MARK R. HORNAK, District Judge.
This is an action for damages initiated by a construction company against its former surety. On May 31, 2013, this Court dismissed plaintiff Reginella Construction Company Limited's ("Reginella") Complaint for failure to state a claim upon which relief could be granted pursuant to Federal Rule of Civil Procedure 12(b)(6). See Reginella Constr. Co., Ltd. v. Travelers Cas. and Sur. Co. of America, 949 F.Supp.2d 599, 2013 WL 2404140 (W.D.Pa. 2013) ("Opinion"). Specifically, the Court found that Reginella's fiduciary duty, intentional interference, and tort bad faith claims failed as a matter of law. Finding the claims to be legally rather than factually deficient, the Court determined that curative amendment was futile and dismissed the Complaint with prejudice.
The Court held a hearing on Reginella's motion on August 21, 2013. For the reasons that follow, the Motion will be denied in its entirety.
Reginella argues that the Court committed legal error in dismissing its fiduciary duty claims with prejudice, applying Pennsylvania's gist of the action doctrine to bar its interference and tort bad faith claims, and by construing the facts in the Complaint against Reginella rather than in its favor. In light of these alleged errors and emergence of certain "new facts," Reginella contends that the Court should grant it leave to file an Amended Complaint. The Court concludes that because no error of law occurred and because amendment would be futile and would reward undue delay, the Motion will be denied.
In accordance with Federal Rule of Civil Procedure 59(e), a party may move to re-open a judgment no later than 28 days after its entry if at least one of the following grounds exists: "(1) an intervening change in controlling law; (2) the availability of new evidence; or (3) the need to correct clear error of law or prevent a manifest injustice." Burtch v. Milberg Factors, Inc., 662 F.3d 212, 230 (3d Cir. 2011). The determination of whether a judgment should be re-opened is left to the discretion of the district court. Cureton v. Nat. Collegiate Athletic Ass'n, 252 F.3d 267, 272 (3d Cir.2001).
First, Reginella contends that because the Court held that the Complaint failed to plead the existence of a legally-recognized fiduciary-in-fact relationship, it was legal error for the Court to have dismissed the claims without granting leave to re-plead with new facts. However, the Court was not required to grant leave to re-plead because it determined that there was no set of facts under which Reginella, a corporation with 25 years of experience in the multi-million dollar public construction industry, with access to legal and financial advice, as well as the knowledge that Travelers was contractually permitted to take steps against its interests if certain contingencies arose as set forth in the various agreements it intelligently and willingly signed, could plead the existence of a fiduciary-in-fact relationship between itself and Travelers. Reginella urges the Court to reconsider this conclusion in light of the newly-asserted fact that "Travelers was a public company with publicly reported assets of $14 billion while [Reginella] was a small regional contractor with assets that were only a small fraction of Travelers' assets." (ECF No. 24 at p. 19.) The Court is not aware of any Pennsylvania
Futility of amendment is a long-accepted basis for dismissing a Complaint with prejudice. Foman v. Davis, 371 U.S. 178, 182, 83 S.Ct. 227, 9 L.Ed.2d 222 (1962); In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1434-35 (3d Cir.1997). Thus, the ruling that Reginella's fiduciary-in-fact claims are legally deficient will stand.
Next, Reginella argues that the Court committed legal error in sua sponte applying the gist of the action doctrine to bar its tortious interference and tort bad faith claims because: 1) the Court should have given Reginella an opportunity to brief the issue; 2) the applicability of the doctrine depends upon evidence adduced during discovery; and 3) in applying the doctrine, the Court did not construe the Complaint's facts in the light most favorable to Reginella as it was required to do on Rule 12(b)(6) review. These arguments misstate the law.
The purpose of the gist of the action doctrine is to maintain the conceptual separation between contract claims and tort claims, and in any case is a matter of law for the Court to decide. (See Opinion, 949 F.Supp.2d at 614-15, citing cases.) "The doctrine deals less with specific enumerated `duties' than with the parties' conduct as it relates to the contract and the tort alleged," such that where the tort claims are inextricably intertwined with the contract, and the source of the duties allegedly breached is the contract rather than the general duty of care imposed by law as a matter of social policy, the "gist of the action" is in contract. Pediatrix Screening, Inc. v. TeleChem Intern., Inc., 602 F.3d 541, 550 (3d Cir.2010) (discussing eToll, Inc. v. Elias/Savion Advertising, Inc., 811 A.2d 10, 21 (Pa.Super.2002)). Simply put, the doctrine asks, "What's this case really about?" Pediatrix, 602 F.3d at 550. To be clear, the doctrine only precludes the plaintiff from proceeding on a tort theory of liability. It does not, by its own operation, extinguish the alternative contract claim, and it is not an affirmative defense that the defendant bears the burden of proving.
The agreements in force between Travelers and Reginella make clear that source of the duties allegedly breached was in contract. See, e.g., Indemnity Agreement, ECF No. 7-1, at, 1 (providing that the Indemnity Agreement was "an inducement to [Travelers]" in providing surety bonds to Reginella); ¶ 1 (defining "Default" as any of the following: "(a) a declaration of Contract default by any Obligee; (b) actual breach or abandonment of any Contract; (c) a breach of any provision of this Agreement; (d) failure to make payment of a properly due and owing bill in connection with any contract ... [or] (i) any representation furnished to [Travelers] by or on behalf of any Indemnitor proving to have been materially false or misleading when made"); ¶ 6 (providing that as a remedy in the event of a default, Travelers "shall have a right in its sole discretion to: (a) take possession of the work under any Contract and to complete said Contract, or cause, or consent to, the completion thereof... (d) execute in the name of any Indemnitor, any instruments deemed necessary or desirable by [Travelers] to ... take immediate possession of Contract funds whether earned or unearned ... collect such sums as may be due Indemnitors and to endorse in the name of Indemnitors.... require any Obligee to withhold
Because it was facially apparent from the Complaint that Reginella's tortious interference
Although whether the gist of the action doctrine applies can, at times, require "a fact-intensive analysis as to the nature of the claim," Pediatrix, 602 F.3d at 551, which can be the case with fraud-based claims like misrepresentation and fraudulent inducement, there is no bright-line rule to this effect and there need not be one. Our Court of Appeals has recognized this and permits district courts to apply the doctrine at the pleading stage to dismiss what are in reality contract claims, with prejudice. See, e.g., Jones v. ABN Amro Mortg. Group, Inc., 606 F.3d 119 (3d Cir.2010); Bealer v. Mutual Fire, Marine and Inland Ins. Co., 242 Fed.Appx. 802 (3d Cir.2007); cf. Baker v. Family Credit Couns. Corp., 440 F.Supp.2d 392, 419 (E.D.Pa.2006) (Complaint's allegations that defendants targeted unsophisticated consumers struggling with financial difficulties by obtaining and keeping service fees and monthly payments under false pretenses were sufficiently distinct from a breach of contract claim to withstand the gist of the action doctrine at the pleading stage); see also ClinMicro Immunology Ctr., LLC v. PrimeMed, P.C., 2013 WL 3776264 (M.D.Pa. July 17, 2013); Always in Service, Inc. v. Supermedia Services-East, Inc., 2012 WL 717233 (E.D.Pa. Mar. 5, 2012) (both refusing to apply the gist of the action doctrine to bar fraud-based tort claims on a motion to dismiss). Thus, the Court did not commit legal error in applying the gist of the action sua sponte at the pleading stage to dismiss the Complaint with prejudice.
Finally, Reginella's argument that the Court's application of the gist of the action doctrine was based on a misapplication of Rule 12(b)(6) also misses the mark. While the Court is required to "accept as true the factual allegations in the complaint and draw all reasonable inferences in the plaintiff's favor," it was not required to accept the Plaintiff's editorial characterization of its facts at face value. W. Penn. Allegheny Health Sys., Inc. v. UPMC, 627 F.3d 85, 91 (3d Cir.2010); Santiago v. Warminster Twp., 629 F.3d 121, 128-30 (3d Cir. 2010) (legal conclusions and conclusory allegations must be disregarded). Similarly, the Court's obligation to draw inferences in the plaintiff's favor extends only to those inferences that are reasonable. To be more specific, the Court may draw inferences only to the extent that they are supported by or are consistent with the well-pleaded factual allegations; where the plaintiff's inferences would contradict the well-pleaded factual allegations, the Court cannot accept them. See Kehr Packages, Inc. v. Fidelcor, Inc., 926 F.2d 1406, 1410 (3d Cir.1991) (court "must accept as true all ... reasonable inferences that can be drawn from" the well-pleaded facts) (emphasis added). If the Court were required to accept contradictory inferences and conclusory allegations as well-pleaded facts, then Rule 12(b)(6) review would be nothing more than the Court alchemizing legally insufficient statements into a plausible cause of action. Such a standard of review is akin to no review at all, and most importantly, is not the law.
Reginella's well-pleaded facts establish the following: (1) Reginella entered into construction contracts with the Ohio Turnpike Commission ("OTC") and the Moon Area School District ("MASD"), both of which required Reginella to purchase surety bonds to guarantee the performance of the work and payment of subcontractors and suppliers (ECF No. 1 at ¶¶ 11-14, 41-42); (2) regarding the OTC project, under
The Complaint further alleges that Travelers's conduct in refusing to issue the lien-over bonds, requesting Reginella's financial information, contacting the MASD, and meeting with the subcontractors was "entirely without justification," "arbitrary," "unreasonable," "capricious," "vexatious," "a breach of fiduciary duty," "self-serving," "wrongful," "improper," "wanton," "outrageous," "in bad faith," and "shocking to the conscience." (See, e.g., id. at ¶¶ 3, 31, 39, 55, 57, 62, 66; see also ECF No. 14 at p. 27, adding "overmastering.") These are not well-pleaded factual allegations, but conclusory allegations and adjective-laden editorial embellishments that the Court was obligated to cast aside.
However, even accepting as true the well-pleaded factual allegations and supported inferences, under the terms of the surety bonds (which were referenced in the Complaint) and the Indemnity Agreement (which was necessarily incorporated into the Complaint by virtue of Reginella's predicating its fiduciary duty and tort claims on the bonds the Indemnity Agreement supported), Travelers had the right to take any number of actions vis-à-vis Reginella, including excision from the project(s), as long as it did so in a manner consistent with the Indemnity Agreement and the bonds. This excision, regardless of how "arbitrary," is exactly what Reginella alleges that Travelers did. At argument, Reginella repeatedly pointed to Travelers's April 26, 2012 letter and alleged "secret meetings" between Travelers and the subcontractors as "facts" which give rise to tort liability separate and independent from any contract that may have existed between the parties. As the Opinion discussed at length, this position is unsupportable as a matter of law: under the terms of the Indemnity Agreement, if Reginella were to be declared in default by either a project owner or by Travelers, Travelers would have the power to "in its sole discretion" to "take possession of the work" and/or "require any [project owner] to withhold payment of Contract funds."
Thus, what this case is "really about" is whether Travelers acted improperly in the performance of its contractual duties as to Reginella and in its exercise of the rights it was granted by the applicable contracts between these parties. See Pediatrix, 602 F.3d at 550; eToll, 811 A.2d at 14. Despite Reginella's attempts to erect an impervious membrane between its construction contracts with the project owners and its bonding relationship with Travelers, the reality is that Reginella, Travelers, and the project owners were connected to each other by a web of interrelated agreements: the Indemnity Agreement, the surety bonds, and the construction contracts. Without the Indemnity Agreement, the surety bonds could not exist, and without the surety bonds, the construction contracts could not exist. This arrangement is par for the course in the public construction industry. See Philip L. Bruner and Patrick J. O'Connor, Jr., 3 BRUNER & O'CONNOR ON CONSTRUCTION LAW §§ 10:102, 12:7 (2012), While the Court owes Reginella a degree of deference in construing the Complaint, it cannot allow Reginella to use its asserted facts, well-pleaded or otherwise, to leverage a breach of contract lawsuit into a tort suit that is not otherwise cognizable. To hold otherwise would permit it to pursue a cause of action that has no basis in law and would ignore what this case is really about.
Regarding the Court's review of the Indemnity Agreement at the pleading stage, Reginella has twice made reference to U.S. Fidelity & Guar. Co. v. Feibus, 15 F.Supp.2d 579 (M.D.Pa.1998), for the proposition that acts of bad faith by a surety render a general indemnity agreement between a principal and a surety unenforceable, thereby obviating the contractual basis of the suit. Reginella relies on Feibus here in arguing that it was legal error for the Court to consider the Indemnity Agreement in ruling on Travelers's motion to dismiss. The Court rejects Regmella's reading and proposed application of Feibus. In Feibus, which by its own terms was a breach of contract action, the surety sought indemnification from the principal pursuant to a general indemnity agreement for claims the surety paid on the principal's behalf. 15 F.Supp.2d at 580-82. The principal argued that the payments were made in bad faith and challenged the surety's right to seek indemnification under the agreement, which the court rightly noted is a defense to the principal's obligation to indemnify the surety. Id. at 585; Int. Diamond Importers, Ltd. v. Singularity Clark, L.P., 40 A.3d 1261, 1271 (Pa.Super.2012) (material breach relieves the non-breaching party of its obligation to perform).
In this action, Travelers does not seek indemnification from Reginella; to the contrary, the Complaint alleges that Travelers never made any payments on Reginella's behalf and committed a tort in failing to do so. This issue was not before the court in Feibus. Nothing in Feibus says that a surety's bad-faith payments eliminates the contractual basis of the suit or gives rise to tort liability, and this Court questions the extent to which Feibus's description of a surety's bad-faith payments as a "defense" to a principal's obligation to indemnify the surety can be extrapolated to support such propositions. 15 F.Supp.2d at 585. On this basis, at least, Feibus is not instructive.
Feibus' observations about the contractual nature of suretyship are squarely on point here. In its Opinion in this case, this Court limited its consideration of the indemnity and bond agreements to determining the extent to which contracts existed between the parties and whether the misconduct alleged grew out of the rights and duties set forth in those agreements. This was required at the pleading stage because it was essential to determining the legal sufficiency of the claims. If Reginella could dispute the authenticity of the Indemnity Agreement (which it does not) or could argue that the agreement is unconscionable as a matter of public policy and thus unenforceable as a matter of law (which it cannot), the analysis might be different. However, these arguments were not made previously and are not being made now,
Reginella advances a handful of similar arguments in support of its motion that the judgment should be re-visited, all of which the Court has considered and determines were adequately and correctly addressed in the Opinion.
Regardless of how the Court rules on the Rule 59(e) motion, Reginella requests leave to file an Amended Complaint in accordance with Federal Rule of Civil Procedure 15. This Amended Complaint differs from the original Complaint in two respects: first, it contains factually-enhanced versions of the six counts that the Court previously dismissed on the basis that the law did not support the claims; second, it contains four (4) new counts alleging intentional misrepresentation, breach of the surety bonds, intentional interference with Reginella's business relationship with Star Insurance Company, and intentional interference with prospective contractual relations. (ECF No. 24 Ex. 1, at ¶¶ 129-203.)
Prior to the entry of judgment, "[t]he court should freely give leave [to amend] when justice so requires." FED. R. CIV. P. 15(a); Fletcher-Harlee Corp. v. Pote Concrete Contractors, Inc., 482 F.3d 247, 252-53 (3d Cir.2007) (discussing Kelly v. Del. River Joint Comm'n, 187 F.2d 93, 95 (3d Cir.1951)). When a defendant responds to a complaint with a motion to dismiss rather than an answer, the rule in the Third Circuit is that the plaintiff be given "one amendment as a matter of right up to the point at which the district court grants the motion to dismiss and enters
When a party moves to amend its complaint simultaneously with a motion to amend a final judgment pursuant to Rule 59, "the liberality of Rule 15(a) is no longer applicable." Burtch, 662 F.3d at 230. Instead, "the Rule 15 and 59 inquiries turn on the same factors," with a view to "favoring finality of judgments and the expeditious termination of litigation." Id. at 231 (internal marks and citations omitted). At this procedural juncture, the district court may deny the request for leave if it is tainted by undue delay, bad faith, prejudice to the opposing party, or futility. Cureton, 252 F.3d at 273. While these factors tend to overlap conceptually, they can be distinguished as follows: (1) undue delay involves instances where a movant had previous opportunities to amend a complaint before judgment, but did not; (2) bad faith entails "gamesmanship" and "wait-and-see" tactics that undermine the integrity of the truth-seeking process; (3) prejudice to the opposing party involves hardship to the defendant, and focuses on the burdens imposed by additional discovery, cost, and preparation to defend against new facts or legal theories; and (4) futility is invoked where the complaint as amended would fail to state a cause of action, which entails the same standard of legal sufficiency as Rule 12(b)(6). Cureton, 252 F.3d at 273; Burlington Coat Factory, 114 F.3d at 1434-35; Payne v. DeLuca, 2006 WL 3590014, at *14-16 (W.D.Pa. Dec. 11, 2006) (Hardiman, J.). Consistent with these principles, a party cannot, on a Rule 59(e) motion, file an amended complaint that contains new facts and legal arguments that could have been raised before the original complaint was dismissed. In re Adams Golf, Inc. Sec. Litig., 381 F.3d 267, 280-81 (3d Cir.2004); Roger Miller Music, Inc. v. Sony/ATV Publishing, LLC, 477 F.3d 383, 395 (6th Cir.2007); Rothwell Cotton Co. v. Rosenthal & Co., 827 F.2d 246, 251 (7th Cir. 1987).
For the reasons discussed at length above, the Court declines to grant Reginella leave to file its Amended Complaint. Amendment under these circumstances would be futile and would reward undue delay. There is no set of facts under which Reginella can prevail on its fiduciary duty, tortious interference, or tort bad faith claims. Furthermore, Reginella is presently pursuing counterclaims against Travelers in the Allegheny County Court of Common Pleas, Travelers Cas. and Sur. Co. of America v. Reginella Constr. Co., Ltd., et al., GD No. 12-012196, for Travelers' alleged breaches of the OTC and MASD bonds as well as the Indemnity Agreement and the implied covenant of good faith and fair dealing in the Indemnity Agreement. (ECF No. 29-3 at pp. 40, 42, 46.) This Court will not re-open its judgment solely for the purpose of giving Reginella a second and parallel forum to litigate claims that are already well underway in state court. Had Reginella included breach of contract claims in its original Complaint, the Court would have had a higher obligation to consider exercising jurisdiction over them notwithstanding the fact that they are also proceeding in state court; now that judgment has been entered, any such obligation has evaporated. Burtch, 662 F.3d at 231.
With respect to Reginella's proposed new Count regarding Travelers's alleged interference with its relationship with Star Insurance Company, Reginella was recently the defendant in action initiated by Star in this judicial district, Star Ins. Co. v. Reginella Constr. Co., Ltd., Civ. No. 12-1195 (W.D.Pa. filed Aug. 20, 2012), which was dismissed with prejudice on April 18, 2013. In its Amended Complaint, Reginella alleges that Star's lawsuit was prompted by "Travelers' communication of false information to Star," the purpose of which was to "induce Star to take legal and other action against [Reginella]." (ECF No. 24-1 at ¶ 189.) Reginella was obligated to amend its Complaint when it first knew about the possible existence of its additional counts against Travelers, Cureton, 252 F.3d at 273, which, given the date of the dismissal of Star's case against Reginella, obviously occurred well in advance of this Court dismissal of Reginella's Complaint in this lawsuit on May 31, 2013. The same can be said for Reginella's obligations to amend its Complaint to include its intentional misrepresentation and prospective contractual relations claims, both of which are based on conduct that was well-known to Reginella when its Complaint was dismissed, (See ECF No. 24-1 at ¶¶ 129-141, 198-203.) Leave to file the Amended Complaint is not warranted and will therefore not be granted.
For the reasons discussed at length above, Reginella's Motion to Alter or Amend Judgment or, in the Alternative, for Leave to File an Amended Complaint pursuant to Federal Rules of Civil Procedure 59(e) and 15(a) (ECF No. 23) will be denied. An appropriate Order follows.
