Summary
finding that under Kansas law, which as New Jersey law holds that rescission is unavailable when there has been substantial performance, the court could not determine at the summary judgment stage whether rescission would be an appropriate remedy because whether there had been substantial performance or material breach remained an unresolved issue of fact: "the Court will not determine, in advance of a potential jury finding, whether the alleged breach is material, warranting rescission"
Summary of this case from CAIXA GERAL DE DEPOSITOS, S.A. v. RODRIGUESOpinion
Civil No. 01-CV-2059 (RBK).
January 13, 2005
OPINION
In this the fourth Opinion issued in this case, the Court will address the motion for partial summary judgment filed by Plaintiff Koch Materials Company ("Koch") directed at counts III, IV, V, and VII of the counterclaim brought by Defendant Shore Slurry Seal, Inc. ("Shore"). Though several agreements between the parties are at issue in this case, this particular motion for summary judgment concerns, for the most part, a settlement agreement entered into by Koch and Shore effective October 19, 2000 ("Settlement Agreement"). The Settlement Agreement provides that it "shall be interpreted and construed pursuant to the laws of the State of Kansas excluding that state's provisions of conflicts of law." Neither party disputes that this clause applies; and both parties have keyed their arguments to applicable Kansas authority. So the Court will apply Kansas law.
I. BACKGROUND
Koch is an asphalt emulsion manufacturer. Shore is a road construction company. Hence, Shore buys asphalt emulsion product from Koch. In 1998, Shore and Koch entered into a seven-year "Exclusive Supply Agreement" ("ESA") in which Shore agreed to purchase all asphalt requirements from Koch and to purchase at least two million gallons of asphalt per year. Shore further agreed not to compete with Koch in the manufacture or production of asphalt emulsion in New Jersey. For its part, Koch agreed to charge Shore the same price as Shore's competitors in the paving industry to the extent the competitors were purchasing the same volume, in the same area, and within the same two week period. In 2000, Shore believed Koch was not abiding by the terms of the ESA. Particularly, Shore believed Koch was charging it more for the same product than it was charging E.J. Breneman, Inc., a competitor. Further, Shore believed Koch was trying to mask this discrepancy by giving different product names to the same exact asphalt product. That is, Shore believed that the product it was purchasing, CSS-1h, was identical in all respects to the one being purchased at a lower price by Breneman, E-18R. If that was true, then Shore believed Koch to be in breach of the ESA. Shore communicated to Koch its concerns regarding the identity and pricing of the two products, leading to a dispute between the parties.
Out of this dispute arose the Settlement Agreement at issue in this case. Far from settling their dispute, the Settlement Agreement itself is now a featured ring in this multi-ringed event. The actual language of the Settlement Agreement is not in dispute. In paragraph 1, Koch agreed to credit Shore's account in the amount of $110,000. Paragraph 2 contains Koch's promise to provide a product list and fixed-term pricing:
Koch agrees to provide Shore with a list of all products that are available for purchase by any roadway contractor at [its Pennsylvania and New Jersey facilities]. The list shall include all names under which Koch markets asphalt products to such contractors at said facilities. The list shall further provide the price at which available products can be purchased . . . said price to be determined in accord with the price provisions set forth in the Supply Agreement. The list will be provided to Shore upon reasonable request. Further, with regard to product sales from [Pennsylvania or New Jersey], should Koch enter into any agreement with a contractor to supply a particular asphalt product or products at a fixed price, for a fixed term, (e.g. monthly or yearly), then Koch shall also offer Shore the opportunity to commit to the same fixed price and term for purchases that Shore is required to make under the Supply Agreement.
Paragraph 3 states that the "agreements set forth in Paragraph 2 above shall be coterminous with the Supply Agreement." Paragraph 4 embodies the parties' waivers of any claims, stating in part
In consideration of the obligations set out in this Agreement, each Party hereby releases, acquits and forever discharges the other Party, its officers, directors, agents, servants and employees and all persons . . . from all claims, causes of action, claims for relief, actions, demands, costs, losses, damages, liabilities, fines, penalties and expenses of every kind and nature, known or unknown, anticipated or unanticipated, which as of the Effective Date, it has or had or which could have been brought. Nothing stated herein nor any releases or other consideration contemplated hereby shall be construed as an admission of liability, all liability being expressly hereby denied.
Paragraph 7 explains that each party was represented by and received advice from counsel. Paragraph 9, entitled "Reliance," states "[e]ach Party is relying upon its own information and advice and advice of its counsel in executing this Agreement and is not relying upon any representation made by any other Party's counsel, except as may otherwise [be] expressly contained herein." (emphasis added). Paragraph 10 Finally, paragraph 10(b) contains the merger clause:
This Agreement shall, upon its execution, constitute the entire agreement and understanding between the Parties regarding the terms of compromise that comprise the consideration for the Parties' settlement and mutual releases, and there are no representations, warranties, promises, understandings or undertakings between the Parties concerning said subject matter, not herein contained. The terms of this Agreement are contractual and not a matter of mere recital.
To the contrary, Shore claims — and has put forth evidence — that Koch made certain misrepresentations on which Shore relied in entering the Settlement Agreement. Shore claims Koch maintained during settlement discussions that it charged Breneman fifty-nine cents per gallon for the product in dispute, E-18R. Shore contends, with evidentiary support, that Koch was actually charging Breneman fifty-three cents per gallon. The parties appear to agree that the difference of six cents is a substantial one in the context of the volume in which they were dealing.
Robert Capoferri, President of Shore described, by way of affidavit, the Settlement Agreement and attendant negotiations as follows:
3. The Settlement Agreement and Mutual Release grew out of a dispute between Shore Slurry and Koch that in violation of the terms of an Exclusive Supply Agreement between the parties, dated February 18, 1998, Koch had overcharged Shore Slurry for emulsion products sold to Shore Slurry, contrary to the terms of the Exclusive Supply Agreement in which Koch had promised Shore Slurry that the pricing to it would be equal to its competitors for the same or equivalent products. . . .
4. In negotiating the terms of the Settlement Agreement and Mutual Release, I met with, corresponded with, and discussed the terms of the Agreement with Ronald Hull and Rod Birdsall of Koch. . . .
5. In agreeing to the terms of the Settlement Agreement and Mutual Release, I relied upon the statements of Ronald Hull and Rod Birdsall that Koch had charged a competitor of Shore Slurry, E.J. Breneman, Inc. 59¢ per gallon for an emulsion product in 1998 and 1999 because it was not the same specifications as the emulsion sold to Shore Slurry at 70¢ per gallon.
6. During the aforesaid negotiations, no one on behalf of Koch disclosed to me or any other representative of Shore Slurry Seal, that in 1998 Koch had sold emulsion products to competitors of Shore Slurry at 53¢ per gallon instead of the 59¢ per gallon claimed by Koch.
Koch initiated the present litigation principally on a theory of breach of the ESA by Shore. In response to Koch's complaint, however, Shore filed several counterclaims based on the alleged misrepresentations recounted above and later actions by Koch that Shore claims breached the Settlement Agreement along with federal law. The Amended Counterclaim contains eight counts — four of which are relevant to the present motion for summary judgment. Count III alleges breach of the Settlement Agreement. Count IV alleges Koch fraudulently induced Shore to enter into the Settlement Agreement through misrepresentations regarding product pricing. Count V alleges Koch negligently misrepresented facts regarding product pricing and that Shore relied on those misrepresentations in entering the Settlement Agreement.
Count VII alleges breach of the implied covenant of good-faith and fair dealing in the ESA, the "Novachip Sublicense Agreements" ("Novachip Agreements"), and the Settlement Agreement. Count VII is based on New Jersey law. New Jersey law applies to the ESA and the Novachip Agreements but does not apply to the Settlement Agreement. Count III includes allegations that Koch breached the implied covenant of good faith and fair dealing in the Settlement Agreement under Kansas law. Shore included the claim in Count VII pertaining to the Settlement Agreement as a precaution, in the event that the Court found New Jersey law applied. Because the Court will apply Kansas law in interpreting the Settlement Agreement, it will look to Count III to assess the good faith and fair dealing claim as it relates to the Settlement Agreement. Count VII will be treated as a claim pertaining only to the ESA and the Novachip Agreements.
II. SUMMARY JUDGMENT
Summary judgment is proper "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." FED. R. CIV. P. 56(c). In deciding whether there is a disputed issue of material fact, a court must view the facts and all reasonable inferences in a light most favorable to the nonmoving party. Id. at 250; Anderson v. Consol. Rail Corp., 297 F.3d 242, 247 (3d Cir. 2002).
The moving party always "bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of the `pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any,' which it believes demonstrate the absence of a genuine issue of material fact." Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Where the nonmoving party bears the burden of persuasion at trial, however, "the burden on the moving party may be discharged by `showing' — that is, pointing out to the district court — that there is an absence of evidence to support the nonmoving party's case." Id. at 325. The non-moving party "may not rest upon the mere allegations or denials of" its pleadings and must present more than just "bare assertions, conclusory allegations or suspicions" to establish the existence of a genuine issue of material of fact. FED. R. CIV. P. 56(e); Jalil v. Avdel Corp., 873 F.2d 701, 707 (3d Cir. 1989) (citation omitted).
III. DISCUSSION
The Court will grant in part and deny in part the present motion for partial summary judgment by Koch. As to Count III, genuine issues of material fact exist whether Koch breached the Settlement Agreement and, if Koch did breach the Settlement Agreement, whether there was a material breach warranting rescission. Summary judgment will be granted on Counts IV and V because the express terms of the Settlement Agreement and the circumstances under which that agreement was reached belie any claim by Shore that it justifiably relied on representations made by Koch. Summary judgment will be denied on Count VII because genuine issues of material fact exist whether Koch breached the ESA at a point after the Settlement Agreement became effective and whether Koch breached the Novachip Agreements. Summary judgment will be granted on Count VII only to the extent that Count VII states a claim for breach of the implied covenant of good faith and fair dealing in the Settlement Agreement under New Jersey law.
A. Count III — Breach of Contract and the Implied Covenant of Good Faith and Fair Dealing
Koch moves for summary judgment on Count III, arguing that Shore cannot obtain the relief it seeks under that count. Under Count III, Shore alleges the Settlement Agreement has been rendered void and unenforceable by Koch's breach of that Agreement. Specifically, Shore alleges Koch failed to provide a list of products available in New Jersey and Pennsylvania and failed to offer fixed rate pricing when it was obligated to do so under the terms of the Settlement Agreement. Shore further alleges that Koch's actions in this regard breached the implied covenant of good faith and fair dealing implied in all contracts under Kansas law. In its brief, Koch argues that even if the allegations are true, they do not amount to a material breach of the Settlement Agreement. And thus, the Settlement Agreement should not be rescinded. Regarding the good faith and fair dealing claim, Koch argues that, because a "majority" of the events that make up this claim by Shore occurred before the parties entered the Settlement Agreement, rescission is not a remedy available to Shore.
The Court cannot now determine whether rescission would be an appropriate remedy. Under Kansas law, rescission is available only if the breach is "material and the failure to perform so substantial as to defeat the object of the parties in making the agreement." Federal Land Bank of Wichita v. Krug, 856 P.2d 111, 115 (Kan. 1993) (citing M W Dev., Inc. v. El Paso Water Co., 634 P.2d 166 (Kan. 1981)). Conversely, a breach that is incidental and subordinate to the essence of the bargain, going only to a part of the consideration, does not warrant rescission.In re Estate of Johnson, 452 P.2d 286, 292 (Kan. 1969).
Kansas follows the rule of substantial performance in contracts. That rule permits that performance under a contract does not need to be in "`exact correspondence with the contracted obligation.'" Almena State Bank v. Enfield, 954 P.2d 724, 727 (Kan.Ct.App. 1998) (quoting Bernard v. Las Americas Communications, Inc., 84 F.3d 103, 108-09 (2d Cir. 1996)). Rather, a party is in material breach and, therefore, has failed to substantially perform an obligation under a contract if the other party "receives something substantially less or different from that for which he bargained." Almena State Bank, 954 P.2d at 727 (citation omitted). Further, if there has been substantial performance there cannot have been a material breach. Id. Whether there has been substantial performance is a question of fact that must be answered by taking into account "the existing facts and circumstances." Id. (citation omitted).
Because availability of the rescission remedy turns on a question of fact, i.e., whether there has been substantial performance, the Court must deny summary judgment on this issue. It is true that inasmuch as rescission is an equitable remedy the decision on its availability may ultimately rest with the Court. But the demand for damages based on this same alleged breach of the Settlement Agreement also presents a potential jury question. This demand for damages in addition to the demand for rescission makes it premature for the Court to determine whether the alleged breach of the Settlement Agreement by Koch would, if true, amount to a material breach. That is, the Court will not determine, in advance of a potential jury finding, whether the alleged breach is material, warranting rescission. Further, even if Shore sought only equitable relief, factual disputes exist regarding the contract and its performance that cannot be resolved on summary judgment. Namely, whether Koch ever provided product lists, whether the contract actually required it to do so without prompting from Shore, and whether Shore nevertheless requested such a list. Until these issues are resolved conclusively, the Court will not speculate whether they would amount to a material breach. Koch's motion for summary judgment on Count III of Shore's counterclaim will, therefore, be denied.
The Court also rejects Koch's argument that because a "majority" of its allegations relate to formation, not performance, Shore's claim for breach of the implied covenant of good faith and fair dealing does not provide a basis on which to rescind the Settlement Agreement. It is well-settled that Kansas reads into every contract a duty of good faith and fair dealing. See Daniels v. Army Nat'l Bank, 822 P.2d 39, 43 (Kan. 1991). This imposes a duty on every party to a contract not to "`intentionally and purposely do anything to prevent the other party from carrying out his part of the agreement, or do anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract.'" Id. (quoting Bonanza, Inc. v. McLean, 747 P.2d 792, 801 (Kan. 1987)). Koch's argument on this issue is correct in one way: the doctrine of good faith and fair dealing relates only to performance, and not formation, of a contract. Prof'l Serv. Indus., Inc. v. Kimbrell, 834 F. Supp. 1305, 1310 (D. Kan 1993) (applying Kansas law and citing Bonanza, 747 P.2d at 801).
There are several factual disputes whether Koch acted in a manner conducive to fair dealing. As discussed briefly above, one hotly contested issue in this case is whether Koch provided Shore with a product list at any time after October 2000. Also disputed is whether Koch presented Shore with an opportunity to enter into fixed term agreements and whether any events ever occurred that would trigger such an obligation on Koch's part in the first place. These factual disputes all relate to events that may have occurred after October 2000 and may have frustrated performance under the Settlement Agreement. Thus, Shore's claim for breach of the implied covenant of good faith and fair dealing in the Settlement Agreement presents factual disputes pertaining to performance, not formation, and is not fit for resolution by the Court on summary judgment.
The Court finds the Settlement Agreement ambiguous as it relates to this point only. The agreement first explains, in absolute terms, that Koch has a duty to provide to Shore a list of products available in Pennsylvania and New Jersey. The contract next states that Koch must provide the list on reasonable request by Shore. One could read this to mean that Koch's duty in this regard is triggered only by a request from Shore; or one could read it to mean that Koch has an initial duty to provide the list without request but subsequent product lists must be produced in response to requests by Shore. See Dutta v. St. Francis Regional Medical Center, Inc., 850 P.2d 928, 936 (Kan.App.Ct. 1993) ("The language in a contract is ambiguous if the words in the contract are subject to two or more possible meanings. The determination of whether a contract is ambiguous is a question of law.") Interpreting contract terms determined by the court to be ambiguous is the province of the fact finder.Dutta, 850 P.2d at 937 ("The meaning of the clause in the contract was ambiguous and the trial court did not err in allowing the jury to decide the factual issues concerning the meaning of the clause and whether the hospital breached the provisions of the written contract.")
B. Counts IV and V — Fraud and Negligent Misrepresentation
The Court will grant Koch's motion for summary judgment on Shore's claims for fraud and negligent misrepresentation. In doing so, the Court will apply Kansas law because the parties, having geared their arguments, for the most part, toward Kansas law, appear to agree that it applies. Applying New Jersey law would not affect the outcome of this motion because the Court's analysis, which focuses solely on whether Shore justifiably (or reasonably) relied on statements by Koch, would not change under New Jersey law. Under both claims, Shore was not justified, as a matter of law, in relying on any statements by Koch regarding Koch's product line and the pricing terms offered to other customers.
1. Fraud
Under Kansas law, four elements constitute a fraud claim: "[1] an untrue statement of a material fact, [2] known to be untrue, [3] made with the intent to deceive or with reckless disregard for the truth, and [4] upon which another party justifiably relies to his or her detriment." Smith v. Stephens, 940 P.2d 68, 69-70 (Kan.Ct.App. 1997) (citing Albers v. Nelson, 809 P.2d 1194, 1197-98 (Kan. 1991)). The party asserting fraud must prove each of these four elements by clear and convincing evidence. Alires v. McGehee, 85 P.3d 1191, 1195 (Kan. 2004). Though the existence of fraud is normally a question of fact,id. at 1195, Kansas courts can determine whether there was justifiable reliance as a matter of law, see id. at 1200. Justifiable reliance is not necessarily susceptible to precise definition but is generally found where the plaintiff, considering his ability to gain information along with his level of intelligence and general sophistication, could be said to have acted reasonably in relying on the defendant's representations of fact. See id. at 1198-1200; McGough v. Gabus, 526 N.W.2d 328, 332 (Iowa 1995) ("The standard is whether the complaining party, in view of his own information and intelligence, had a right to rely on the representations.") (citation omitted);Collins v. Burns, 741 P.2d 819, 821 (Nev. 1987) ("The test is whether the recipient has information which would serve as a danger signal and a red light to any normal person of his intelligence and experience.").
Because Shore — a long-time participant in the road-paving business — was represented by counsel in the throes of a contentious dispute in which Shore was accusing Koch of not being truthful about its product line and the pricing terms offered to others, and out of which arose an agreement that clearly stated that neither party relied on the other's representations, Shore was not justified in relying on any representations by Koch regarding product pricing. In short, Shore is attempting to use its fraud claim as a sword that will vitiate any contractual language it previously agreed to. The Court will not permit it to do so.
As is rightfully so, Shore does not argue that it stood on unequal footing with Koch when it negotiated the Settlement Agreement. Nor does Shore otherwise paint itself as unsophisticated or vulnerable to deception as would, say, an average consumer dealing with a large corporation. To the contrary, Shore is well-versed in the workings of the asphalt business in general and the implications of product-pricing in specific. Shore, by its own devices, identified an irregularity in Koch's pricing and confronted Koch about it. From that encounter ensued negotiations and an eventual settlement agreement. In general terms, the parties settled this particular dispute by waiving all claims against each other, by Koch crediting Shore's account in the amount of $110,000, and by Koch agreeing to be bound by additional terms relating to the ESA.
As to representations made during negotiations, the Settlement Agreement states, in several places, there were none. Paragraph 7 states that Shore received advice only from its own counsel. Paragraph 9 states explicitly that Shore was relying on "its own information and advice and advice of its counsel . . . and [was] not relying upon any representation made by any other Party. . . ." Bargaining at arm's length and with apparently equal bargaining power Shore could have secured a clause that stated, for instance, that it was indeed relying on Koch's representation that Koch was selling E-18R to a competitor for fifty-nine cents per gallon and this representation induced Shore to enter into the Settlement Agreement. See e.g., Ford Motor Credit Co. v. Suburban Ford, 699 P.2d 992, 995 (Kan. 1985) (reciting and generally enforcing contract that stated in part "[t]o induce Ford Credit to extend financing accommodations hereunder, Dealer has submitted information concerning its business organization and financial condition. . . . Dealer acknowledges and intends that Ford Credit shall rely, and shall have the right to rely, on such information in extending and continuing to extend financing accommodations to Dealer."). Instead, it chose to settle its claim with the contractual language detailed above. If the representations of Koch were as profoundly influential as Shore contends they were, then Shore never should have settled its claim using this contractual language.
Moreover, for all of the protestations by Shore that it never would have entered the Settlement Agreement if it knew that Koch was giving discounts to competitors that were steeper than it already revealed, no evidence suggests that Shore was somehow deceived into agreeing in writing that Koch made no representations. So, even if there were misrepresentations regarding product pricing, that does not explain the pervasive contractual language stating that no such representations were made. See Alires, 85 P.3d at 1200 ("There is no showing in the record that the subsequent contract addendum which contained the waiver of the right to inspect was induced by any additional misrepresentations of the seller."). Further, though Shore would have the Court cast aside and treat as "boilerplate" the contractual terms stating there were no representations made, paragraph 10(b) makes doing so untenable. That paragraph explicitly states that all terms of the Settlement Agreement are contractual, "not mere recital." Because Shore accepted these terms of its own volition, it cannot now claim that this language is meaningless.
The contractual language notwithstanding, it was simply unreasonable for Shore to place any stock in Koch's alleged bargaining table statements. Before settling this particular pricing dispute Shore had essentially called Koch on the carpet for not being forthcoming about its product line and pricing. Koch took the position that there were no irregularities with its product offerings and Shore expressed its suspicions to the contrary. The deposition testimony of Steve Plummer, Shore's comptroller who was involved in and familiar with the settlement discussions, demonstrates Shore's marked indifference to the statements made by Koch. Regarding the dispute over the identities of CSS-1h and E-18R, Plummer was asked whether, during the settlement negotiations, Shore believed the products were the same. Plummer deposed, "[t]hey ultimately told us that certification was a mistake. They maintain — they still maintain they are different products." The deposing attorney then asked "[b]ut if you believed them when they told you the products are different, why did you settle with them for $110,000?" Plummer responded, "[a]t that point we would have guessed that, even if they were the same, then we were happy or we would have been satisfied, given that they had an obligation going forward not to screw us on the price anymore." Plummer went on to explain that had he known the depth of the actual price differential there was no way he would have settled for $110,000, because there were actually millions of dollars at stake.
This testimony demonstrates that Shore entered the Settlement Agreement without complete information and was willing to forego further investigation into the matter for the price of $110,000 plus other terms for the future. Such "conscious ignorance" cannot form the basis of later fraud claims. Cf. Fieser, 509 P.2d at 1161-62 ("[A] compromise and settlement is not defective merely because the parties were ignorant or mistaken as to the full extent of their rights. In order for a mistake to have legal significance and to constitute a basis for invalidating a compromise, it must be based upon the parties' unconscious ignorance. . . . A person who enters into a compromise, consciously ignorant of a fact but meaning to waive all inquiry into it, is not mistaken in the legal sense; in such a situation it is the intention of the parties to accept the consequences of uncertainty."). If Shore chose to litigate instead of settle this dispute, then it would have, presumably, gained the opportunity to further investigate the veracity of Koch's statements. But Shore chose to forego further inquiry, reasoning that no matter what Koch had previously done with pricing, Shore knew, in the words of Steven Plummer, "they had an obligation going forward not to screw us on the price anymore." Under these circumstances, it was absolutely unjustifiable to make a decision to settle this dispute based on any statements made by Koch. Simply put, Shore did not have complete information, it knew it did not have complete information, and it decided to settle its potential claim against Koch anyway. Shore must now accept the consequences of its previous uncertainty.
Given the circumstances of the Settlement Agreement, i.e., the clear contractual language that Shore assented to in exchange for $110,000 and future promises when Shore knew that it did not have complete information regarding Koch's pricing of its products, the Court concludes Shore cannot, as a matter of law, be said to have justifiably relied on statements made by Koch regarding its products and the pricing terms afforded other customers. The Court will grant Koch's motion for summary judgment on Count IV of Shore's counterclaim.
2. Negligent Misrepresentation
The Court will grant summary judgment on the negligent misrepresentation claim for the same reason: Shore was not justified in relying on representations made by Koch during the settlement negotiations. Kansas recognizes the tort of negligent misrepresentation and in doing so follows closely the principles set forth by the Restatement (Second) of Torts § 552 (1976). See Mahler v. Keenan Real Estate, Inc., 876 P.2d 609, 616 (Kan. 1994) ("We find § 552 to be a fair statement of law and persuasive authority, and we adopt the Restatement (Second) of Torts § 552. We hold that a cause of action for negligent misrepresentation as defined in § 552 is recognized in the state of Kansas."). The Restatement describes a claim for negligent misrepresentation as follows:
(1) One who, in the course of his business, profession or employment, or in any other transaction in which he has a pecuniary interest, supplies false information for the guidance of others in their business transactions, is subject to liability for pecuniary loss caused to them by their justifiable reliance upon the information, if he fails to exercise reasonable care or competence in obtaining or communicating the information.
(2) Except as stated in Subsection (3), the liability stated in Subsection (1) is limited to loss suffered
(a) by the person or one of a limited group of persons for whose benefit and guidance he intends to supply the information or knows that the recipient intends to supply it; and
(b) through reliance upon it in a transaction that he intends the information to influence or knows that the recipient so intends or in a substantially similar transaction.
(3) The liability of one who is under a public duty to give the information extends to loss suffered by any of the class of persons for whose benefit the duty is created, in any of the transactions in which it is intended to protect them.
RESTATEMENT (SECOND) TORTS § 552 (1976).
The Court's conclusion regarding justifiable reliance in the negligent misrepresentation claim is the same as that for the fraud claim: given the circumstances and the clear contractual language, Shore was not justified in relying on representations made by Koch. Thus, the Court will grant Koch's motion for summary judgment on the claim for negligent misrepresentation.
3. New Jersey Law
Applying New Jersey law does not lead to a different result. A claim for common law fraud under New Jersey law is essentially the same as one under Kansas law. See Gennari v. Weichert Co. Realtors, 691 A.2d 350, 367 (N.J. 1997) ("The five elements of common-law fraud are: (1) a material misrepresentation of a presently existing or past fact; (2) knowledge or belief by the defendant of its falsity; (3) an intention that the other person rely on it; (4) reasonable reliance thereon by the other person; and (5) resulting damages."). As explained by the Third Circuit, New Jersey courts use the terms "justifiable reliance" and "reasonable reliance" somewhat interchangeably, though any difference between the standards as they apply in this case is doubtful. See Voilas v. General Motors Corp., 170 F.3d 367, 377 (3d Cir. 1999) (discussing fundamental similarities and differences between the "reasonable reliance" and "justifiable reliance"). This Court's analysis in applying New Jersey law to Shore's fraud claim is unchanged: Shore was neither justified nor reasonable in giving credence to the representations made by Koch.
New Jersey also recognizes the tort of negligent misrepresentation. See Kaufman v. I-Stat Corp., 754 A.2d 1188, 1195 (N.J. 2000) (citing H. Rosenblum, Inc. v. Adler, 461 A.2d 138, 142-43 (N.J. 1983) ("Negligent misrepresentation is a legally sound concept. An incorrect statement, negligently made and justifiably relied upon, may be the basis for recovery of damages for economic loss or injury sustained as a consequence of that reliance.") (citing inter alia RESTATEMENT OF TORTS § 552, especially illustration 2)). Again, New Jersey law does not require a different conclusion regarding justifiable reliance. There was none in this case.
C. Count VII — Implied Covenant of Good Faith and Fair Dealing
Koch's motion for summary judgment on the good faith and fair dealing claim in Count VII is directed at that claim as it relates to the Settlement Agreement. As explained above, Count III of the Amended Counterclaim also asserts a claim for breach of the implied covenant of good faith and fair dealing in the Settlement Agreement. The claim in Count VII, to the extent it relates to the Settlement Agreement, is duplicative of the good faith and fair dealing claim in Count III, except that it is based on New Jersey law. But Count VII also sets forth claims for breach of the implied covenant in the ESA and the Novachip Agreements. Though Koch moves for summary judgment on Count VII generally, it presents arguments regarding only the Settlement Agreement. For the purpose of clarity, the Court will grant Koch's motion for summary judgment as it relates to the good faith and fair dealing claim pertaining to the Settlement Agreement in Count VII only because it is based on New Jersey law, which does not apply to the Settlement Agreement. As explained in part A above, Shore can maintain a claim under this theory based on Kansas law. The Court will deny summary judgment on the rest of Count VII for the obvious reason that Koch has not presented any argument in its papers pertaining to the ESA and the Novachip Agreements.
IV. CONCLUSION
For the reasons stated above, the Court will grant in part and deny in part Koch's motion for partial summary judgment. The Court will grant summary judgment on Counts IV and V of Shore's Amended Counterclaim, will grant summary judgment on part of Count VII, and will deny summary judgment on the rest of Count VII and all of Count III.