Opinion ID: 6105300
Heading Depth: 3
Heading Rank: 1

Heading: Common-Law Fraud Claims in Pennsylvania

Text: To redress injuries caused by intentional falsehoods – either false statements or deliberately concealed facts – Pennsylvania recognizes a civil action for fraud. See Moser v. DeSetta, 589 A.2d 679, 682 (Pa. 1991) (“The concealment of a material fact can amount to a culpable misrepresentation no less than does an intentional false statement.”). As developed in Pennsylvania common law, a fraud claim consists of six elements: 20
(b) A concealment;

recklessness as to whether it is true or false (for a misrepresentation), or (b) Calculated to deceive (for a conceal- ment);
relying on it;
tion; and
such reliance. See Gibbs v. Ernst, 647 A.2d 882, 889 & n.12 (Pa. 1994); Youndt v. First Nat’l Bank of Port Allegany, 868 A.2d 539, 545 (Pa. Super. Ct. 2005). To prevail, a fraud plaintiff must prove each of those elements by clear and convincing evidence. See Moser, 589 A.2d at 682; Gerfin v. Colonial Smelting & Refin. Co., 97 A.2d 71, 72 (Pa. 1953). Upon such proof, a fraud plaintiff may recover compensatory damages. See Neuman v. Corn Exch. Nat’l Bank & Tr. Co., 51 A.2d 759, 766 (Pa. 1947) (explaining that compensatory damages are recoverable for fraudulent misrepresentation claims); Smith v. Renault, 564 A.2d 188, 193 (Pa. Super. Ct. 1989) (same); see also McShea v. City of Phila., 995 A.2d 334, 347 n.5 (Pa. 2010) (Baer, J., dissenting) (explaining that a “tort plaintiff usually recovers the actual damages or compensatory damages that she suffered because of the tort”). 21 A successful fraud plaintiff may also recover punitive damages. But to do so requires the additional showing “that the defendant has acted in an outrageous fashion due to either the defendant’s evil motive or [its] reckless indifference to the rights of others.” Phillips v. Cricket Lighters, 883 A.2d 439, 445 (Pa. 2005) (internal quotation marks omitted); see also Feld v. Merriam, 485 A.2d 742, 747–48 (Pa. 1984) (“Punitive damages must be based on conduct which is malicious, wanton, reckless, willful, or oppressive.” (internal quotation marks omitted)). Thus, proof of the six elements of fraud without additional evidence of outrageous conduct enables a fraud plaintiff to recover compensatory damages but not punitive damages. See Pittsburgh Live, Inc. v. Servov, 615 A.2d 438, 442 (Pa. Super. Ct. 1992) (explaining that even when fraud supports an award of compensatory damages, “the same fraudulent conduct is not sufficient to [support] an award of punitive damages without more”). The six elements of fraud apply to the two subspecies of fraud claims related to the formation of contracts: fraudulent inducement and fraud in the execution. A claim for fraudulent inducement requires proof of the six elements and is available when a person under no duty to enter a contract was deceived into doing so. See Coll. Watercolor Grp., Inc. v. William H. Newbauer, Inc., 360 A.2d 200, 206 (Pa. 1976) (quoting Restatement (Second) of Contracts § 476 (1932)); see also Justin Sweet, Promissory Fraud and the Parol Evidence Rule, 49 Calif. L. Rev. 877, 888 (1961) (“Fraud in the inducement occurs when one party, by means of false statements of fact, warranties, or promises, misleads another into contracting.”). A claim for fraud in the execution consists of the same six elements but with a different focus: proof that a party “was 22 mistaken as to the terms and actual contents of the agreement [it] executed due to the other’s fraud.” Toy v. Metro. Life Ins. Co., 928 A.2d 186, 206 (Pa. 2007); see also Sweet, Promissory Fraud, supra, at 888 (defining “fraud in the execution” as “deception by one party about the contents of the written instrument”). Here, both parties’ claims are for fraudulent inducement, not fraud in the execution. 2. SodexoMAGIC’s Fraudulent Inducement Claim for Compensatory Damages Survives Summary Judg- ment.
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.
in Denying Drexel’s Motion to Strike Declara- tions by Three SodexoMAGIC Witnesses. By way of counterargument, Drexel invokes the sham affidavit rule to contend that the District Court abused its discretion by considering three declarations by SDM employees. See SodexoMAGIC, 333 F. Supp. 3d at 443 (reasoning that the witnesses’ declarations could be reconciled with their prior deposition testimony). The sham affidavit rule allows a court to disregard a later statement by a deponent on two conditions: the later statement contradicts the witness’s deposition testimony, and the discrepancy between the two statements is neither supported by record evidence nor otherwise satisfactorily explained. See Daubert, 861 F.3d at 391–92; Jiminez v. All Am. Rathskeller, Inc., 503 F.3d 247, 254 (3d Cir. 2007) (explaining that “courts generally have refused to disregard the affidavit” where there is “independent evidence in the record to bolster an otherwise questionable affidavit” (internal quotation marks omitted)); see generally 10A Charles Alan Wright, Arthur R. Miller & Mary K. Kane, by insurers, which otherwise requires such proof). If so, then SDM would need to supply clear-and-convincing evidence of outrageous conduct, and it does not. But due to the paucity of its evidence of such conduct, SDM’s punitive damages claim would similarly fail at summary judgment under the preponderance standard. 28 Federal Practice and Procedure § 2726.1 (4th ed. 2021) (“[A]n interested witness who has given clear answers to unambiguous questions cannot create a conflict and resist summary judgment with an affidavit that is clearly contradictory, without providing a satisfactory explanation of why the testimony is changed.”). On abuse-of-discretion review, the District Court’s decision not to apply the sham affidavit rule holds up – by a narrow margin. Three SDM witnesses involved in negotiating the Management Agreement testified at their depositions about representations that Drexel made about future student enrollment. One SDM witness testified that Drexel could not predict future student enrollment and that Drexel was noncommittal about future student enrollment: Q. In every meeting that you had with [Drexel’s representative], did she not say that nobody could predict what the freshman enrollment would be going forward? A. Every time – Q. Well, answer my question. A. Yes.