It is not uncommon for a party in a commercial agreement to over sell and under deliver or to simply make promises that it does not end up fulfilling. Either way, the injured party may file a lawsuit in an attempt to recover damages, which is exactly what former Los Angeles Lakers star Magic Johnson and his company SodexoMAGIC did late last month in the United States District Court for the Eastern District of Pennsylvania.

At the heart of the lawsuit is a contract between SodexoMAGIC, a food service vendor that is headquartered in Maryland, and Drexel University, which is located in Philadelphia, Pennsylvania. The agreement called for a ten-year partnership between the two parties, in which SodexoMAGIC initially paid $9.3 million to Drexel.  However, despite the fact that the two parties had been in business together for the past two decades, according to the complaint, the partnership featured a significant roadblock toward the end of 2015.

Altogether, SodexoMAGIC brought forth three state law causes of action — fraudulent inducement, breach of contract, and unjust enrichment. Additionally, the company sought a judgment in their favor and to recover damages that included, but were not limited to, expectation damages and punitive damages.

Fraudulent Inducement

Fraudulent Inducement in Pennsylvania

  • Making false representations “that induced the complaining party to agree to the contract.”

Toy v. Metropolitan Life Ins. Co., 928 A.2d 186, 205 (Pa. 2007). 

The overriding issue that SodexoMAGIC focuses on throughout its pleadings is the promise of increased student enrollment in future years. As such, it argued that the university hid material information from them insofar as that such information was directly tied to the economic terms of the agreement, which SodexoMAGIC relied upon and the university knew that it was doing so.

Over the course of the negotiations, Drexel continuously established that it sought to significantly increase enrollment. Specifically, it hoped for 30,470 students by 2017 and to 34,000 by 2021. Moreover, the university promised SodexoMagic “that its freshman class would grow at a rate of two, year over year.”As a result, the university’s asking price correlated with the plans for increasing student enrollment.

Therefore, SodexoMagic argued that the university did not tell the truth about their projections because “it intended to induce SodexoMAGIC to enter into a long-term financial arrangement with economic and non-economic terms that were both very favorable to Drexel.”

Breach of Contract

Breach of Contract in Pennsylvania

  • Three necessary elements to survive on a breach of contract claim: (1) the existence of a contract, including its essential terms; (2) a breach of duty imposed by the contract; and (3) damages.

J.F. Walker Co., Inc. v. Excalibur Oil Group, Inc., 2002 PA Super 39, 40 (2002). 

Next, SodexoMAGIC pleaded the necessary elements of a binding contract and also that it performed under such agreement. Specifically, even though Drexel allegedly represented that it would renegotiate the financial terms in good faith to make up for the inaccurate projections, SodexoMAGIC argued in its complaint that Drexel failed to do so. Instead, the university insisted “on commercially unreasonable terms that would not even allow SodexoMAGIC to earn a profit.”

Unjust Enrichment

Unjust Enrichment in Pennsylvania

  • “When a person receives a benefit from another, and it would be unconscionable for the recipient to retain that benefit, the doctrine of unjust enrichment requires the recipient to make restitution.”

Macomber Engineers v. M. L. W. Const. Corp. 414 A.2d 357, 360 (Pa. Super Ct. 1979).

Finally, in its last contract-related cause of action, SodexoMAGIC argued that because the university was the beneficiary of the company’s actions, er, willingness to initially invest a large sum of money, “it would be inequitable to allow Drexel to continue to retain [the benefits of the agreement] without payment of value to SodexoMAGIC.”

This story originally came to our attention via @TheLegalBlitz.

Read more about this story by checking out the case’s Complaint (PDF).

Follow Rex on Twitter (@FordSheild) and connect with him on LinkedIn. 

Sources

  1. Harold Brubaker, Magic Johnson firm sues Drexel, Philly.com (Oct. 10, 2016).
  2. Toy v. Metropolitan Life Ins. Co., 928 A.2d 186, 205 (Pa. 2007).
  3. J.F. Walker Co., Inc. v. Excalibur Oil Group, Inc., 2002 PA Super 39, 40 (2002).
  4. Macomber Engineers v. M. L. W. Const. Corp. 414 A.2d 357, 360 (Pa. Super Ct. 1979).
  5. Complaint for Plaintiff, SodexoMAGIC, LLC v. Drexel University, 2:16-CV-05144 (2016).