Third Circuit Affirms Dismissal of Plaintiff’s Fraud Claim Based on Gist of the Action Doctrine

In Downs v. Andrews, The Third Circuit held that the gist of the action doctrine barred plaintiff from bringing a fraud claim. 639 Fed.Appx. 816 (2016).  Plaintiffs brought suit for fraud in connection with Defendants’ failure to deliver mortgage notes to Plaintiff. Plaintiff purchased $740,000 of mortgage notes from Defendants. Upon payment, Defendant only delivered a portion of the mortgage notes totaling $399,000. Subsequently, Plaintiff brought suit alleging that the Defendants acted fraudulently because they believe that Defendant never owned the purchased mortgages.

The gist of the action doctrine prevents plaintiffs from recovering damages twice for the same actions. The gist of the action doctrine bars tort claims “based on a party’s actions undertaken in the course of carrying out a contractual agreement.” Further, the gist of the action requires the court to determine if the duty breached is one based in contract or one established by “larger societal policies embodied in the law of torts.”

In this matter, the Court found that the duty breached was one established by contract. The Court narrowly interpreted the duty as the obligation to deliver the purchased notes in accordance with the contract. Therefore, the Court affirmed the lower court’s dismissal of Plaintiffs’ fraud claim.

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