Gnagy
Gas and Oil v. Pa. Underground Storage Tank Indemnification Fund – Cmwlth.
Court – December 6, 2013
Generally,
as a matter of common law, the elements to prove a claim for fraud or deceit
are a misrepresentation, a fraudulent utterance thereof, an intention to induce
action thereby, justifiable reliance thereon, and damage as a proximate result.
Wilson v. Donegal Mutual Insurance Co., 598 A.2d 1310, 1315 (Pa. Super.
1991).4 To be actionable, a misrepresentation need not be in the form of a
positive assertion but may be by concealment of that which should have been disclosed.
Id. at 1315-16. See Moser v. DeSetta, 527 Pa. 157, 165, 589 A.2d 679,
682 (1991) (concluding that “the concealment of a material fact can amount to a
culpable misrepresentation no less than does an intentional false statement.”).
However, while active concealment may constitute fraud, mere silence is not
sufficient in the absence of a legal duty to disclose information. Wilson,
598 A.2d at 1315-16; Smith v. Renaut, 564 A.2d 188, 192 (Pa. Super.
1989). Otherwise, fraud by omission is actionable “only where there is an
independent duty to disclose the omitted information.” Estate of Evasew,
526 Pa. 98, 105, 584 A.2d 910, 913 (1990).
Pennsylvania law recognizes a difference between active
concealment and mere silence in the context of common law fraud. Wilson,
598 A.2d at 1315-16; Smith, 564 A.2d at 192; see American Plan
Communities, Inc. v. State Farm Insurance Co., 28 F. Supp. 2d 964, 968
(E.D. Pa. 1998) (citing Wilson) (acknowledging that “[c]oncealment alone
may create a sufficient basis for finding that a party engaged in fraud so long
as the other elements of fraud are present.”); American Plan Communities,
Inc., 28 F. Supp. 2d. at 968 (citing Roberts v. Estate of Barbagallo,
531 A.2d 1125 (Pa. Super. 1987) (noting that Pennsylvania common law subsumes
and recognizes the tort of fraudulent concealment as stated in the Restatement
(Second) of Torts §550, which imposes liability for intentional concealment of
material information regardless of any duty to disclose)), and compare with
Duquesne Light Company v. Westinghouse Electric Corporation, 66 F.3d 604,
611 (3d. Cir. 1995) (applying Pennsylvania law) (reiterating that Pennsylvania
has adopted the Restatement (Second) of Torts §551, which imposes liability for
fraudulent nondisclosure in those situations where there is an affirmative duty
to speak/disclose, yet noting that Pennsylvania law is unclear as to when such
a duty arises). While this Court is unable to locate any authority within our
Commonwealth that expounds meaningfully upon the distinction between “active
concealment” and “mere silence,” and given the dichotomy evidenced by the above
authorities, perhaps the best way to illustrate, on a surface level, the
distinction is by comparing §550 and §551 of the Restatement (Second) of Torts.
Section 550 states that liability occurs when “[o]ne party to a transaction who
by concealment or other action intentionally prevents the other from acquiring
material information.”
As the Colton court elucidated:
At common law, fraud has not been limited to those situations
“where there is an affirmative misrepresentation or the violation of some
independently-prescribed legal duty”…. Rather, even in the absence of a
fiduciary, statutory, or other independent legal duty to disclose material
information, common-law fraud includes acts taken to conceal, create a false
impression, mislead, or otherwise deceive in order to “prevent[] the other
[party] from acquiring material information.” Restatement (Second) of Torts §
550 (1977); see also W. Page Keeton et al., Prosser and Keeton on Torts
§106 (5th ed. 1984) (“Any words or acts which create a false impression
covering up the truth, or which remove an opportunity that might otherwise have
led to the discovery of a material fact ... are classed as misrepresentation,
no less than a verbal assurance that the fact is not true.”).
Thus, fraudulent concealment, without any misrepresentation
or duty to disclose can constitute common-law fraud. This does not mean,
however, that simple nondisclosure similarly constitutes a basis for fraud.
Rather, the common law clearly distinguishes between concealment and
nondisclosure. The former is characterized by deceptive acts or contrivances
intended to hide information, mislead, avoid suspicion, or prevent further
inquiry into a material matter. The latter is characterized by mere silence.
Although silence as to a material fact (nondisclosure), without an independent
disclosure duty, usually does not give rise to an action for fraud, suppression
of the truth with the intent to deceive (concealment) does. See, e.g.,
Stewart v. Wyoming Cattle Ranche Co., 128 U.S. 383, 388, 9 S.Ct. 101, 32
L.Ed. 439 (1888).
The Supreme Court in Stewart carefully explained why
concealment is “equivalent to a false representation” and so appropriately
forms the basis for a common law fraud action: “the concealment or suppression
is in effect a representation that what is disclosed is the whole truth. The
gist of the action is fraudulently producing a false impression upon the mind
of the other party; and if this result is accomplished, it is unimportant
whether the means of accomplishing it are words or acts of the defendant, or
his concealment or suppression of material facts not equally within the
knowledge or reach of the plaintiff.” 128 U.S. at 388, 9 S.Ct. 101; see also
… 37 C.J.S. Fraud § 18 (1997) (distinguishing between silence and
concealment); 37 Am.Jur.2d Fraud and Deceit §145 (1968) (same). Thus, the
common-law principle that, in the absence of an independent disclosure duty,
“nondisclosure is not fraudulent, presupposes mere silence, and is not
applicable where, by words or conduct, a false representation is intimated or
any deceit practiced.” Id. at §174 (and the many cases cited therein); see
also Stuart M. Speiser et al., The
American Law of Torts §32:73 (1992).
Indeed, we have expressly held that the distinction between
simple nondisclosure and concealment “is in accord with traditional principles
of common law fraud.” Fox v. Kane-Miller Corp., 542 F.2d 915, 919 (4th
Cir. 1976). In Fox, we upheld the district court’s reliance on the
following explanation of this principle by Maryland’s highest court: Concealment and non-disclosure are closely
related and in any given situation usually overlap.... When [either is] done
without intent to mislead and without misrepresentation, it has no effect
except where there is a duty of disclosure.... To create a cause of action,
concealment must have been intentional and effective - the hiding of a material
fact with the attained object of creating or continuing a false impression as
to that fact. The affirmative suppression of the truth must have been with
intent to deceive. Fegeas v. Sherrill,
218 Md. 472, 147 A.2d 223, 225 (1958) (quoting Restatement of Restitution §8
cmt. b (1937) and citing Restatement of Torts §550 (1938)).
Given this “close relationship” between nondisclosure and
concealment, numerous decisions expressly distinguish between passive
concealment - mere nondisclosure or silence - and active concealment, which
involves the requisite intent to mislead by creating a false impression or
representation, and which is sufficient to constitute fraud even without a duty
to speak.
In short, at common law, no fiduciary relationship, no
statute, no other independent legal duty to disclose is necessary to make active
concealment actionable fraud - simple “good faith” imposes an obligation not to
purposefully conceal material facts with intent to deceive. Strong v. Repide,
213 U.S. 419, 430, 29 S.Ct. 521, 53 L.Ed. 853 (1909); Tyler v. Savage,
143 U.S. 79, 98, 12 S.Ct. 340, 36 L.Ed. 82 (1892); Stewart, 128 U.S. at
388, 9 S.Ct. 101. Colton, 231
F.3d at 898-99. Accord, e.g., Wells Fargo Bank v. Arizona Laborers, 38
P.3d 12, 21 (Ariz. 2002) (differentiating between mere silence or nondisclosure
and intentional concealment and concluding that “[u]nlike simple nondisclosure,
a party may be liable for acts taken to conceal, mislead or otherwise deceive,
even in the absence of a fiduciary, statutory, or other legal duty to
disclose.”).
The Colton court’s in-depth analysis is consistent
with the observations made by our Superior Court in Youndt v. First National
Bank, 868 A.2d 539 (Pa. 26 Super. 2005), and Baker v. Cambridge Chase,
Inc., 725 A. 2d 757 (Pa. Super. 1999). In Youndt, the Superior Court
concluded that the tort of fraudulent concealment in the Restatement (Second)
of Torts §550 was not applicable because there was no allegation that the
defendant in that case engaged in active concealment, but the court also stated
that the defendant could be held liable for nondisclosure under the Restatement
(Second) of Torts §551 if an enumerated duty to disclose existed. 868 A.2d at
549-51. In Baker, the Superior Court noted that for purposes of the
Restatement (Second) of Torts §550, “concealment or other action” occurs, inter
alia, when there is “an intentional concealment of true facts which is
calculated to deceive the other party.” 725 A.2d at 769. Accordingly, we find
the Colton court’s commentary consonant with Pennsylvania law and
persuasive.
