Opinion
CIVIL ACTION No. 01-5542
December 3, 2003
MEMORANDUM
Soltech, Inc., Defendant and Counter Claimant in this case, ("Soltech"), moves this Court to reconsider one ruling made in the Court's Memorandum of November 25, 2003. In Soltech's Counterclaim, Count I, Soltech made allegations of fraudulent inducement against Penn City Investments, Inc. ("Penn City") and John Brown, Jr., an officer of Penn City ("Brown").
The Court dismissed the fraudulent inducement claim against Penn City under the "gist of the action" doctrine (Memorandum, pp. 4-9), and in footnote 5 of the Memorandum, the Court held that the Motion of Brown for summary judgment would be granted because "Soltech's allegations are clear that he acted for Penn City."
In its Motion for Reconsideration, Soltech relies on § 348 of the Restatement (Second) of Agency for the proposition that an agent may be held liable for fraudulent inducement even where he acts in furtherance of his principal's interest, and cites several cases in support of this proposition.
Penn City resists the Motion for Reconsideration, arguing that none of the cases on which Soltech relies were concerned with the factual situation in which the agent acted for a disclosed contracting party, specifically where the agent was negotiating the contract, and the essential claim in the case revolves around the breach of the written contract which resulted from the negotiations.
Section 348 of the Restatement (Second) of Agency holds an agent liable for his fraudulent conduct, even if such fraud occurred in a transaction carried out on behalf of his principal:
An agent who fraudulently makes representations, uses duress, or knowingly assists in the commission of tortious fraud or duress by his principal or by others is subject to liability in tort to the injured person although the fraud or duress occurs in a transaction on behalf of the principal.
Restatement (Second) of Agency § 348.
Although Soltech cited Section 348 in its Memorandum, the Court overlooked it in its discussion of whether Brown could be individually liable for fraudulent inducement on the factual allegations made by Soltech. These allegations (Counterclaim ¶¶ 44-49) accuse Brown of making representations of fact about facilities improvements, which he allegedly knew were false, that induced Soltech to enter into the contract, and that inter alia would also persuade the Delaware River Port Authority to speed up the governmental approval process for the improvements. Soltech further alleges that Brown and Penn City intended to, and did in fact, give the newly improved space to an established customer of Penn City, Banacol, for that customer's use in warehousing bananas.
In the Court's Memorandum of November 25, 2003, there was extensive discussion of Section 352 of the Restatement (Second) of Agency which acts to limit an agent's tort liability:
An agent is not liable for harm to a person other than his principal because of his failure adequately to perform his duties to his principal, unless physical harm results from reliance upon performance of the duties by the agent, or unless the agent has taken control of land or other tangible things.Id. § 352.
However, section 348 has been interpreted as constituting an exception to section 352's applicability. In Newman v. Forward Lands, Inc., 418 F. Supp. 134 (E.D. Pa. 1976), the Court held that a corporation's directors could not be held liable for the tort of negligent mismanagement. In so holding, the Court invoked section 352 and noted that none of the "recognized exceptions to the . . . rule apply to this case: there are no allegations of fraud [or] duress." Id. at 137 (citing Restatement (Second) of Agency § 348 in a footnote).
Additionally, section 348 has been applied absent any consideration of section 352's applicability. In Weintraub Bros. Co. v. Attraction House Co., No. 94-6673, 1995 U.S. Dist. LEXIS 8435 (E.D. Pa. Jun. 13, 1995), the Court denied an agent's motion for summary judgment on the basis that section 348 provides that an agent remains liable for fraudulent statements made in furtherance of the agent's interests. The agent misrepresented that a contract between plaintiff and the agent's principal and a letter of credit satisfactory to the plaintiff's needs were "basically approved." Id. at * 9. This effectively induced plaintiff to perform the entire contract. Similarly, the court in Roberts v. The Estate of Barbagallo, 531 A.2d 1125 ( Pa. Super. 1987) reversed the judgment of the lower court and held the defendant, real estate agency, liable under section 348 for failing to disclose the existence of certain hazardous insulation material.
Penn City points out, correctly, that these cases did not involve an agent working for a disclosed principal whose liability for tort was barred by the gist of the action doctrine. The cases Penn City relies on,Etoll, Inc. v. Elias/Savion Advertising. Inc., 811 A.2d 10, 14 (Pa.Super. 2002), and Bash v. Bell Tel. Co., 601 A.2d 825, 829 (Pa.Super. 1992), support this Court's holding in concept, but do not specifically involve claims that the agent fraudulently induced the other party to enter into a contract. The Court has not found any cases applying Pennsylvania law with similar facts. Soltech does not seek reconsideration of this Court's conclusion that the fraudulent inducement claim against Penn City itself is barred by the gist of the action doctrine, and the Court independently concludes, once again, that the fraudulent inducement claim against Penn City is barred by the gist of the action doctrine.
The Court concludes that it should not have granted summary judgment on Soltech's claim for fraudulent inducement against Brown in view of the black letter language of Section 348. However, the Court does not conclude that Soltech is necessarily entitled to jury consideration on this issue. Rather, the Court believes that the Court's holdings on this claim should depend on the record at trial, rather than on summary judgment papers. Soltech will have the burden of showing that Brown's conduct, in the overall facts of the case, warrants jury consideration of its claims of fraudulent inducement against Brown individually. The Court will initially require Soltech to make an offer of proof on this issue.
The Court also noted in its Memorandum of November 25, 2003 (p. 7 n. 4) that none of the parties had discussed the parol evidence rule and whether its application would bar introduction of evidence about the preliminary negotiations, including the alleged misrepresentations of Brown. The issue is now discussed in the Motion for Reconsideration and the response. The Court will also reserve ruling on this issue until a record can be developed at the trial, most likely by an offer of proof by Soltech and legal argument. The parties are directed to be prepared on this issue, and to proceed with the case in accord with the Court's rulings.
Thus, the Court now only holds that the Motion of John Brown, Jr. for Summary Judgment was improperly granted and will grant reconsideration, and deny John Brown, Jr.'s Motion for Summary Judgment as to Count I, charging him with fraudulent inducement, without prejudice, with leave to raise it at trial.
An appropriate Order follows.
ORDER
AND NOW, this ___ day of December, 2003, the Motion of Soltech, Inc. for Reconsideration, as to the granting of summary judgment in favor of John Brown, Jr. is granted in part and denied in part. The Court will reconsider the grant of summary judgment in favor of John Brown, Jr., will deny the Motion of John Brown, Jr. for Summary Judgment without prejudice with leave to raise it again at the time of trial, and following a telephone conference with counsel, will begin the selection of jury on Monday, December 8, 2003 at 9:30 a.m. Please call Chambers at 267.299.7520 for courtroom location.