Menu
Blog Banner Image

The Franchise Memorandum

Court Rejects Franchisor’s Motion to Dismiss Fraud Claims Under Pennsylvania’s “Gist of the Action” Doctrine

A federal court in Michigan recently determined that Pennsylvania’s “gist of the action” doctrine, which is similar to the economic loss rule, did not bar franchisees’ fraud claims. Nutrimost Doctors, LLC v. Sterling, 2018 WL 1570624 (E.D. Mich. Mar. 30, 2018). Franchisor Nutrimost Doctors sued its three franchisee chiropractors claiming that they had purposely submitted contaminated samples of Nutrimost’s supplements to a laboratory in an attempt to void the franchise agreements. Nutrimost had the supplements tested by a different facility that detected no contamination, prompting it to sue the franchisees for fraud and other claims. The franchisees counter-sued alleging breach of contract and tort claims, including fraud. According to the franchisees, Nutrimost had fraudulently represented prior to entering into the franchise agreements that its program was “guaranteed” to result in weight loss of at least “25 pounds in 40 days,” that its system was based on “revolutionary breakthrough technology,” and presented photos of individuals who had purportedly lost weight. The parties had agreed that Pennsylvania law would govern their dispute.

Nutrimost moved to dismiss the fraud claims, contending that they were precluded by Pennsylvania’s “gist of the action” doctrine, a legal theory that precludes a party from recasting a breach of contract claim as a tort claim. The court disagreed with Nutrimost that the doctrine applied, because the fraudulent statements were made before the parties entered into the franchise agreements, and the doctrine is inapplicable where the statements are made to fraudulently induce a party to enter into a contract. The court also rejected Nutrimost’s alternative argument that the statements were mere “puffery” that removed them from the realm of fraud. The court found that these representations were “specific and measurable” claims about Nutrimost’s system. The court therefore refused to dismiss them.

Email LinkedIn Twitter Facebook

The information contained in this post is provided to alert you to legal developments and should not be considered legal advice. It is not intended to and does not create an attorney-client relationship. Specific questions about how this information affects your particular situation should be addressed to one of the individuals listed. No representations or warranties are made with respect to this information, including, without limitation, as to its completeness, timeliness, or accuracy, and Lathrop GPM shall not be liable for any decision made in connection with the information. The choice of a lawyer is an important decision and should not be based solely on advertisements.

About this Publication

The Franchise Memorandum is a collection of postings on summaries of recent legal developments of interest to franchisors brought to you by Lathrop GPM LLP. 

To subscribe to monthly emails for The Franchise Memorandum, please click here

Topics

Archives

2022

2021

2020

2019

2018

2017

2016

2015

2014

2013

2012

2011

2010

2009

2008

Blog Authors