Sodexomagic, LLC v. Drexel Univ. Sodexomagic, LLC

24 F.4th 183

SODEXOMAGIC, LLC

v.DREXEL UNIVERSITY

SodexoMAGIC, LLC, Appellant in No. 19-1028

Drexel University, Appellant in No. 19-1107

Nos. 19-1028 & 19-1107

United States Court of Appeals, Third Circuit.

Argued: March 16, 2020

Filed: January 20, 2022

Shay Dvoretzky, [ARGUED], Skadden Arps Slate Meagher & Flom, 1440 New York Avenue, N.W., Washington, DC 20005, Attorney for SodexoMAGIC, LLC

Jared D. Bayer, Stephen A. Cozen [ARGUED], Robert W. Hayes, Cozen O'Connor, 1650 Market Street, One Liberty Place, Suite 2800, Philadelphia, PA 19103, Attorneys for Drexel University

Before: AMBRO, BIBAS, and PHIPPS, Circuit Judges.

OPINION OF THE COURT

PHIPPS, Circuit Judge.

TABLE OF CONTENTS

I. Introduction...198

II. Factual Background...198

A. The Competition to Provide Food Services at Drexel University...198

B. Negotiation of the Management Agreement...199

C. The Short Unhappy Life of the Management Agreement...199

III. Procedural History and Jurisdictional Analysis...201

A. The Parties' Claims and Counterclaims...201

B. The District Court's Jurisdiction over the Dispute...202

C. The District Court's Resolution of All Claims and Counterclaims...202

D. Appellate Jurisdiction...203

IV. Discussion...203

A. The Parties' Competing Fraudulent Inducement Claims Have Different Fates: SodexoMAGIC's Claim Survives; Drexel's Counterclaim Does Not...204

1. Common-Law Fraud Claims in Pennsylvania...205

2. SodexoMAGIC's Fraudulent Inducement Claim for Compensatory Damages Survives Summary Judgment...206

a. SodexoMAGIC Presents Sufficient Evidence of a Misrepresentation as Well as Concealment...206

b. The District Court Did Not Abuse Its Discretion in Denying Drexel's Motion to Strike Declarations by Three SodexoMAGIC Witnesses...208

c. Drexel's Remaining Counterarguments for Upholding Summary Judgment in Its Favor Also Fail...211

3. The Parol Evidence Rule Does Not Bar SodexoMAGIC's Claim for Fraudulent Inducement...212

a. Integration Clauses, the Parol Evidence Rule, and Fraudulent Inducement Claims Under Pennsylvania Law...212

b. The Management Agreement Lacks Fraud-Insulating Provisions, so the Parol Evidence Rule Does Not Preclude SodexoMAGIC's Fraudulent Inducement Claim...215

4. Pennsylvania's Gist of the Action Doctrine Does Not Bar SodexoMAGIC's Fraud Claim...216

5. Drexel's Fraudulent-Inducement Counterclaim Fails...217

B. SodexoMAGIC's Breach-of-Contract Claim for Failure to Renegotiate in Good Faith Survives Summary Judgment...219

1. A Promise to Renegotiate in Good Faith May Be Enforceable Under Pennsylvania Law, and the Promise Between These Parties Is Enforceable...219

2. A Genuine Dispute of Material Fact Remains as to Whether Drexel Renegotiated in Good Faith...222

C. SodexoMAGIC's Claim for Enhanced Payments for Fall 2016 Survives Summary Judgment...225

1. There Was Consideration for a Separate Contract for the Fall 2016 Semester...226

2. A Reasonable Jury Could Find that SodexoMAGIC Accepted Drexel's Offer...226

D. Drexel's Challenge to SodexoMAGIC's Catering-Shortfall Claim Fails...227

E. SodexoMAGIC's Claims for Unjust Enrichment Fail...228

V. Conclusion...229

I. INTRODUCTION

After a long-standing business relationship went bad, this, the ensuing litigation, went big. For years, a vendor provided food services at a private university, but in 2014 the university announced that it would competitively bid the contract for on-campus dining. Although the same vendor ultimately won that competition, the process of bidding, negotiating, and finalizing that new contract fractured the relationship beyond repair. About two years into the contract's ten-year period of performance, the vendor sued the university for fraud, multiple breaches of contract, and alternatively for unjust enrichment. The university responded with fraud and breach-of-contract counterclaims.

In resolving cross-motions for summary judgment and attendant motions to strike, the District Court rejected the bulk of both parties' claims. All that survived summary judgment were relatively small pieces of the vendor's breach-of-contract claims and portions of the university's breach-of-contract claim. Rather than proceed to trial on the fragments of their respective cases, the parties referred the remaining claims and counterclaims to arbitration and jointly moved to dismiss them. The District Court granted that motion and entered final judgment, which the parties now appeal, primarily to dispute the summary judgment ruling.

In reviewing the District Court's summary judgment rulings de novo, see Cranbury Brick Yard, LLC v. United States , 943 F.3d 701, 708 (3d Cir. 2019), and the motion-to-strike order for an abuse of discretion, see Daubert v. NRA Grp., LLC , 861 F.3d 382, 389 (3d Cir. 2017), the District Court correctly resolved much of this controversy, but it erred in rejecting the vendor's fraud and breach-of-contract claims. Thus, we will affirm the judgment in part, vacate in part, and remand this case for further proceedings.

II. FACTUAL BACKGROUND

A. The Competition to Provide Food Services at Drexel University

For nearly twenty years, either directly or through one of its predecessor companies, SodexoMAGIC, LLC (‘SDM’) provided on-campus dining services at Drexel University, a private university in Philadelphia. But in early 2014 one of SDM's rivals, Aramark Corporation, which has its global headquarters in Philadelphia, made an unsolicited offer to Drexel to take over campus dining services. SDM responded with its own unsolicited offer to continue providing food services. Rather than select one of those offers, Drexel announced a two-phase competitive bidding process for the on-campus dining contract.

In the first phase, Drexel sought to identify qualified bidders. It proposed a scope of work that involved providing "world class dining and catering services" at its campuses. Drexel Univ., Request for Proposal for a Campus Dining Strategic Partnership (SA133). Drexel also expected the food-service provider to make capital investments of $20 million over the span of the ten-year contract. While Drexel's phase-one solicitation did not contain many details about on-campus dining, it did represent that Drexel would share "as much detail about the desired relationship and facts around the current program as can be reasonably provided." Id. (SA131). The solicitation also included an estimate that the contract, over its full term, would have a value between $275 and $300 million. At the end of the first phase, Drexel determined that SDM and Aramark, along with two other bidders, qualified to advance to the second phase.

The second phase took place during the summer of 2014, and it involved competitive negotiations. In its more detailed phase-two solicitation, Drexel provided an overview of its on-campus dining and food-service operations. That overview pointed out that Drexel's Strategic Plan called for an increase of its then-current enrollment of 26,132 students to a student population of 34,000 by 2021. Drexel noted, however, that not all students had to have all-inclusive meal plans – that requirement applied only to first-year undergraduates. And an appendix to the solicitation informed bidders that Drexel was projecting an incoming first-year class of 3,100 students for the 2014–15 academic year. But for purposes of its own internal budget, Drexel estimated that class size at 2,800 students. As succinctly stated in internal correspondence from one of Drexel's senior associate vice presidents, "we gave the bidders participant numbers based on a freshman class size of 3,100 and the FY15 budget that was loaded by Finance is based on 2,800." Email from Joe Campbell, Senior Associate Vice President, Drexel, to Rita LaRue, Senior Associate Vice President, Drexel (Aug. 4, 2014) (SA182).

Three of the remaining bidders submitted proposals. Drexel selected two of them – SDM and Aramark – as finalists and requested that they each submit a best and final offer, referred to as a ‘BAFO.’ In its BAFO, SDM included an additional term: an offer to increase its capital contributions by $4 million beginning in year six of the contract. After considering both BAFOs, Drexel determined that SDM's BAFO had more favorable financial terms and was superior in other respects. On August 15, 2014, Drexel selected SDM for the dining services contract and broke off negotiations with Aramark. Having won the competition, SDM continued to provide on-campus dining services for the 2014–15 academic year while it worked with Drexel to finalize a new contract.

B. Negotiation of the Management Agreement

Finalizing the new contract was not a smooth process. Problems started in September 2014 when SDM proposed an initial draft that omitted the additional $4 million capital contribution that it had proposed in its BAFO. After several months of negotiations, the parties agreed to condition that investment on certain sales levels, evaluated before year six of the contract.

But that was not the only point of contention. SDM also proposed that Drexel guarantee annual increases in its first-year student enrollment. Instead of a guarantee, the parties agreed that SDM had relied on Drexel's representations of its future student enrollment and that they would renegotiate in good faith if first-year student enrollment did not increase annually by at least two percent.

Having overcome those and other obstacles, the parties executed the contract, known as the ‘Management Agreement,’ on May 28, 2015. Although it was signed then, the Management Agreement specified a commencement date of August 25, 2014, so that it covered the services SDM provided after it had won the competitive bidding process. The Management Agreement also included an integration clause, which stated that it contained all agreements between the parties on the subject matter.

C. The Short Unhappy Life of the Management Agreement

The Management Agreement may have been doomed from the start. The day it was executed, The Philadelphia Inquirer reported that Drexel's first-year...