.”); see also Pittsburgh Live, 615 A.2d at 442. Something more is required: outrageous conduct. See Phillips, 883 A.2d at 445. And SDM does not come forth with sufficient evidence3 that Drexel acted with an 3 The standard of proof required for punitive damages for a fraud claim is not clear under Pennsylvania law. See, e.g., Weston v. Northampton Pers. Care, Inc., 62 A.3d 947, 960–61 (2013) (explaining that fraud claims require clear-andconvincing proof but not addressing standard of proof for punitive damages); Pittsburgh Live, 615 A.2d at 441–42 (same). The likely answer is that the standard of proof for punitive damages mirrors the standard of proof for the underlying claim. Compare Martin v. Johns-Manville Corp., 494 A.2d 1088, 1098 (Pa. 1985) (applying a preponderance standard for punitive damages in a product liability case, which otherwise requires such proof), abrogated on other grounds by Kirkbride v. Lisbon Contractors, Inc., 555 A.2d 800 (Pa. 1989), with Hepps v. Phila. Newspapers, Inc., 485 A.2d 374, 389 (1984) (applying a clear-and-convincing standard for punitive damages for a defamation claim, which otherwise requires such proof), rev’d on other grounds, 475 U.S. 767 (1986), and Polselli v. Nationwide Mut. Fire Ins. Co., 23 F.3d 747, 750 (3d Cir. 1994) (applying a clear-and-convincing standard for punitive damages for a claim of bad-faith conduct 27 evil motive or that Drexel’s conduct was malicious, vindictive, or evidenced a wholly wanton disregard for SDM’s rights. See id. Without such evidence, SDM’s claim for punitive damages fails at summary judgment. See Celotex, 477 U.S. at 322.