Opinion
BANKRUPTCY NO.: 5-02-bk-03638, ADVERSARY NO. 5-03-ap-50200.
April 18, 2007
OPINION
The Court has been presented a Motion for Judgment on Partial Findings under Rule 52(c). This complex litigation has wound its way over the course of approximately 20 trial days spanning many months of the Court's calendar. Its amorphous facts and convoluted presentation center around the singular relationship between the prepetition Debtor, MBP Management Services, Inc, T/A Parry (hereinafter MBP) and a publicly traded company, called Pacific Motor Transport Company (hereinafter PACER). Penn Security Bank and Trust Company has intervened in this litigation.
The trial's long tenure is explained by noting that, at the time, Wilkes-Barre, Pa. was a single judge division not allowing for a contiguous presentation.
This litigation was initiated by the Chapter Seven Trustee for MBP, Mark Conway (hereinafter Trustee). The Trustee advances a 15 count complaint by way of the presentation of a plethora of witnesses and documents and has now rested generating the instant Motion by PACER.
Federal Rule of Civil Procedure 52 is incorporated by Federal Rule of Bankruptcy Procedure 7052. Rule 52(c) reads:
Judgment on Partial Findings. If during a trial without a jury a party has been fully heard on an issue and the court finds against the party on that issue, the court may enter judgment as a matter of law against that party with respect to a claim or defense that cannot under the controlling law be maintained or defeated without a favorable finding on that issue, or the court may decline to render any judgment until the close of all the evidence. Such a judgment shall be supported by findings of fact and conclusions of law as required by subdivision (a) of this rule.
Federal Rule of Civil Procedure 52.
A judgment on partial findings is a tool utilized to conserve time by making it unnecessary to hear additional evidence when the results would not be any different. 9 Moore's Federal Practice 52-124, ¶ 52.50[2]. It allows a judgment to be entered after the affected party has been fully heard. Id. at ¶ 52-50[3].
The facts presented indicate that MBP was a trucking transport entity that owned approximately 100 tractors and 250 trailers. (Transcript of 11/29/04 at 172.) Moreover, they had a number of agreements with owner-operators to haul loads that MBP secured from their customer base. MBP was a family-owned entity, begun by Robert Parry, Sr. During the events that fostered this lawsuit, the individual in charge was Robert Parry, Jr. (Bob), assisted by his sons, Robert, III (Rob), and Michael Parry.
The company generally prospered until 2001, when it lost a major customer. MBP, desperate for additional revenue, initiated discussion with PACER, a trucking company with a national customer base, but no significant van trailers. The parties, seeing the possibility of mutual benefit, began serious negotiations culminating in the execution of the following documents:
At trial, the witnesses referred to van trailers to identify the typical box trailer that is seen on the highway, as opposed to flat-bed types and others.
1. A number of tractor leases, dated on various dates in 2002, from MBP as "independent contractor" to PACER at a compensation rate of 70-75% of "manifest" or "load." (Plaintiff's Exhibit 6.)
2. An agreement between Parry Logistics and PACER, dated January 2, 2002, identifying Parry Logistics as "agent" at a compensation rate of 8%. (Plaintiff's Exhibit 24.)
Parry Logistics, at the time of this agreement, was an unincorporated trade name used by Robert Parry, Jr. This topic will be discussed at a later point in this opinion.
It is important to note that the Trustee disputes the binding effect of the January 2, 2002 agency agreement, arguing that Parry Logistics was not incorporated at the time of execution of the document. The Trustee suggests that the contract that binds the parties actually consisted of a November 8, 2001 proposal, the negotiations that predate the proposal, and the parties conduct thereafter.
The Amended Complaint alleges 15 Causes of Action against PACER in an effort to recover damages from the Defendant. Those Causes of Action will be addressed in sequence.
The first nine Causes of Action of the Trustee's Amended Complaint focus on the Trustee's alleged causes of action sounding in fraudulent conveyance, either under the Bankruptcy Code, 11 U.S.C. § 548, or under the Pennsylvania Uniform Fraudulent Transfer Act, 12 Pa.C.S. A. § 5101 et seq. (PUFTA). The burden of demonstrating a fraudulent conveyance is on the Trustee. In re Fruehauf Trailer Corp. 444 F.3d 203, 211 (C.A.3 (Del.) 2006); Mellon Bank, N.A. v. Official Comm. of Unsecured Creditors (In re R.M.L., Inc.), 92 F.3d 139, 144 (3d Cir. 1996). The thrust of these counts is that MBP's transfer of assets to PACER was for less than "reasonably equivalent value." The testimony from the Trustee's witnesses alluded to several types of assets that were allegedly transferred to PACER: customer lists, accounts receivables, use of trucks, and funds in a Comdata account. PACER acknowledges that receivables earned prior to January 2, 2002 were owned by MBP and encumbered by Penn Security Bank and Trust Company, the Intervener herein. PACER maintains, however, that all MBP receivables earned on or after that date were due solely from PACER and none other since PACER leased all of MBP's tractors and trailers. Trustee disputes that point arguing that MBP's customers and receivables were owned by MBP before and after January 2, 2002. The Trustee steadfastly maintains that the MBP trucks were delivering freight to MBP customers and, therefore, generated MBP receivables. The Trustee argues that those receivables were "converted by" PACER. He further states that PACER should have returned 83% of those receivables to MBP, retaining 17% pursuant to the November 8, 2001 proposal.
The term "reasonably equivalent value" is used in both the Bankruptcy Code at § 548(a)(1)(B)(I) and in PUFTA at 12 Pa.C.S. A. § 5104(a)(2).
Little testimony was elicited about the nature of a Comdata account. Apparently, Comdata has developed an arrangement with truck stops that allow a trucking company, with whom Comdata has a business relationship, to cash checks or purchase fuel. See, for example, Comdata Network, Inc. v. First Interstate Bank of Fort Dodge, 497 N.W.2d 807, 808 (Iowa, 1993).
Presumably calculated by totaling a 75% lease assessment and the 8% commission.
This is where the Trustee's logic becomes bogged down in reality.
The Trustee points to the November 8, 2001 proposal (Plaintiff's Exhibit 22) as providing a framework for the negotiations between the parties. To quote from that letter;
1. Truck Compensation: 75%
2. Agent Commission:REVENUE COMMISSION. 0 1,999,999 8% 2,000,000 3,999,999 8.5% 4,000,000 5,999,999 9.0% 6,000,000 7,999,999 9.5% 8,000,000 up 10% The fact is there would be no need to pay "compensation" for the trucks unless PACER was leasing them from MBP. If PACER leased those trucks, then why would the freight revenue generated be payable to MBP? Stated another way, all receivables generated by the usage of the PACER leased vehicles should be payable to PACER, who, in turn, would owe MBP 75% compensation under the lease agreement.
The November 8 proposal further reflects an agency commission due MBP, starting at 8% on revenue generated. If this was MBP revenue, there would be no point in surcharging PACER another 8% on top of that. It is a compelling conclusion that, under either the November 8 proposal, or the 2002 agency agreement, the revenue generated by the transport of freight, at least initially, belonged wholly to PACER.
This conclusion is corroborated by the fact that MBP had no ICC operating authorities, a prerequisite to transporting freight across state lines in their own name. PACER possessed all of the relevant licenses.
So why does the Trustee and Intervener, Penn Security Bank, argue that the customer receivables are owned by MBP?
It has been stipulated that Intervener, Penn Security Bank, holds a first lien position in all of MBP's receivables. (See Proceeding Memo dated 11/29/04 filed to Adversary Proceeding #5-03-ap-50148, Doc. #184.) All parties agree there was a binding contract between MBP and PACER. The parties disagree as to the terms of that contract and whether there has been a breach.
As indicated, Parry Logistics was a party to the January 2, 2002 agency agreement. Parry Logistics, on January 2, 2002, was a fictitious name that did not incorporate until months later. The Agreement of January 2, 2002 was signed by Bob Parry on behalf of Parry Logistics. The testimony was replete that MBP immediately undertook responsibilities under the agreement as agent for PACER. Despite acknowledging MBP's role as the alter ego of Parry Logistics in paragraph 16 of the Trustee's Amended Complaint, the Trustee's Brief opposing judgment on partial findings attempts to distance itself from any association with the January 2 agreement. Nevertheless, MBP undertook the responsibilities agreed to by the fictitious nonentity "Parry Logistics," so as to convince the Court that MBP traded as Parry Logistics. MBP held itself out as PACER's agent pursuant to the agreement. MBP changed its logo. All of MBP's vehicles were leased to PACER. MBP operated its vehicles under PACER's federal and state operating licenses. PACER undertook MBP's freight billings. For all intents and purposes, MBP adopted the "Parry Logistics" contract as its own in dealing with PACER as well as the former MBP trucking company customers. MBP was Parry Logistics, and, I find, it was bound by that January 2, 2002 contract. W.F. Meyers Co., Inc. v. Stoddard, 363 Pa.Super. 481, 488, 526 A.2d 446, 449 (1987).
The witnesses acknowledged that PACER did provide a steady stream of funding into MBP, but assert that the amount of that funding was insufficient to constitute reasonably equivalent value. It is here where the record becomes even more fuzzy. A number of MBP employees testified. Many of those employees were office workers, yet little evidence was placed into the record as to the amount of funds that were transferred to MBP from PACER. Moreover, despite the fact that I've heard from almost a dozen witnesses and reviewed numerous exhibits, the record shows little substantive evidence of what value was actually transferred to PACER from MBP.
The Trustee's expert testified that between April 9, 2002 and September 10, 2002, PACER made 107 deposit transactions to MBP's Comdata account totaling $2,091,271.18. (Transcript of 8/25/05 at 25 and 96.) The only evidence of freight revenue generated by MBP-owned trucks on behalf of PACER appears as notations on a wall calendar.
Plaintiffs' Exhibit 21 was a wall calendar supplied by the International Fund for Animal Welfare and featuring various pictures of dogs (hereinafter, dog calendar) with daily notations purportedly identifying MBP's gross receipts. The total of these receipts from January through August of 2002 is $7,836,717.36.
Defendant objected to this exhibit on the grounds it was not authenticated, lacked foundation, was hearsay, and failed to qualify as a business record. Authentication of documents is governed by Federal Rule of Evidence 901(a)(b). Under Rule 901 a document may be authenticated through:
"(1) Testimony of witness with knowledge. Testimony that a matter is what it is claimed to be. (2) Nonexpert opinion on handwriting. Nonexpert opinion as to the genuineness of handwriting, based upon familiarity not acquired for purposes of the litigation." Fed.R.Evid. 901(b)(1) (2).
Plaintiffs assert this document was authenticated by a witness with knowledge, Robert Parry, who had knowledge of it because it was created by his wife, whose handwriting he recognized on the document. (Transcript of 11/30/04 at 118.) I find this document is sufficiently authenticated under Rule 901(b)(1).
With regard to Defendant's hearsay objection, Plaintiffs contend this document fits under the hearsay exception for business records, which:
"permits admission of documents containing hearsay provided foundation testimony is made by "the custodian or other qualified witness," that: (1) the declarant in the records had personal knowledge to make accurate statement; (2) the declarant recorded the statements contemporaneously with the actions that were the subject of the reports; (3) the declarant made the record in the regular course of the business activity and (4) such records were regularly kept by the business." U.S. v. Pelullo, 964 F.2d 193, 200 (3d Cir. 1992), and Fed.R.Evid. 803(6).
Here Rob Parry testified and is a qualified witness with personal knowledge to make accurate statements because he testified that he recognized the calendar from his office wall, and he was the source of information his wife recorded on the calendar. (Transcript of 11/30/04 at 118-120.) He stated in his testimony that his wife recorded the billing amounts on the calendar daily and in the ordinary course of business. Id. at 121, lines 4-5. Rob Parry also testified they had been recording their billing figures on similar calendars for probably five or ten years prior to 2002. Id. at 119, lines 4-7. As such, the calendar fits within the business record exception, and the objection to its admissibility is overruled.
MBP was a large regional trucking company. Freight was delivered primarily on the east coast of the United States, although contracts existed as far west as California. Notwithstanding the breadth of their trade, their accounting practices were abysmal.
The testimony does indicate that PACER withdrew funds from the Comdata account. The issue has been raised by the Trustee as to whether the Comdata account was property of MBP or PACER.
The Comdata card was never specifically defined although I conclude that it was some sort of proprietary card allowing access to funds held by Comdata on behalf of whoever contracted with Comdata. The testimony would suggest that, in this case, the account was created by PACER for its convenience in funding the rather significant trucking business under its supervision. The testimony indicated that PACER gave MBP a Comdata card and would authorize MBP to draw down on the Comdata account from time to time in specific amounts. The Trustee's expert did not opine as to what portion of the two million plus deposit by PACER into the Comdata account was withdrawn by MBP. The expert did testify that some portion of the PACER deposit was withdrawn by PACER.
The Trustee argues that funds in the account belonged to MBP when so designated by PACER, and therefore, PACER's withdrawal of portions of that fund were fraudulent conveyances to PACER from MBP.
Nothing on this record supports the ownership of this Comdata account in anyone other than the account originator, PACER. Testimony from Trustee's witnesses suggest that PACER established the account, that MBP never received statements regarding the account, that the only deposits were made by PACER, and that MBP's individual withdrawals were preauthorized by PACER. I conclude that the account was owned by PACER, en toto. Any property interest of MBP did not vest until MBP withdrew the fund. I find no fraudulent conveyance by reason of PACER's withdrawals from the Comdata account.
To summarize, I can find no evidence that customer lists, accounts receivables, or Comdata funds were transferred to PACER.
It is for these reasons that I am compelled to rule in favor of the Defendant on the first nine counts of the Amended Complaint.
Count ten alleges a preferential transfer under 11 U.S.C. § 547. Section 547 sets forth the necessary elements of a preference recovery, as follow:
the trustee may avoid any transfer of an interest of the debtor in property —
(1) to or for the benefit of a creditor;
(2) for or on account of an antecedent debt owed by the debtor before such transfer was made;
(3) made while the debtor was insolvent;
(4) made —
(A) on or within 90 days before the date of the filing of the petition; or
(B) between ninety days and one year before the date of the filing of the petition, if such creditor at the time of such transfer was an insider; and
(5) that enables such creditor to receive more than such creditor would receive if —
(A) the case were a case under chapter 7 of this title;
(B) the transfer had not been made; and
(C) such creditor received payment of such debt to the extent provided by the provisions of this title.
Of course, if the Trustee has not advanced the necessary elements of the preference action, little purpose would be served to require the defense to put on its case. Under such circumstances, a partial judgment under Rule 52(c) would be justified.
With that in mind, an evaluation of the Trustee's presentation of evidence should direct itself to the first element, whether a transfer has been made to or for the benefit of a creditor.
I don't believe there is any dispute that, although the original relationship between MBP and PACER was more of a business venture as lessor-lessee, or agent-principal, it soon devolved into a debtor-creditor relationship. The Trustee advances the argument that PACER was a creditor, and indeed, PACER has filed a significant proof of claim as such creditor. There is also ample evidence that PACER collected all receivables and was charged with accounting for those percentages due MBP/Parry Logistics for the trucks and services provided. There exists some evidence that MBP generated considerable receivables for PACER's benefit, i.e., the dog calendar. There also exists some evidence that the funds forwarded to MBP were considerably less than the 78-83% due under the contracts. The Trustee argues that the revenue generated by MBP-owned or contracted vehicles generated revenue for MBP which was retained by PACER. The Trustee further argues that, during this time, PACER loaned MBP money and accepted repayments of that loan during the preferential period at a time when MBP was insolvent. The Trustee wants these repayments returned to the estate.
On July 28, 2003, PACER filed a proof of claim in the amount of $633,487.33.
Interestingly, the Trustee never alleges in his Amended Complaint that PACER "loaned" money to MBP. He apparently bootstraps the argument that MBP generated significant receivables from its customer base, collected by PACER, who retained it and loaned funds to MBP, at interest, while "bankrupting" the Debtor.
Despite the pleadings in this case, the Trustee denies the viability of the written contracts. The evidence runs counter to that. Under the lease contracts between MBP and PACER, MBP leased all of MBP's vehicles to PACER. How then could MBP generate receivables, except as lease payments from PACER? The Trustee denies that the contracts were enforced. Nevertheless, the Trustee concedes that the operating licenses that were used prior to January 2, 2002 by MBP were surrendered and MBP trucks used PACER's operating authorities. Without vehicles, how else does MBP deliver freight? The Trustee does not address that obvious question.
PACER entered into an agreement with Parry Logistics so Parry Logistics could act as PACER's agent in securing freight. The Trustee argues that there was no such entity as Parry Logistics, and therefore, no agency agreement could have existed that would bind MBP. The facts, however, demonstrate that MBP followed the letter of the agency contract. PACER could not otherwise utilize the invoice letterhead, "Parry a Division of PACER" and direct the collection of receivables. The only logical explanation was that the loads that were being delivered were utilizing PACER-leased trucks, generating PACER receivables, from which 70-75% would go to MBP for the vehicles and 8% would go to MBP as an agency commission. The testimony of all the fact witnesses was consistent with these findings.
There is little on the record that MBP transferred any property to PACER after the "debt" was incurred, notwithstanding the Trustee's argument that the receivables still belonged to MBP. Such a finding of fact does not fairly arise from the evidence given the concession that all MBP vehicles were leased to PACER.
Rule 52(c) does not require that any special weight be given to the evidence submitted by the trustee, since he has had the opportunity to present his entire case. I, therefore, find that no property or interest has been transferred to PACER after a debt was incurred, and thus, no preference can be shown.
The Eleventh Cause of Action alleges that MBP was the victim of negligent misrepresentation.
The Trustee has been vague about the specific "misrepresentations" attributed to the Defendant with regard to this count. At page 45 of his brief, he summarizes his argument by saying,
[I]t is quite apparent that Pacer represented to the Debtor that Pacer could and would provide Parry with more than sufficient business to offset the 17% that was going to be lost by Parry, by entering into the relationship with the Defendant Pacer. Further it is quite evident, that not only did Defendant make representations to the Debtor, but also made representations to creditors, vendors and the world through its actions, that Parry was part of Pacer, and that the various creditors would be paid and in fact some were paid directly by Pacer.
Response of Plaintiff, Mark J. Conway, Chapter 7 Trustee for the Estate of MBP Management Services, Inc. T/A Parry to Defendant's Motion for the Entry of Judgment on Partial Findings, Pursuant to Bankruptcy Rule 7052(c), (hereinafter referred to as "Trustee's Brief") at page 45, Document #284.
This argument is simply not consistent with the allegation of paragraph 16 of the Trustee's Amended Complaint that embraces the January 2, 2002 agency agreement between PACER and Parry Logistics, an agreement that supercedes all agreements entered into prior to that date by reason of the integration clause contained therein. (Plaintiff's Exhibit 24, ¶ 3.9.)
The elements of the tort of negligent misrepresentation were spelled out in Bortz v. Noon, 556 Pa. 489, 729 A.2d 555 (Pa., 1999) as requiring "proof of: (1) a misrepresentation of a material fact; (2) made under circumstances in which the misrepresenter ought to have known its falsity; (3) with an intent to induce another to act on it; and; (4) which results in injury to a party acting in justifiable reliance on the misrepresentation. Id. at 500.
Section 552 of the Restatement of the Law of Torts, Second, has been adopted as the law in Pennsylvania. Bilt-Rite Contractors, Inc. v. The Architectural Studio, 581 Pa. 454, 866 A.2d 270, 287 (2005). That section reads, as follows:
§ 552. Information Negligently Supplied for the Guidance of Others.
(1) One who, in the course of his business, profession or employment, or in any other transaction in which he has a pecuniary interest, supplies false information for the guidance of others in their business transactions, is subject to liability for pecuniary loss caused to them by their justifiable reliance upon the information, if he fails to exercise reasonable care or competence in obtaining or communicating the information.
(2) Except as stated in Subsection (3), the liability stated in Subsection (1) is limited to loss suffered
(a) by the person or one of a limited group of persons for whose benefit and guidance he intends to supply the information or knows that the recipient intends to supply it; and
(b) through reliance upon it in a transaction that he intends the information to influence or knows that the recipient so intends or in a substantially similar transaction.
(3) The liability of one who is under a public duty to give the information extends to loss suffered by any of the class of persons for whose benefit the duty is created, in any of the transactions in which it is intended to protect them.
Implicitly required as elements of the tort are (1) duty, (2) breach of duty, and (3) damages. J.E. Mamiye Sons, Inc. v. Fidelity Bank, 813 F.2d 610, 615 (3d Cir. 1987).
The Trustee contends that PACER is guilty of misrepresentation for two reasons: 1) PACER made negligent misrepresentations to MBP stating they would give MBP enough business to compensate for the 17% revenue loss; and 2) PACER made negligent misrepresentations to MBP, its creditors, vendors and the world through its actions, and ultimately caused their deepening insolvency. PACER responds that the Trustee waived his negligent misrepresentation claim the first day of trial, and second, that this claim is barred under the economic loss doctrine.
Trustee's Brief at 45.
Trustee's Brief at 46-47. It appears that the Trustee via this Second Cause of Action is actually suing for deepening insolvency. The issue of deepening insolvency is dealt with separately.
On the first day of trial, this Court asked the Trustee's counsel why he couldn't just recover his damages under the contract theory as opposed to the negligent misrepresentation theory. (Transcript of 11/29/04 at 22.) The Court also brought up the fact that, under the economic loss doctrine, the appropriate cause of action may be a contract action and not a negligent misrepresentation action. Id. In response, the Trustee's attorney stated, "To an extent yes, Your Honor. Whatever we're entitled to under the contract yes, I believe that would be taken care of under the contract action." Id. The economic loss doctrine "prohibits plaintiffs from recovering in tort economic losses to which their entitlement flows only from contract." Duquesne Light Co. v. Westinghouse Elec. Corp., 66 F.3d 604, 618 (3d Cir. 1995). This doctrine has also been advanced as "gist of the action doctrine." "[I]t is possible that a breach of contract also gives rise to an actionable tort. . . . `To be construed as in tort, however, the wrong ascribed to defendant must be the gist of the action, the contract being collateral.'" [citations omitted] Bash v. Bell Telephone Co. of Pennsylvania, 411 Pa.Super. 347, 355-356, 601 A.2d 825, 829 (Pa.Super. 1992).
It has been said that the economic loss doctrine is only applicable in products liability cases. Bohler-Uddeholm Am., Inc. v. Ellwood Group, Inc., 247 F.3d 79, 104 n. 11 (3d Cir. 2001).
Bilt-Rite Contractors, Inc. v. The Architectural Studio, supra, adopted an approach fashioned by the South Carolina Supreme Court by referencing the following quote:
[T]he question of whether the plaintiff may maintain an action in tort for purely economic loss turns on the determination of the source of the duty plaintiff claims the defendant owed. A breach of a duty which arises under the provisions of a contract between the parties must be redressed under contract, and a tort action will not lie. A breach of a duty arising independently of any contract duties between the parties, however, may support a tort action.
Tommy L. Griffin Plumbing Heating Co. v. Jordan, Jones Goulding, Inc., 320 S.C. 49, 54-55, 463 S.E.2d 85, 88 (S.C. 1995).
The Bilt-Rite Court held, "that the economic loss rule does not apply to claims of negligent misrepresentation sounding under Section 552 [of the Restatement of Torts]." Bilt-Rite Contractors, Inc. v. The Architectural Studio, 581 Pa. 454, 484, 866 A.2d 270, 288 (Pa. 2005). Importantly, § 552 does not supplant the tort of negligent misrepresentation in Pennsylvania, it merely dictates its parameters. Regardless of the merit of this argument, because the negligent misrepresentation claim fails as a matter of law (as discussed below), it need not be resolved on the basis of waiver.
The Trustee is claiming negligent misrepresentation inasmuch as PACER made certain oral promises to MBP to make up for a revenue loss earlier suffered by MBP due to the loss of a major customer. The Defendants argue that the economic loss doctrine bars the assertion of tort claims such as negligent misrepresentation where there is privity of contract between the parties. Duquesne Light Co. v. Westinghouse Elec. Corp., 66 F.3d 604, 619-620 (3d Cir. 1995).
1) Economic Loss Doctrine the Gist of the Action Test
The Third Circuit has held that there are two methods used by Pennsylvania courts to determine whether tort claims accompanying contract claims should be allowed as free standing causes of action, or disallowed as illegitimate attempts to recover additional damages: the gist of the action test and the economic loss doctrine test. Bohler-Uddeholm America, Inc. v. Ellwood Group Inc., 247 F.3d 79, 103 (3d Cir. 2001).
[T]o be construed as a tort action, the [tortious] wrong ascribed to the defendant must be the gist of the action with the contract being collateral. . . . [T]he important difference between contract and tort actions is that the latter lie from the breach of duties imposed as a matter of social policy while the former lie for the breach of duties imposed by mutual consensus. . . . In other words, a claim should be limited to a contract claim when the parties' obligations are defined by the terms of the contracts, and not by the larger social policies embodied in the law of torts. (internal citations and quotation marks omitted).
Id. at 103-04.
The economic-loss doctrine test stemming from Duquesne Light Co. prohibits "plaintiffs from recovering in tort economic losses to which their entitlement flows only from a contract. . . . [and] when loss of the benefit of a bargain is the plaintiff's sole loss." Bohler-Uddeholm America, Inc., 247 F.3d at 104, quoting Duquesne Light Co., 66 F.3d at 618. However, the Third Circuit, in a footnote, found that the application of the economic-loss doctrine applies primarily in the context of precluding products liability actions, where as the gist of the action test is a better test to use for non-products liability cases. Bohler-Uddeholm America, Inc., 247 F.3d 79 at n. 11. As such, because the instant action is not a products liability case, the gist of the action test is applicable to the instant case.
Here, the parties have a fully integrated enforceable contract between them setting forth each parties rights, obligations, and duties. Because the parties' conduct was primary governed by a contract as opposed to social mores, this claim should have been characterized solely as a contract action. Thus, the negligent misrepresentation claim should be dismissed.
2) Parol Evidence Bars Evidence of Negligent Misrepresentation
In addition to failing the "gist of the action" test, the Trustee's claim fails as a matter of law because the evidence he bases his negligent misrepresentation claim on is parol evidence. The evidence supporting the Trustee's negligent misrepresentation claim is the alleged promises made by PACER to MBP during the negotiations prior to the agency agreement. Furthermore, the parol evidence is introduced by the Trustee with the intention of varying or contradicting the terms of their integrated contract and is thus inadmissible. The Pennsylvania parol evidence rule bars evidence of negligent misrepresentation when introduced to contradict or vary the terms and obligations set forth in an integrated contract. See Coram Healthcare Corp. v. Aetna U.S. Healthcare, Inc., 94 F. Supp. 2d 589, 595 (E.D.Pa. 1999), see also HCB Contractors v. Liberty Place Hotel Assoc., 539 Pa. 395, 652 A.2d 1278, 1279 (1995). As set forth in this Opinion regarding the Trustee's Thirteenth Cause of Action for breach of contract, the parties clearly have an enforceable contract between them, i.e., the agency agreement. The agency agreement is an integrated contract, and therefore, each parties' respective obligations and duties are contained within the four corners of that document and no evidence of prior or contemporaneous dealings may be introduced to vary or contradict the terms set forth in the agency agreement. These negotiations are inadmissible parol evidence, and thus, the Trustee's claim for negligent misrepresentation fails as a matter of law.
This is true despite the fact that the parol evidence rule does not apply to averments of fraud, the distinction is the state of mind requirement for the fraud claim requires intentional conduct on the part of the defendant. Coram Healthcare Corp., 94 F. Supp. 2d at 595.
In the Twelfth Cause of Action, the Trustee argues that PACER is liable for conversion. The Trustee asserts "as a result of PACER's action in taking possession and control of Debtor's customer lists and account receivables PACER has asserted dominion over and converted to its own use and benefit said customer lists and account receivables." (Amended Complaint, Twelfth Cause of Action, ¶ 106.)
Under Pennsylvania law, conversion is the "deprivation of another's right of property, or use or possession of a chattel, or other interference therewith, without the owner's consent and without legal justification." Universal Premium Acceptance Corp. v. York Bank Trust Co., 69 F.3d 695, 704 (3d Cir. 1995). The Trustee argues that PACER is guilty of conversion because it failed to comply with its obligations under the alleged agreement formed by the November 8, 2001 proposal and because PACER converted funds belonging to the Trustee by cashing checks made payable to the Debtor and by taking funds off the Trustee's Comdata card without approval. (Trustee's Brief at 48, Doc. #284.)
PACER's failure to comply with its alleged contractual obligations pursuant to the November 8, 2001 proposal is not actionable under a theory of conversion because the November 8 proposal is not a valid contract. The two contracts governing the parties' obligations are the agency agreement and the lease agreements. (See Plaintiff's Exhibits 6 23.) Because the November 8 proposal does not contain the parties' contractual agreement, it may not provide the basis of a conversion action, and this portion of the cause of action thus fails.
The second basis for conversion is that PACER converted the funds belonging to MBP when it removed monies from the account associated with the Comdata card. As discussed earlier regarding the Trustee's fraudulent conveyance counts, MBP did not have a property interest in the Comdata account prior to withdrawals by MBP. Because there was no property interest to be converted, this portion of the claim also fails.
What appears to be the third basis of conversion is the allegation that PACER converted funds belonging to MBP by cashing checks made payable to the Debtor. PACER argues that a necessary component of conversion is lack of consent on the part of MBP. However, consent is a defense to the tort of conversion where the person consenting has the power to give consent. See Restatement 2d of Torts § 253 (1965). MBP may have consented to PACER cashing the checks prior to bankruptcy in that there is evidence MBP forwarded the checks to PACER but the closer question is did MBP, as an entity in bankruptcy, have the power to consent to authorize PACER to cash checks made out to MBP?
The moment a bankruptcy petition is filed, all of the debtor's property interests become property of the estate under 11 U.S.C. § 541. Here, the question is, does the Debtor have a property interest in a check only mistakenly addressed to it but cashed by PACER? PACER argues that the funds represented by the checks wrongfully made out to Parry were amounts that the customers were obliged to pay to PACER under the operative agreements, and the Trustee had not offered evidence that, notwithstanding the negotiation of the checks, MBP was actually owed the money represented by the checks. (Defendant's Reply Brief in Support of Motion for Judgment on Partial Findings at 17, Doc.# 289.) PACER further alleges that the checks were negotiated automatically by the bank despite the fact they were made out to the wrong entity and not endorsed by PACER. Id. at 18.
In sum, because there is potential merit to the Trustee's conversion claim with regard to checks made out to the Debtor but cashed by PACER without endorsement, PACER should be required to prove they had authority to cash these checks made out to MBP.
The Thirteenth Cause of Action advances a breach of contract, arguing that PACER breached the November 2001 "contract" by not fulfilling PACER's commitment to increase the annual sales of MBP sufficient to allow MBP to turn a profit.
The alleged November 2001 contract alluded to by the Trustee combines the November 8, 2001 proposal (Plaintiff's Exhibit 22) with earlier discussions with the principals suggesting a gross revenue stream to MBP in the 22 million dollar range was feasible.
As alluded to earlier, the November 8, 2001 letter proposal only is effective if it was thereafter "accepted." That letter was directed to "Robert Parry, Jr. — Parry." The only evidence of "acceptance" appears to be Robert Parry, Jr.'s execution of a January 2, 2002 agency agreement, on behalf of Parry Logistics, with PACER. Parry Logistics did not incorporate until month's later. Nevertheless, PACER sent a $50,000 "bonus" check to Bob Parry — Parry Trucking on January 2, 2002, "as indicated." (Plaintiff's Exhibit 28.) The only place such a bonus is indicated is on the November 8, 2001 proposal and the only written authorization by PACER for a relevant entity to act as an agent is in the January 2, 2002 agreement with Parry Logistics, a then nonexistent entity. The compensation schedule in the January 2, 2002 agreement references an "Addendum." While such addendum may not have been specifically identified, the evidence, such as the January 2, 2002 bonus payment, would tend to suggest that the addendum consisted of the November 8, 2001 proposal.
Of course, a far greater portion of the gross revenues would have been due the Debtor based on the leases of the trailers to PACER, i.e., 75% of gross revenue.
The allegation of "breach" turns on the purported failure of MBP to "increase the annual sales for Debtor." While an effort to increase sales undoubtedly motivated MBP to enter into an arrangement with PACER, the fact that such effort failed does not bespeak a breach of contract. Nothing in either the November 8, 2001 proposal, or the January 2, 2002 agency agreement, or the plethora of lease contracts suggest that there was any commitment of volume by PACER. In fact, the November 8, 2001 proposal specifically states:
7. PACER will make every effort possible to insure that the PACER Global Logistics group offers Parry every opportunity to participate in their freight where and when practical.
No specific dollar amount of revenue to MBP is promised.
In addition, the January 2, 2002 agreement includes an integration clause in ¶ 3.9, which states: "This Agreement shall supercede all agreements, oral and written, between AGENT and PACER prior to the date of this Agreement." Simply put, the parol evidence rule would bar any prior promises from being admitted into evidence.
The Trustee has simply not produced the evidence to prevail on count thirteen.
The Trustee's Fourteenth Cause of Action alleges that MBP was authorized to incur debt as PACER's "agent." This, despite a specific prohibition contained in ¶ 3.8 of the January 2, 2002 agreement. Nevertheless, the qualifications in ¶ 3.8 clearly reserved to PACER, the ability to pledge PACER's credit, even contemplating specific extensions of credit by third parties to MBP, underwritten by PACER. PACER could very well be liable to MBP for debts incurred at PACER's request and with PACER's authorization. Having said that, the specific allegations in the Trustee's Amended Complaint with regard to this count, i.e., ¶¶ 113-124 are rather vague as to the specific theory upon which liability is attached. Chapter 14 of the Restatement of Agency, Second sets forth various duties incumbent on a principal. Unfortunately, neither the Amended Complaint of the Trustee, nor the responsive brief to the Defendant's Motion for entry of judgment (Document #284) articulates this theory with any precision. In an earlier brief, the Trustee advanced that PACER "made representations to the Debtor, Debtor's creditors, and suppliers concerning the continuing to supply Debtor [sic], the payments of Debtor's debt and increasing the Debtor's debt, all of which are binding on the Defendant and require said debts to be paid by Defendant." (Plaintiff's Answer and Brief in Opposition to Defendant's Motion for Summary Judgment at 19, Document #95.) That sounds like the Trustee is pursuing a theory of indemnity generally elucidated and set forth in § 439 of the Restatement of Agency, Second, as follows:
AGENT shall not have nor shall he hold himself out as having authority to make representations or promises, verbal or written, on the part of PACER, except as specifically provided in this Agreement. AGENT shall not have nor shall he hold himself out as having the power to pledge PACER's credit or to extend credit in the name of PACER except in those instances specifically authorized by PACER. Decisions regarding credit shall be made only by PACER.
§ 439. When Duty Of Indemnity Exists
Unless otherwise agreed, a principal is subject to a duty to exonerate an agent who is not barred by the illegality of his conduct to indemnify him for:
(a) authorized payments made by the agent on behalf of the principal;
(b) payments upon contracts upon which the agent is authorized to make himself liable, and upon obligations arising from the possession or ownership of things which he is authorized to hold on account of the principal;
(c) payments of damages to third persons which he is required to make on account of the authorized performance of an act which constitutes a tort or a breach of contract;
(d) expenses of defending actions by third persons brought because of the agent's authorized conduct, such actions being unfounded but not brought in bad faith; and
(e) payments resulting in benefit to the principal, made by the agent under such circumstances that it would be inequitable for indemnity not to be made.
Notably, the Restatement appears to suggest that indemnity is appropriate only in situations where the agent has theretofore made payment of relevant expenses, as listed therein. On the facts before us, PACER, generally, committed the funds that they said they would commit to MBP. They paid the MBP expenses they said they would pay. The Trustee appears to argue, under the count entitled "Agency," that PACER should be liable for the "deepening insolvency" of the Debtor. (Plaintiff's Answer and Brief in Opposition to Defendant's Motion for Summary Judgment at 19, Doc. #95; Trustee's Brief at 58, Doc. #284.) The unenumerated cause of action sounding in "deepening insolvency" will be addressed at a later point in this Opinion. The count labeled "Agency" has simply not been supported by the evidence since I conclude that the Trustee must first identify those expenses of the agent which the Defendant PACER is being asked to reimburse. The Trustee cannot succeed on count fourteen.
The Trustee's Fifteenth Cause of Action, tortious interference with contract, was withdrawn by the Trustee prior to the initiation of trial. (Transcript of 11/29/04 at 25 and 129.)
While not specifically titling a count for the tort of "deepening insolvency," the Trustee has advanced an argument for this tort. The Defendant counters the Trustee has failed to allege a cause of action for deepening insolvency. The Trustee argues that he stated a case for deepening insolvency in paragraph 54 of his Amended Complaint, and presented evidence sufficient to prove it. (Trustee's Brief at 53.)
Doc. No. 22, ¶ 54 states: "PACER continued to expand the Debtor's outstanding debt with the knowledge that the Debtor would not be able to repay those obligations, thus deepening the insolvency of Debtor." This paragraph is contained under the subheading "Nature of the Action."
Inexplicably, while not alleging a count of deepening insolvency, the Trustee alluded to this claim throughout the trial and during the testimony of his expert. In his clumsy, inarticulate way, the Trustee has suggested that the Defendant, PACER, has formed a type of alliance with the Debtor, MBP, for the sole purpose of enhancing PACER's prospectus with regard to the number of van trailers under its control so as to increase the value of PACER's stock. The Trustee implies that PACER exercised dominion and control over MBP so as to artificially prolong MBP's existence until such time as PACER, without MBP's awareness, completed PACER's public offering of stock.
While amending the Complaint to include this count would have been appropriate, I can see no surprise befalling the Defendant and will consider the claim.
The Third Circuit has acknowledge that deepening insolvency is a viable cause of action and constitutes a separate tort under Pennsylvania law. Official Committee of Unsecured Creditors v. R.F. Lafferty Co. Inc., 267 F.3d 340, 352 (3d Cir. 2001). The Third Circuit defined the cause of action as "the fraudulent expansion of corporate debt and prolongation of corporate life." Id. at 347. In a subsequent decision, our Circuit explained that deepening insolvency must be based on fraudulent conduct and cannot be supported by negligence. In re CitX Corp., 448 F.3d 672, 681 (3d Cir. 2006). Neither Lafferty or CitX addressed the requisite elements of this tort. R.F. Lafferty Co. Inc., 267 F.3d at 344-45. That being said, at least two elements can be drawn out of the Lafferty opinion: first, that the corporate injury be distinct from that of the creditors, and second, that the defendant's conduct must be fraudulent. Id. at 351.
The defendants in Lafferty were corporate management and various third party professionals who aided corporate management in maintaining an elaborate ponzi scheme. Id. at 344-46. The Defendant in the instant case, however, is not the corporate management of the Debtor but rather a third party lender. The fact that the present Defendant is a lender makes liability more problematic because normally lenders, unlike corporate principals, do not owe an independent duty of care to creditors upon insolvency. Despite this, a Delaware Bankruptcy Court held that lenders may be liable under a theory of deepening insolvency where the lenders exhibit such control over the debtors that it causes the debtors to increase their insolvency, suffer massive losses, and thus, cost the creditors substantial value. Official Comm. Of Unsecured Creditors v. Credit Suisse First Boston (In re Exide Tech., Inc.), 299 B.R. 732, 750-51 (Bankr. D.Del. 2003).
The Exide complaint, like the Lafferty complaint, alleged a variety of conduct suggesting that the lenders were in control of the debtor and therefore "insiders." As a result of their control, the lenders were able to obtain additional collateral, pledges, and guarantees, dictate the bankruptcy filing date, determine which entities would file bankruptcy to prevent liens and guarantees from being voided, cause the board of directors to make other key decisions favorable to the lenders, and the lenders aided and abetted the debtors' breach of fiduciary duties. Exide, 299 B.R. at 743. The Delaware Bankruptcy Court focused its analysis primarily on whether deepening insolvency was a viable tort under bankruptcy law and did not elaborate on what degree of control is necessary to impose liability under a theory of deepening insolvency. Id. I find that when the defendant in a deepening insolvency action is a lender, the trustee must prove that the lender exerted control over the debtor corporation.
This is primarily because the issue was decided in the context of a 12(b)(6) motion to dismiss for failure to state a claim, thus all reasonable inferences were given to the Trustee. The Trustee in that case survived the motion to dismiss with the following allegation:
"The Lenders caused the Debtors to acquire GNB Dunlop so they could obtain the control necessary to force the Debtors fraudulently to continue its business for nearly two years at ever-increasing levels of insolvency. The conduct by the Lenders caused the Debtors to suffer massive losses and become more deeply insolvent, costing creditors substantial value." In re Exide, 299 B.R. at 750-51.
The Trustee has, in fact, shown this control. The Trustee showed that Rob Parry reported to PACER weekly regarding MBP's revenues and expenses after it became clear that MBP was unable to fund its payroll and fueling expenses. (Transcript of 11/30/04 at 93 and 94.) Rob or Bob Parry would contact PACER regularly to tell PACER what accounts and checks needed to be funded that day or week to meet MBP's obligations. PACER representatives met with Penn Security Bank in July of 2002 and then agreed to make payments to Penn Security Bank on the loans to Parry in the amount of $30,000. (Transcript of 11/30/04 at 113.) Prior to the meeting with Penn Security Bank, Gerry Angeli met with Bob and Rob Parry to prepare to represent to Penn Security Bank that the outlook for MBP for 2002 was optimistic. (Transcript of 11/30/04 at 102 et. seq., Exhibit 20.) After a conflict between Michael Parry and a client, Penske, Angeli faxed a memo to MBP on April 25, 2002, reorganizing the management staff of MBP and demoting Michael Parry to Special Projects and promoting David Jadick to Manager of Operations. (Plaintiff's Exhibit 16.) PACER also provided the Debtor with business cards even though nobody at MBP had any input on what was printed on the business cards. (Transcript of 11/30/04 at 84 and 85; Transcript of 3/14/05 at 121; and Transcript of 6/8/05 at 137 and 138.) (See also, Plaintiff's Exhibits 17, 50, and 51.) PACER dictated how the phone system was to be listed in the phone book and how the phone was to be answered. (Transcript of 11/30/04 at 75, 85-87; Transcript of 3/14/05 at 118 and 119; and Transcript of 8/26/05 at 86.) There was testimony that PACER was in control of the money and the business and wanted to know who was being paid by the money being advanced, as Mr. Gaskill, PACER's representative, determined which creditors got paid. (Transcript of 3/15/05 at 58 and 59.) PACER prepared a logo with the nomenclature "Parry a division of PACER" for freight bills. (Transcript of 6/8/05 at 75 and Trustee's Exhibit 49.) MBP's trucks bore the same logo.
This example and the following examples of control came from the Plaintiff's Brief at 16-17, Doc. #284.
I am satisfied that the Trustee and the Bank presented substantial evidence to establish that PACER exercised control over MBP.
The courts are not clear on what kind of "fraudulent conduct" will expose one to liability under the theory of deepening insolvency. In OHC Liquidation Trust v. Credit Suisse First Boston (In re Oakwood Homes Corp.), 340 B.R. 510 (Bankr.D.Del. 2006), the bankruptcy court suggested that fraudulent conduct generally requires a misrepresentation of a material fact upon which there is reliance and injury. The misrepresentation must also be accompanied by the necessary scienter. Id. at 534. One example of fraudulent conduct may be indicated where a party acts in bad faith and breaches duties arising out of its control in such a manner that corporate debt is increased while its existence is extended. See, generally, 2005 No. 11 Norton Bankr. L. Adviser 2.
PACER knew that MBP was insolvent at the inception of their business relationship, and there is little doubt that PACER was aware that MBP remained insolvent throughout their relationship. This can be evidenced by the fact that prior to the consummation of the business relationship via the contract, Mr. Angeli was informed that unless there was more business, MBP would not be able to survive. (Transcript of 11/29/04 at 157.) On May 20, 2002, there was a meeting between the principals of MBP and PACER at the Newark airport to discuss the fact that MBP couldn't pay its bills including the 941 taxes. (Transcript of 11/30/04 at 68-70 and Transcript of 3/14/05 at 132.) PACER sent John O'Toole to oversee operations at MBP and be present in the office on a bi-weekly basis.
The Bank and the Trustee have presented evidence that PACER acted in bad faith, especially with regard to PACER's attempts to "avoid" Penn Security Bank's security interest. (Transcript of 6/10/05 at 48-49.) (discussion between Angeli and Parry about forming a new corporation to break the Penn Security Bank's security interest.) Circumstantially, there has been advanced some evidence that PACER was motivated by nothing more than their own self interest in maintaining MBP until such time that their public offering was completed. This, despite the impact that MBP's continued existence may have on other MBP creditors or MBP's chances for exercising alternative means to stay viable.
Furthermore, the Trustee has presented evidence that, but for PACER continuing an infusion of cash, MBP would have closed earlier to when it did. (Transcript of 3/15/05 at 42.) (Bob Parry testifying that without the infusion of cash via PACER, the Debtor would not have been able to stay in business.)
The Third Circuit, in elaborating on the concept of deepening insolvency, has said:
where fraud, mismanagement, or other wrong damages a corporation's assets, a shareholder does not have a direct cause of action . . . rather it is the corporate body who suffers the primary wrong, and consequently it is the corporate body that possesses the right to sue . . . It follows from this discussion that a corporation can suffer an injury unto itself, and any claim it asserts to recover for that injury is independent and separate from the claims of shareholders, creditors, and others.
Lafferty, 267 F.3d at 348.
Proof of harm to the corporate body is extremely tenuous. While the Trustee has presented evidence that PACER engaged in fraudulent conduct by convincing the principals of MBP to present to the bank fraudulent statements of MBP's financial status, the extent of harm to the corporate body is questionable, especially considering the precarious position of MBP at the outset of its relationship with PACER. MBP's corporate principals, in possibly assisting PACER to hold the corporation out as fiscally secure, may be equally guilty in perpetrating a fraud on the bank, making the defense of in pari delicto applicable. As discussed in Lafferty, the trustee "steps into the shoes of the debtor" to bring this cause of action and thus the trustee is subject to all defenses which may be raised against the corporation. This subjects the Trustee to all defenses which could have been asserted against the corporation by PACER at the time of the filing. The Third Circuit in Lafferty held that the doctrine of in pari delicto may be asserted as an affirmative defense against a claim of deepening insolvency. Lafferty, 267 F.3d at 354. "The doctrine of in pari delicto provides that a Trustee may not assert a claim against a defendant if the Trustee bears fault for the claim." Id. The Circuit found that the trustee inherited the legal and equitable interests of the corporate debtor as of the petition date, including all defenses to which the debtor was subject. Lafferty, 267 F.3d at 356. The corporate principal's wrongdoing was imputed to the debtor corporation, the trustee was subject to the affirmative defense of pari delicto, and thus, plaintiffs might not succeed on their claim for deepening insolvency. Id. at 355-59.
Similar reasoning applies in this case.
As was the case in Lafferty, the Trustee is stepping into the shoes of MBP and alleging that PACER's fraudulent conduct caused the deepening insolvency of MBP. There is evidence that the Parrys, as principals of MBP, were by no means innocent throughout the course of these events and may have actively participated in the fraud. The Parrys followed Gerry Angeli's directions to represent to Penn Security Bank that the outlook for MBP for 2002 was optimistic. (Transcript of 11/30/04 at 102 et. seq.) Additionally, there is the management-consultant letter which Bob Parry executed and signed employing PACER as a "management consultant." (See Plaintiff's Exhibit 35.) The Parrys owed MBP's creditors a duty of care upon the insolvency of MBP. See In re Papercraft Corp., 211 B.R. 813 (W.D. Pa. 1997) citing Pepper v. Litton, 308 U.S. 295, 307, 60 S.Ct. 238, 246 (1939).
Pursuant to § 541, all actions belonging to the debtor at the commencement of the case become property of the Trustee, but the Trustee obtains the interest subject to all defenses. See Legislative Statements to 11 U.S.C.A. § 541 ("the estate is comprised of all legal or equitable interests of the debtor in property as of the commencement of the case. To the extent such an interest is limited in the hands of the debtor, it is equally limited in the hands of the estate").
As corporate principals, the Parrys' actions can be imputed to MBP making the defense of in pari delicto likely applicable. "Under the law of imputation, courts impute the fraud of an officer to a corporation when the officer commits the fraud (1) in the course of his employment, and (2) for the benefit of the corporation." Lafferty, supra at 358.
On the other hand, Bob Parry's execution of the management request letter (Plaintiff's Exhibit 35) and representations to Penn Security Bank that MBP's 2002 outlook was favorable (Plaintiff's Exhibit 20) were both done in the course of their employment. These two actions were taken arguably for the benefit of the corporation because the Parrys participated in perpetrating the alleged fraud in conjunction with PACER with the intent of keeping PACER from discontinuing financial support. While the doctrine of in pari delicto may act as a complete defense to the assertion of deepening insolvency, PACER has not raised this as a defense. Of course, PACER has not, as yet, presented a defense.
Additionally, it has been proffered that deepening insolvency, being a tort, may also be subject to the economic loss doctrine or the gist of the action defense. Lichtenstein v. Stockton Bates, LLP (In re Computer Personalities Systems Inc.), 2003 WL 22844863 (Bankr. E.D.Pa. 2003). The idea that the gist of the action doctrine may bar recovery for deepening insolvency stems from the fact that it is an action based on the tort of fraud, and where the fraud claims are inextricably intertwined with the contract claims, they are barred under the gist of the action doctrine. See eToll, Inc. v. Elias/Savion Advertising, Inc., 811 A.2d 10, 21 (Pa.Super. 2002). In Lichtenstein, the court found the doctrine inapplicable because the duty violated was a duty owed by the accountant to its client which was imposed by Pennsylvania Law. 2003 WL 22844863 at 4. Thus, the applicable questions in this case are first, what is the duty the Defendants allegedly violated, and second, did that duty arise primarily from the contractual relationship between the parties or did it arise under state law? PACER argued the economic loss doctrine as a defense to the negligent misrepresentation doctrine but not the deepening insolvency claim. The Defendant may be able to raise this doctrine as a successful defense during trial.
Ultimately, Judge Sigmund found the defenses inapplicable because the economic loss doctrine did not bar recovery in tort for the breach of a duty that exists independently of a contract. The independent duty in that case was dictated by certain Pennsylvania laws of professional conduct applicable to accountants. Id. at 4.
Rule 52(c) indicates that the court could "decline to render any judgment until the close of all the evidence." Deepening insolvency is a developing tort with many amorphous transmutations. Sufficient evidence has been presented by the Trustee to suggest that a decision on this cause of action is best deferred until a later time in this trial.
For the reasons that I've indicated in this Opinion, I will enter judgment against the Trustee on all Causes of Action except the Twelfth, conversion, and the tort of deepening insolvency.
My Order is attached.