On Thursday, the Third Circuit Court of Appeals filed a split decision in the case brought by on-campus dining supplier SodexoMagic against Drexel University. The case began because “a long-standing business relationship went bad;” on appeal, the appellate panel revived fraudulent inducement and breach of contract claims brought by SodexoMagic.
The opinion states that SodexoMagic was the provider of on-campus dining services at the Philadelphia-based Drexel University for nearly 20 years.
According to the opinion, in 2014, Drexel announced a new competitive bidding process for its campus dining contract after receiving an unsolicited offer from SodexoMagic’s direct rival, Aramark. At the end of this two-phased bidding process Drexel ultimately awarded the 10-year contract to SodexoMagic and it continued to provide on campus dining services at Drexel.
However, the opinion states that only six months into the contract, revenue from the catering and meal plans fell below the expectations laid out in the contract between Drexel and SodexoMagic. Accordingly, SodexoMagic requested compensation for the discrepancy, and the parties engaged in discussions to restructure the agreement.
Without coming to a resolution, SodexoMagic moved to terminate the contract and notified Drexel that the shortfalls in revenue were material breaches on July, 25, 2016. After receiving SodexoMagic’s notice of termination, Drexel also exercised its option to terminate the agreement with a termination date of December 10, 2016. However, after receiving SodexoMagic’s notice of termination and before the termination date, Drexel entered an agreement with Aramark to provide on-campus dining services starting in January 2017.
Following these events, SodexoMagic filed a complaint alleging Drexel fraudulently induced it to enter the agreement, breached its contractual duty to renegotiate in good faith and unjust enrichment. Drexel counterclaimed, alleging that SodexoMagic breached the agreement by failing to meet certain requirements and that it fraudulently induced Drexel to award the contract to SodexoMagic instead of Aramark.
The District Court resolved the majority of the dispute by partially granting and partially denying the parties’ cross motions for summary judgment. After the summary judgment motions, the parties agreed to arbitrate the remaining claims and counterclaims, and the court entered final judgment on December 6, 2018. Subsequently, both parties appealed.
On appeal the the Third Circuit held that the District Court correctly decided and resolved most of the controversy, but incorrectly rejected SodexoMagic’s fraud and breach-of-contract claims. The court affirmed summary judgment in favor of Drexel for SodexoMagic’s unjust enrichment and punitive damages claims, and affirmed summary judgment in favor of SodexoMagic on Drexel’s fraudulent inducement claim. However, the opinion stated that the District Court’s order granting summary judgment to Drexel on SodexoMagic’s claims for fraudulent inducement, breach of contract for failure to renegotiate in good faith, and breach of a supplemental agreement for the Fall 2016 Semester are vacated and the claims will be remanded to the district court.
Drexel University is represented by Cozen O’Connor and SodexoMagic is represented by Jones Day.
