Puffery Is Not Grounds For Liability

During contract negotiations, the company assured a potential client that it had enough staffing and expertise to meet all third-party payor requirements. The company claimed the client could rely entirely on them for billing submission and collection. It also stated that it possessed sufficient staffing, oversight, knowledge of timely filing rules, extensive medical billing expertise, and an understanding of the client’s medical practices to process and collect accounts promptly. Importantly, the company knew during these discussions that the client’s billing employee had recently left and that the client urgently needed billing support.

When the actual performance proved inadequate, the customer sued, alleging that it had been fraudulently induced to enter into the contract. The case was dismissed.

Fraudulent inducement requires that (1) the defendant made a false representation of a material fact, (2) knew it was false, (3) intended to induce the plaintiff to act on it, and (4) the plaintiff relied on the representation to his detriment. The complaint must plead specific facts that make it reasonable to believe the defendant knew a statement was materially false or misleading.

WHY THIS IS IMPORTANT...Alleging that subsequent nonperformance of the contract may provide a factual basis for inferring knowledge that statements were false does not work. Deception cannot be legally inferred from the nonperformance of a promise. Because there was no specific allegation that the promises were false and known to be false, the case was dismissed, and the promises were ruled to be mere puffery.