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Superior Court Dismisses Fraud Claim Improperly Boot-Strapped to Breach of Contract Claim

Posted In Fraud Claims

Cont’l Fin. Co., LLC, v. ICS Corp., C.A. No. N19C-07-184 AML (Del. Super. Feb. 20, 2020).

This case represents another example of the application of the “bootstrap doctrine” to define the limits of a contract party’s ability to assert a fraud claim against a counter-party. Ruling on a 12(b)(6) motion to dismiss, the Superior Court permitted plaintiff’s breach of contract claim to proceed but granted dismissal of plaintiff’s fraud claim. The Court reasoned the fraud claim was impermissibly boot-strapped to a breach of a contractual duty, and the plaintiff failed plead damages distinct from those allegedly resulting from the contractual breach. 

Continental Finance Company (“Plaintiff”) and ICS Corporation (“Defendant”), entered into an agreement requiring Defendant “to distribute and promote Plaintiff’s credit card applications through mass-market mailings.” Plaintiff filed an action against Defendant for breach of contract and fraud, alleging that Defendant “improperly and fraudulently” inflated and misrepresented certain postage and freight costs in its invoices to Plaintiff. 

In dismissing Plaintiff’s fraud claim, the Court stated that “[i]n order for a breach of contract claim and a fraud claim to survive in a single action, the plaintiff must allege that the defendant breached a duty that is independent of the duties imposed by the contract.” Defendant’s alleged failure to comply with its contractual obligation to invoice only for the “actual costs of postage” was a contract breach. Pleading a fraudulently inflated invoice did not suffice. While Plaintiff argued that Defendant had an independent “duty not to lie,” the Court reasoned that the legal duty necessary to support a fraud claim is more than just “a moral duty to be truthful.” Absent facts pleading that fraudulent misrepresentations or omissions induced entry into the agreement, the claim was contractual. Moreover, even if Plaintiff had established such an independent duty, Plaintiff’s fraud claim was also deficient for failure to plead damages separate and distinct from those resulting from the contractual breach. The Court additionally rejected Plaintiff’s argument that the fraud claim should survive because it was pled in the alternative to the contractual claim, noting that alternative pleading cannot be used “to circumvent the pleading requirements for fraud.” 

Based on this reasoning, the Defendant’s motion for dismissal was granted as to Plaintiff’s fraud claim and denied as to Plaintiff’s breach of contract claim.

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