Summary
allowing tort claims for matters "not addressed by the parties' contracts"
Summary of this case from Taylor v. Creditel Corp.Opinion
Civil Action No. 04-1943.
September 17, 2004
MEMORANDUM ORDER
Presently before the Court is Plaintiff NWJ Property Management, LLC's Motion to Dismiss Defendant's Fourth Counter-Claim Under Fed.R.Civ.P. 12(b)(6). (Doc. No. 4.) For the following reasons, Plaintiff's Motion will be granted.
I. Background
Plaintiff is a Pennsylvania corporation that manages residential apartment buildings for building owners. (Compl. ¶ 3.) Defendant BACC Builders, Inc., is a Delaware Corporation in the business of building repair and improvement with offices in New York. (Doc. No. 3 at 1.) Between May, 2003 and November, 2003, Plaintiff and Defendant entered into a series of oral contracts, pursuant to which Defendant performed repairs on apartments located in Philadelphia and Washington, D.C. (Compl. ¶ 4.)
At some point, Plaintiff became dissatisfied with the invoices submitted by Defendant because they were "astonishingly large in relation to the tasks contracts," and "were impossible to assess for accuracy and propriety." ( Id. ¶ 6.) Plaintiff and Defendant continued to disagree about discrepancies. Plaintiff demanded that Defendant correct the discrepancies. ( Id. ¶ 13.) Defendant demanded that Plaintiff immediately pay the entire outstanding account. ( Id. ¶ 14.)
Based on this disagreement, Plaintiff filed a declaratory judgment action in the Philadelphia County Court of Common Pleas seeking a determination of the amounts that Defendant owed to the Plaintiff. ( Id. ¶ 17.) Pursuant to 28 U.S.C. § 1446, Defendant removed the action to this Court. Jurisdiction is proper under 28 U.S.C. § 1332, as the parties are diverse and the amount in controversy exceeds $75,000.
After removal, Defendant filed an answer to the Complaint that included four counterclaims. These counterclaims alleged: (1) breach of contract by Plaintiff; (2) Quantum Meruit; (3) Account Stated; and (4) Fraud — Material Misrepresentation. (Doc. No. 3.) Plaintiff has asked the Court to dismiss Defendant's claim for Fraud — Material Misrepresentation for failure to state a claim upon which relief can be granted. Plaintiff contends that Defendant has not adequately pled fraud pursuant to Fed.R.Civ.P. 9(b), and in the alternative this claim is barred by the "gist of the action doctrine." (Doc. No. 4 at 1-2.)
II. Standard of Law
Fed.R.Civ.P. 12(b)(6) allows a court to dismiss a complaint for failure to state a claim. The purpose of a Rule 12(b)(6) motion to dismiss is to test the sufficiency of a complaint, not to resolve disputed facts or decide the merits of the case. Tracinda Corp. v. Daimlerchrysler AG, 197 F. Supp. 2d 42, 53 (D. Del. 2002). Though the "plain statement" rule of 8(a) is construed quite liberally, the court need not credit a plaintiff's "bald assertions" or "legal conclusions" when deciding a motion to dismiss. Morse v. Lower Merion Sch. Dist., 132 F.3d 902, 906 (3d Cir. 1997). The court should not look to whether plaintiff will "ultimately prevail." It should only consider whether plaintiff should be allowed to offer evidence in support of their claims. In re Burlington Coat Factory Secs. Litig., 114 F.3d 1410, 1420 (3d Cir. 1997).
III. Discussion
Plaintiff contends that Defendant has not pled the Fraud-Material Misrepresentation claim with the particularity required by Fed.R.Civ.P. 9(b). Rule 9(b) requires that: "In all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity. Malice, intent, knowledge, and other condition of mind of a person may be averred generally." The purpose of Rule 9(b) is to "place the defendants on notice of the precise misconduct with which they are charged, and to safeguard defendants against spurious charges of immoral and fraudulent behavior." Q. Lum v. Bank of Am., 361 F.3d 217, 223-24 (3d Cir. 2004) (citing Seville Indus. Mach. Corp. v. Southmost Mach. Corp., 742 F.2d 786, 791 (3d Cir. 1984)). A litigant may satisfy Rule 9(b) by pleading either the "`date, place or time' of the fraud, or through `alternative means of injecting precision and some measure of substantiation into their allegations of fraud.'" Id. (citing Seville, 742 F.2d at 791). In addition, a litigant must "allege who made a misrepresentation to whom and the general content of the misrepresentation." Id. (citing Saporito v. Combustion Eng'g, Inc., 843 F.2d 666, 676 (3d Cir. 1988); Rolo v. City Investing Co. Liquidating Trust, 155 F.3d 644, 658-59 (3d Cir. 1998); Klein v. General Nutrition Co., Inc., 186 F.3d 338, 345 (3d Cir. 1999)).
We are satisfied that Defendant has not met the pleading requirements of Rule 9(b). Defendant's allegations of fraud are sparse, stating only the following:
21. At the time NWJ entered into each of the aforementioned contracts with BACC, NWJ fraudulently misrepresented its intent to pay to BACC the moneys due and owing to BACC for the work, labor, services, equipment and supplies incurred by BACC to repair the aforementioned apartment units.
22. BACC relied to its detriment, upon NWJ's misrepresentation that it would timely remit money in satisfaction of the invoices submitted by BACC and approved by NWJ.
(Doc. No. 3 at 7.) Defendant argues that it has satisfied the pleading requirements, and that regardless of what Defendant has pled, the purpose of Rule 9(b) has nevertheless been satisfied and Plaintiff has sufficiently been placed on notice of the conduct of which it is charged. This argument is based on the fact that the Fraud — Material Misrepresentation claim is made in a counterclaim. Defendant asserts that Plaintiff has itself pled in the Complaint that "the fraud took place between May and November 2003; the agreement(s) was made over the telephone; and the fraud related to apartment repair services, and the payment therefor." (Doc. No. 5 at 6.) We cannot agree with Defendant that Plaintiff's own pleading put them on notice of the fraud with which they are charged. Nowhere in the Complaint or the Counterclaims, are there allegations that sufficiently put Plaintiff on notice as to which statements are misrepresentations. As Defendant has failed to plead "date, place or time" of the fraud, or some "alternative means of injecting precision and some measure of substantiation into their allegations of fraud" the claim of Fraud — Material Misrepresentation must be dismissed.
Defendant has requested that if we were to find that the fraud claim was not pled with the necessary particularity, we grant Defendant leave to amend the claim. (Doc. No. 5 at 4 n. 2.) Although generally leave shall be freely given when justice so requires, "an amendment would be futile when `the complaint, as amended, would fail to state a claim upon which relief could be granted.'" In re NAHC, Inc. Sec. Litig., 306 F.3d 1314, 1332 (3d Cir. 2002) (citing Oran v. Stafford, 226 F.3d 275, 291 (3d Cir. 2000); Doug Grant, Inc. v. Greate Bay Casino Corp., 232 F.3d 173, 188-189 (3d Cir. 2000)).
In this instance allowing Defendant to amend its Fraud — Material Misrepresentation claim would be futile because this claim is barred by the "gist of the action doctrine" or the "economic loss rule." Plaintiff argues that Defendant's Fraud — Material Misrepresentation claim is barred by these two Pennsylvania common law rules. Under Pennsylvania law, "courts are cautious about permitting tort recovery based on contractual breaches." Pittsburgh Constr. Co. v. Griffith, 834 A.2d 572, 581 (Pa.Super.Ct. 2003) (citing Glazer v. Chandler, 200 A.2d 416, 418 (Pa. 1964)). As a result, Pennsylvania courts have fashioned the "economic-loss rule" and the "gist of the action doctrine." Id. (citing eToll, Inc. v. Elias/Savion Adver. Inc., 811 A.2d 10, 14 (Pa.Super.Ct. 2002)). "[T]he economic-loss doctrine `prohibits plaintiffs from recovering in tort economic losses to which their entitlement flows from a contract.'" Factory Market, Inc. v. Schuller Int'l Inc., 987 F. Supp. 387, 395 (E.D. Pa. 1998) (quoting Duquesne Light Co. v. Westinghouse Elec. Corp., 66 F.3d 604, 618 (3d Cir. 1995)); see also I S Assocs. Trust v. LaSalle Nat'l Bank, No. Civ. A. 99-4956, 2001 WL 1287522, at *3 (E.D. Pa. Oct. 23, 2001) (finding that "the economic loss doctrine bars a plaintiff from bringing a negligence action solely for economic losses absent physical injury or property damage") (citing Ellenbogen v. PNC Bank, 731 A.2d 175, 188 (Pa.Super.Ct. 1999)).
The "gist of the action doctrine" is similar to the "economic-loss rule" in purpose. See Blue Mountain Mushroom Co. v. Monterey Mushroom, Inc., 246 F. Supp. 2d 394, 402 (E.D. Pa. 2002) (stating that "[l]ike the economic loss doctrine, the gist of the action doctrine's purpose is `maintaining the separate spheres of the law of contract and tort.'") (quoting First Republic Bank v. Brand, 50 Pa. D. C.4th 329 (Pa. Com. Pl. 2000)). Under Pennsylvania law, "the `gist of the action doctrine' bars claims for allegedly tortious conduct where the gist of the conduct alleged sounds in contract rather than tort." Cortez v. Keystone Bank, Inc., No. Civ. A. 98-2457, 2000 WL 536666, at *8 (E.D. Pa. May 2, 2000). Again, the impetus for this rule is precluding "plaintiffs from bringing a tort claim that merely replicates a claim for breach of an underlying contract." Blue Mountain Mushroom, 246 F. Supp. 2d at 402 (quoting Werwiniski v. Ford Motor Co., 286 F.3d 661, 680 n. 8 (3d Cir. 2002)).
The applicability of these doctrines turns on whether the basis of the litigant's allegations sound in contract or tort. The conceptual distinction between a breach of contract claim and a tort claim has been explained as follows:
Although they derive from a common origin, distinct differences between civil actions for tort and contractual breach have been developed at common law. Tort actions lie for breaches of duties imposed by law as a matter of social policy, while contract actions lie only for breaches of duties imposed by mutual consensus agreements between particular individuals. . . . To permit a promisee to sue his promisor in tort for breaches of contract inter se would erode the usual rules of contractual recovery and inject confusion into our well-settled forms of actions.Pittsburgh Constr., 834 A.2d at 582 (citing eToll, 811 A.2d at 14); see also Bohler-Uddeholm America, Inc. v. Ellwood Group, Inc., 247 F.3d 79, 104 (3d Cir. 2001) (holding that "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") (quoting Bash v. Bell Tel. Co., 601 A.2d 825, 830 (Pa.Super.Ct. 1992)).
Plaintiff argues that either the "economic-loss doctrine" is applicable to the instant case because this case involves claims for purely economic losses, or that the "gist of the action doctrine" applies because the instant action is based on a contractual duty rather than a social duty. We agree with Plaintiff that the "gist of the action doctrine" is applicable.
We note that in Bohler-Uddeholm, 247 F.3d at 104 n. 11, the court discussed but did not rely on the "economic-loss doctrine . . . because that doctrine developed in the context of courts' precluding products liability tort claims in cases where one party contracts for a product from another party and the product malfunctions, injuring only the product itself." Id. (citing East River S.S. Corp. v. Transamerica Delaval, Inc., 476 U.S. 858, 866-71 (1986); Duquesne Light, 66 F.3d at 618-20).
The duties Plaintiff accuses Defendant of violating duties arising in contract, rather than in tort. Defendant alleges that "At the time NWJ entered into each of the aforementioned contracts with BACC, NWJ fraudulently misrepresented its intent to pay to BACC the moneys due and owing to BACC for the work, labor, services, equipment and supplies incurred by BACC to repair the aforementioned units." (Doc. No. 3 at 7.) The plain-language of the Fraud — Material Misrepresentation claim suggests that the action sounds in contract. Both parties admit that there was an oral contract between them. The sole issue presently before us is which party is responsible for breaching this contract. Nevertheless, Defendant seeks to transform this contract issue into a tort claim by claiming that it was fraudulently induced to make the contract in the first place.
We presume that Defendant seeks to establish liability on the tort claim in order to recover punitive damages, an award unavailable under a contract claim.
In other cases, the "gist of the action doctrine" has been applied to fraudulent inducement claims where the false promise becomes an obligation under the ensuing contract. See Galdieri v. Monsanto Co., 245 F. Supp. 2d 636, 650 (E.D. Pa. 2002) (dismissing the plaintiff's fraudulent inducement claim under the "gist of the action doctrine" where the alleged fraud was that the defendant never intended to perform); Factory Market, Inc. v. Schuller Int'l Inc., 987 F. Supp. 387, 395 (E.D. Pa. 1998) (dismissing the plaintiff's fraud claim because the court found that the "fraud claim is merely another way of stating its breach of contract claims"). The case of Penn City Investments, Inc. v. Soltech, Inc., No. Civ. A. 01-5542, 2003 WL 22844210, at *4 (E.D. Pa. Nov. 25, 2003), is particularly instructive. In that case, the defendant alleged that the plaintiff was guilty of breach of contract and fraudulent inducement. The basis of the fraudulent inducement claim was that the plaintiff promised "exclusive use of 40,000 square feet of refrigerated space in its newly improved dry storage area," but never actually intended to perform this promise. Id. at 4. The breach of contract claim was based on the plaintiff's contractual duty to "provide [defendant] with 40,000 square feet of refrigerated storage space." Id. at 4. In dismissing the fraudulent inducement claim, the court concluded that the fraud claim was "either directly addressed by the contract, or so closely related to the contractual relationship, that the dispute between the parties should be resolved by exclusive reference to contractual principles." Id. at 4.
There are factual situations where a party has been permitted to proceed with a fraudulent inducement claim concurrently with a breach of contract claim. In American Guarantee Liab. Ins. Co. v. Fojanini, 90 F. Supp. 2d 615, 623 (E.D. Pa. 2000), the court permitted a cause of action for fraud to proceed where the defendant falsely represented the financial stability of his business as a way of inducing the plaintiff to contract with it. Similarly, in Asbury Automotive Group LLC v. Chrysler Ins. Co., No. 01-3319, 2002 WL 15925, at *3 (E.D. Pa. Jan. 7, 2002), the court refused to dismiss the plaintiff's fraud claim, finding that during precontractual negotiations, the plaintiff misrepresented the scope of its duty to provide insurance coverage under the contract. Both of these representations dealt with issues not addressed by the parties' contracts.
The same cannot be said in the instant case. The facts of the instant case are similar to Penn City. Here, in exchange for Defendant's performance, Plaintiff promised to "compensate [Defendant] for all labor charges incurred and for all equipment purchased by [Defendant] to complete each job." (Doc. No. 3 at 4.) Plaintiff's failure to fully compensate Defendant is the basis of Defendant's breach of contract claim. The basis for Defendant's Fraud-Material Misrepresentation claim is that "At the time NWJ entered into each of the aforementioned contracts with BACC, NWJ fraudulently misrepresented its intent to pay to BACC the moneys due and owing to BACC for the work, labor, services, equipment and supplies incurred by BACC to repair the aforementioned apartment units." ( Id. at 7.) Clearly, the basis for the two claims is the same — Plaintiff's failure to compensate Defendant for the work it performed. Put another way, the only fraudulent statement Plaintiff is accused of is the failure to compensate Defendant for the work it performed. It is without doubt that the statements made by Plaintiff "concerned specific duties later outlined in the contract." Penn City, 2003 WL 22844210, at *3. As a result, the "gist of the action doctrine" compels the dismissal of the Fraud — Material Misrepresentation claim.
An appropriate Order follows.
ORDER
____ AND NOW, this 17th day of September, 2004, upon consideration of Plaintiff's Motion to Dismiss Defendant's Fourth Counter-Claim Under Fed.R.Civ.P. 12(b)(6), and all papers submitted in support thereof, and opposition there to, it is ORDERED that the Defendant's Fourth Counter-Claim is DISMISSED.IT IS SO ORDERED.