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United States District Court, E.D. Pennsylvania

March 15, 2004.


The opinion of the court was delivered by: CLIFFORD GREEN, Senior District Judge


Presently pending is Defendant's Motion to Dismiss Counts III and IV and Numerous Paragraphs of Plaintiffs Amended Complaint pursuant to FRCP 12(b)(6) and 12(f) and Plaintiff's response thereto. For the following reasons, Defendant's motion will be denied.

I. Factual and Procedural Background

  On or about May 15, 2001, a fire occurred at the Continental Business Center in Bridgeport, Pennsylvania, where plaintiff Little Souls, Inc. ("Little Souls") was a tenant and conducted business. Plaintiff submitted a claim to defendant State Auto Mutual Insurance Co. ("State Mutual") pursuant to a policy for alleged damage, including business income loss, sustained as a result of the fire pursuant to a Pacemaker Businessowners policy of insurance. A dispute arose as to the "period of restoration." While both parties agree the "period of restoration" begins on the date of the loss and ended when Plaintiffs moved to another location, the parties disagreed as to the date of Plaintiff's move. To settle this dispute, State Mutual filed a Declaratory Judgment action before this court. Little Souls moved to dismiss and requested a remand to appraisal. On February 5, 2003, we denied the motion to dismiss the declaratory judgement complaint, entered an order compelling both parties to proceed to appraisal, and placed the litigation in the civil suspense file. Thereafter, the parties were able to reach an agreement as to the appropriate length of time for the "period of restoration" in settlement discussions; however, the parties were not successful in agreeing to the amount of business income loss. Those negotiations are ongoing but have stalled.

  On October 15, 2003, plaintiff Little Souls filed the instant complaint against defendant State Mutual alleging breach of contract, bad faith, fraud, intentional misrepresentation, negligent misrepresentation and breach of duty of good faith and fair dealing. Defendant filed a Motion to Dismiss the Complaint based on the fact that the counts were duplicative and unnecessary under the "gist of the action" doctrine. Thereafter, Plaintiff filed an Amended Complaint, alleging breach of contract, bad faith, intentional misrepresentation, and fraud. Still believing the causes of action duplicative, Defendant filed the current Motion to Dismiss. Due to the filing of the Amended Complaint and the Motion to Dismiss the Amended Complaint, the Motion to Dismiss the original complaint will be dismissed as moot. The Motion to Dismiss Counts III and IV and Numerous Paragraphs of Plaintiff's Amended Complaint and the response thereto is addressed below.

 II. Legal Standard

  A court should grant a motion to dismiss for failure to state a cause of action only if it appears to a certainty that no relief could be granted under any set of facts which could be proved. See Hishon v. King & Spalding, 467 U.S. 69. 73 (1984). The "notice pleading" approach governs the standard of specificity regarding motions to dismiss civil rights claims pursuant to 42 U.S.C. § 1983. In Swierliewicz v. Sorema, 122 S.Ct. 992 (2002), a unanimous Supreme Court stated,

[g]iven the Federal Rules' simplified standard for pleading, a court may dismiss a complaint only if it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations. If the pleading fails to specify the allegations in a manner that provides sufficient notice, a defendant can move for a more definite statement under Rule 12(e) before responding. Moreover, claims lacking merit may be dealt with through summary judgment under Rule 56. The liberal notice pleading of Rule 8(a) is the starting point of a simplified pleading system, which was adopted to focus on the merits of a claim.
Id. at 998-99 (internal citations omitted).

  A court must accept as true all well pleaded allegations of the complaint in evaluating a motion to dismiss. See Jordan v. Fox. Rothschild. O'Brien & Frankel, 20 F.3d 1250, 1261 (3d Cir. 1994). Nevertheless, "a court need not credit a complaint'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) (citations omitted). Furthermore, because granting a motion to dismiss results in a determination on the merits at an early stage of the plaintiff's case, the district court must "construe the complaint in the light most favorable to the plaintiff, and determine whether, under any reasonable reading of the pleadings, the plaintiff may be entitled to relief." Colburn v. Upper Darby Township, 838 F.2d 663, 665-66 (3d Cir. 1988), cert. denied, 489 U.S. 1065 (1989) (citations omitted). III. Discussion

  A. Gist of the Action Doctrine

  Defendant State Mutual contends Plaintiff's complaint sounds in contract, rather than tort, and the allegations of fraud and intentional misrepresentation merely mirror the claims for breach of contract. Defendant argues Plaintiff's intentional misrepresentation and fraud claims should be dismissed under Pennsylvania's "gist of the action" doctrine. (Def. Mem. at 7.) The doctrine states that "[w]hen a plaintiff alleges that the defendant committed a tort in the course of carrying out a contractual agreement, Pennsylvania courts examine the claim and determine whether the `gist' or gravaman of it sounds in contract or tort; a tort claim is maintainable only if the contract is `collateral' to conduct that is primarily tortious." Sunquest Info. Sys., Inc. v. Dean Witter Reynolds. Inc., 40 F. Supp.2d 644. 651 (W.D.Pa. 1999) (citing cases). The opinion further iterates, "contract actions arise from breach of duties mutually agreed to, while torts have their basis in violations of duties imposed as a matter of social policy. Id., citing Phico Ins. Co. v. Presbyterian Medical Serv. Corp., 663 A.2d 753, 757 (Pa. Super. 1995).*fn1 Plaintiff Little Souls argues the tort claims are the gist of the action and are not dependent on the resolution of the contract claims.

  Plaintiff's intentional misrepresentation claim states that the Defendants confirmed representations regarding making timely payments for legitimate claims when the parties entered into the insurance policy. (Compl. at ¶ 54.) Crediting the allegations of the complaint as true, Plaintiff alleges the Defendant never had any intention of making timely payments. In addition, the intentional misrepresentations alleged by Plaintiff were not limited solely to the claim that State Mutual breached its contract. Plaintiff also alleges State Mutual made false statements in the declaratory judgment lawsuit, and sought relief on a claim that was not in dispute. (Am. Comp. ¶ 58.) The Amended Complaint also alleges the defendant's conduct in marketing itself as a trustworthy and reliable company and its corporate policy are fraudulent. These representations allegedly induced the Plaintiff into purchasing their insurance with Defendant. (Am. Comp. at ¶ 60-62.)

  At this point in the litigation, it is difficult to ascertain whether the gist of the action doctrine would preclude plaintiff from asserting these arguably similar causes of action. While based on a collateral contract, the plaintiff Little Souls is alleging misrepresentations occurred both before and after the formation of the contract that, if sufficiently distinct, would not hinge on the outcome of the breach of contract claim. As a sufficient factual basis is alleged, the tort claims will not be prohibited by the "gist of the action" doctrine. Plaintiff has stated a cause of action upon which relief can be granted; therefore, defendant's motion to dismiss will be denied. As allegations in count III differ from the allegations in the breach of contract claims they are not redundant; therefore, the allegation will not be stricken from the Amended Complaint.

  B. Rule 9(b) Fraud

  As to the sufficiency of the claims, State Auto Mutual Insurance has moved to dismiss plaintiff's cause of action for fraud pursuant to F.R.C.P 12(b)(6) for failure to plead with particularity, and in the alternative, moved to strike Count IV as redundant, pursuant to F.R.C.P. 12(f). Rule 9(b) requires a plaintiff to plead "(1) a specific false representation of material fact; (2) knowledge by the person who made it of its falsity; (3) ignorance of its falsity by the person to whom it was made; (4) the intention that it should be acted upon; and (5) that the plaintiff acted upon it to his damage." Shapiro v. UJB Fin. Corp., 964 F.2d 272, 284 (3d Cir.), cert. denied, 506 U.S. 934, 113 S.Ct. 365 (1992) (citation omitted).

  The complaint alleges the Defendant marketed itself as a trustworthy and reliable insurer that will promptly and fairly evaluate and pay claims, but actually had a corporate policy to pay as little and as late as it can. The complaint also alleges the Plaintiff was induced by these representations into purchasing Defendant's insurance to his detriment. (Am. Comp. at ¶¶ 60-62.) Contrary to defendant's contention, the allegations "inject precision and some measure of substantiation." Sun Co. v. Badger Design & Constructors, 939 F. Supp. 365, 369 (E.D.Pa.1996)(quoting In re Chambers Dev. Sec. Litig., 848 F. Supp. 602, 616 (W.D.Pa.1994)). When accepting as true all the factual allegations, plaintiff has sufficiently alleged a claim for fraud in the inducement and defendants motion to dismiss count IV will be denied.

  C. Bad Faith

  Plaintiff's Complaint avers that State Mutual acted in bad faith under 42 Pa. C.S.A. § 8371 by delaying or denying portions of Plaintiff's insurance claim knowing there was no reasonable basis to do so. (Compl. at ¶ 50.) Among its claims of bad faith, Plaintiff Little Souls alleges that State Mutual: denied or delayed Plaintiff's claim with reckless disregard of the lack of reasonable basis; violated the Pennsylvania Unfair Insurance Practices Act; violated the Unfair Claims Settlement Act; misinterpreted and misrepresented terms of the insurance contract; utilized ambiguous wording in the insurance contract; failed to properly and timely investigate the claim; compelled Plaintiff to defend a lawsuit; and instituted a lawsuit and made statements in such that were not true. (Compl. at ¶ 52.) Defendant contends several paragraphs of Plaintiff's bad faith claim, relating to the filing of the Declaratory Judgment action, must fail as a matter of law. Defendant claims it should not be held liable for committing bad faith under 42 Pa. C.S.A. § 8371 because the liability of an insurance company under its policy is a proper subject of a declaratory judgment action pursuant to 42 Pa. C.S.A. § 7531 et seq. Plaintiff claims the Defendant did not have a basis to file the Declaratory Judgment action and that it is inappropriate to dismiss any of the allegations relating or referring to the Declaratory Judgment action.

  While it is true the filing of a declaratory judgment alone cannot sustain an action for bad faith, the plaintiff may use that as part of its case to prove bad faith. Just because the filing alone does not prove bad faith, the filing in conjunction with other evidence may. See Krisa v. The Equitable Life Assurance Society, 109 F. Supp.2d 316, 321 (M.D. Pa. 2000). Even though defendant claims they did not engage in that other conduct constituting bad faith, that is not an appropriate inquiry in a motion to dismiss. Defendants' motion to strike will be denied.

  An appropriate order follows. ORDER

  IT IS HEREBY ORDERED that Defendant's Motion to Dismiss Counts III and IV and Numerous Paragraphs of Plaintiffs Amended Complaint pursuant to Federal Rules of Civil Procedure 12(b)(6) and 12(f) is DENIED. IT IS FURTHER ORDERED that Defendant's original Motion to Dismiss is DISMISSED as Moot. IT IS FURTHER ORDERED that the Deputy Clerk schedule a settlement conference with counsel for the parties.

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