Trial Needed to Determine Fraudulent Nondisclosure Claim

Facts: A tenant negotiated two leases for space for two of its upscale restaurants at an Atlantic City, N.J., pier. The tenant was interested in the particular spaces because two other upscale restaurants had also signed leases for nearby space with the owner.

The pier was still undergoing construction at the time the leases were negotiated; under the tenant’s lease terms, if the pier didn’t open on time, then the leases would automatically terminate. It became apparent that the pier would open later than scheduled. Knowing it would be able to walk away from the project, the tenant sent a letter to the owner asking for further assurances, specifically, that the other two restaurants were still going to open there. The owner’s representative assured the tenant that the restaurants would “definitely” be opening at the pier, when in fact they had both already terminated their leases because of delayed construction.

By the time the tenant learned that the other restaurants had pulled out of the project, its option to terminate the leases had expired. The tenant sued the owner for fraudulent nondisclosure, alleging that it conspired to keep the tenant in the dark, knowing that it wouldn’t continue with the project without the other restaurants on board.

The tenant had already made substantial improvements to its spaces. The tenant asserted that it wouldn’t have made these investments “but for the owner’s alleged misrepresentations.”

The tenant and the owner each asked a trial court for a judgment in its favor without a trial.

Decision: A Pennsylvania trial court denied both requests; a trial was needed to determine liability.

Reasoning: The trial court noted that there are “genuine issues of material fact” that needed to be determined, so a trial was necessary. The court stated that, regarding the tenant’s claims, the trial would address the elements of fraudulent disclosure, specifically whether: (1) the owner exercised reasonable care to disclose facts material to the transaction; (2) there were matters known to the owner that were necessary to prevent partial or ambiguous statements of fact from being misleading; (3) such facts were basic to the transaction; and (4) the tenant because of its relationship with the owner, could reasonably expect the owner to disclose such facts.

The owner claimed in its request for a judgment in its favor without a trial that the tenant couldn’t establish a fraudulent inducement claim because: (1) the owner made no misrepresentation; (2) the tenant couldn’t establish fraudulent intent; and (3) the tenant couldn’t establish justifiable reliance on the owner’s statements. But the court concluded that those issues also needed to be determined by a trial.

• Boardakan Rest. LLC v. Gordon Group Holdings, LLC, July 2015