United States District Court, Eastern District of Pennsylvania
May 4, 1999
QUORUM HEALTH RESOURCES, INC., PLAINTIFF,
CARBON-SCHUYLKILL COMMUNITY HOSPITAL, INC. T/A MINERS MEMORIAL MEDICAL CENTER, DEFENDANT.
The opinion of the court was delivered by: Joyner, District Judge.
MEMORANDUM AND ORDER
This is a breach of contract action brought by the plaintiff,
Quorum Health Resources, Inc. ("Quorum") against the defendant,
Carbon-Schuylkill Community Hospital, Inc. t/a Miners Memorial
Medical Center ("MMMC"). Before the court is Quorum's Motion to
Dismiss MMMC's negligence, breach of fiduciary obligation, fraud
and breach of warranty counterclaims and requests for punitive
damages for failure to state a claim upon which relief can be
granted pursuant to Federal Rule 12(b)(6) of Civil Procedure. For
the following reasons, the motion will be granted as to the
negligence, fraud and breach of warranty counterclaims and will
be denied as to the breach of fiduciary obligation counterclaim
and the requests for punitive damages.
On June 11, 1998 Quorum filed a complaint alleging that MMMC
breached the Management Agreement ("Agreement") entered into by
Quorum and MMMC on February 27, 1996. On September 11, 1998 MMMC
answered the complaint and brought counterclaims for negligence,
breach of fiduciary obligation, fraud, breach of warranty and
breach of contract. The action is governed by Pennsylvania law in
accordance with the express intention of the parties. See
(Agreement ¶ 23(e)).
I. Rule 12(b)(6) Standard
A claim may be dismissed pursuant to Rule 12(b)(6) only if "no
relief could be granted under any set of facts that could be
proved consistent" with the allegations of the claim. Hishon v.
King & Spalding, 467 U.S. 69, 73, 104 S.Ct. 2229, 2232, 81
L.Ed.2d 59 (1984). The court must accept all factual allegations
as true and draw all reasonable inferences from such allegations
in the light most favorable to the non-moving party. See Oshiver
v. Levin, Fishbein, Sedran & Berman, 38 F.3d 1380, 1384 (3d Cir.
1994); Rocks v. City of Philadelphia, 868 F.2d 644, 645 (3d Cir.
1989). The court need not, however, credit bald assertions or
legal conclusions. See In re Burlington Coat Factory Securities
Litigation, 114 F.3d 1410, 1429-30 (3d Cir. 1997) (citing
Glassman v. Computervision Corp., 90 F.3d 617, 628 (1st Cir.
1996)). On a motion to dismiss, the court may review only the
complaint, "matters of public record, orders, exhibits attached
to the complaint and items appearing in the record of the case."
Oshiver, 38 F.3d at 1384, n. 2; accord Pension Benefit Guar.
White Consol. Indus., 998 F.2d 1192, 1196 (3d Cir. 1993), cert.
denied, 510 U.S. 1042, 114 S.Ct. 687, 126 L.Ed.2d 655 (1994).
II. The "Gist of the Action" Doctrine
Quorum argues that the "gist of the action" doctrine precludes
MMMC from bringing its counterclaims for negligence and breach of
fiduciary obligation because they sound in contract instead of
tort.*fn1 Several courts have determined that under Pennsylvania law
tort claims allegedly committed in the course of carrying out a
contractual agreement are dismissible if the "gist" of them sound
in contract instead of tort. See, e.g., Sunquest Information
Systems, Inc. v. Dean Witter Reynolds, Inc., No. Civ. A. 98-188J,
1999 WL 167091 at *4 (W.D.Pa. March 24, 1999); Factory Market,
Inc. v. Schuller Int'l, Inc., 987 F. Supp. 387, 394 (E.D.Pa.
1997); Wood & Locker, Inc. v. Doran & Assoc., 708 F. Supp. 684,
689 (W.D.Pa. 1989); Redevelopment Auth. of Cambria County v.
International Ins. Co., 454 Pa. Super. 374, 685 A.2d 581, 590
(1996) (en banc), alloc. denied, 548 Pa. 649, 695 A.2d 787
(1997); Phico Ins. Co. v. Presbyterian Medical Serv. Corp.,
444 Pa. Super. 221, 663 A.2d 753, 757 (1995). Such tort claims are
"maintainable only if the contract is `collateral' to conduct
that is primarily tortious." Sunquest, 1999 WL 167091 at *4.
Claims sound in contract if they arise from "the breach of duties
imposed by mutual consensus." Phico, 663 A.2d at 757. By
contrast, tort claims arise "from the breach of duties imposed as
a matter of social policy." Id.
MMMC's negligence counterclaim sounds in contract. MMMC's
attempt to characterize the claim as one alleging the breach of
a fiduciary duty independent of the Agreement does not comport
with the facts alleged in the claim. It states in pertinent part
that: "Quorum, thru its officers, agents, servants, and employees
was negligent and careless in the performance of its management
duties. . . ." (MMMC's Answer and Countercls. ¶ 30, at 12). The
claim fails to allege any additional or different facts than
those in the breach of contract counterclaim. The source of the
"management" duties is the Agreement. Therefore, the Agreement
was not collateral to the claim's allegations. MMMC's negligence
counterclaim will be dismissed.
The "gist" of the breach of fiduciary obligation counterclaim,
however, is unknown. Therefore, the court will decline to apply
the "gist of the action" doctrine to dismiss this counterclaim.
III. The Parol Evidence Rule
Quorum also moves to dismiss MMMC's counterclaims for fraud and
breach of warranty pursuant to the parol evidence rule because
they are based on pre-contractual representations and the
Agreement has an integration clause.*fn2 Under Pennsylvania law, the
parol evidence rule is stated as follows:
Where the alleged prior or contemporaneous oral
representations or agreements concern a subject
which is specifically dealt with in the written
contract, and the written contract covers or
purports to cover the entire agreement of
the parties, the law is now clearly and well settled
that in the absence of fraud, accident or mistake the
alleged oral representations or agreements are merged
in or superseded by the subsequent written contract.
Bardwell v. Willis Co., 375 Pa. 503, 100 A.2d 102, 104 (1953).
Before applying the rule, courts must determine whether there
is an integrated agreement and if so, whether it is completely or
partially integrated. See McGuire v. Schneider, Inc.,
368 Pa. Super. 344, 534 A.2d 115, 117-18 (1987); see Restatement
(Second) of Contracts § 209(2) (1981). In addition, the court
must determine whether the asserted prior agreements are within
the scope of the integrated agreement. See Restatement (Second)
of Contracts § 213 comment c (1981).
MMMC does not dispute that its fraud and breach of warranty
counterclaims are based on pre-contractual representations of
fraudulent inducement.*fn3 MMMC contends that the parol evidence
rule does not apply because: (1) MMMC should be allowed to
conduct discovery to determine whether the Agreement is
completely integrated and (2) Quorum has not shown that the
integration clause specifically addresses the pre-contractual
representations in the allegations of the breach of warranty and
MMMC's first contention fails because the Agreement clearly is
a complete integration. First, the Agreement has an integration
clause that states the written agreement sets forth in full the
terms of the parties undertaking, and, thus, contains true
integration language. See Greenberg v. Tomlin, 816 F. Supp. 1039,
1053 (E.D.Pa. 1993). Second, MMMC is a sophisticated party that
negotiated for some time with Quorum. Third, the Agreement is
signed by several parties with the final clause being the
integration clause. Fourth, the terms of the integration clause
are unambiguous. Fifth, the integration clause conveys no
suggestion that anything beyond the four corners of the writing
is necessary to ascertain the intent of the parties.
MMMC's second contention fails because the allegations of the
fraud and breach of warranty counterclaims are specifically
addressed in the Agreement. The allegations relate to Quorum's
alleged obligations to provide management services to MMMC. The
Agreement specifically addresses the provision of such management
Both the fraud and breach of warranty counterclaims are based
on allegations of fraudulent inducement that require the
introduction of pre-contractual representations. Therefore, the
parol evidence rule applies to bar them. Both claims will be
IV. Punitive Damages
Finally, Quorum argues for the dismissal of MMMC's requests
for punitive damages. Under Pennsylvania law, punitive damages
are not recoverable in an action solely based on breach of
See Johnson v. Hyundai Motor America, 698 A.2d 631, 639
(Pa.Super. 1997); eds Adjusters, Inc. v. Computer Sciences Corp.,
818 F. Supp. 120, 122 (E.D.Pa. 1993). Here the action is not
solely based on breach of contract. Therefore, Quorum's motion to
dismiss the requests for punitive damages will be denied.