The opinion of the court was delivered by: P. Kevin Brobson, Judge
NOW, this 5th day of November, 2010, it is hereby ORDERED that the above-captioned opinion filed October 22, 2010, shall be designated OPINION rather than MEMORANDUM OPINION and it shall be reported.
President Judge Leadbetter did not participate in the decision in this case.
This is an original jurisdiction action brought by the statutory rehabilitator for Penn Treaty Network America Insurance Company (In Rehabilitation) (Penn Treaty) on behalf of the company.*fn1 The named Defendant is Penn Treaty American Corporation (PTAC), Penn Treaty's parent company and sole shareholder.
Presently before the Court for disposition are PTAC's preliminary objections to Penn Treaty's Complaint. Upon considering the parties' briefs and after hearing oral argument on the preliminary objections, the Court will overrule PTAC's preliminary objections with the exception of its preliminary objection to Count V for lack of specificity, which the Court will sustain.
PTAC is the corporate parent and sole shareholder of Penn Treaty. For tax years 2003 through 2008, PTAC and its subsidiaries (including Penn Treaty) filed consolidated federal income tax returns. During this time, Penn Treaty paid the amount of federal income tax owed under the consolidated tax returns attributable to Penn Treaty's operations and those of Penn Treaty's subsidiaries. For tax years 2005 through 2007, Penn Treaty paid the entirety of the consolidated group's federal income tax liability to the Internal Revenue Service ("I.R.S.").
On several occasions, PTAC filed for and received federal income tax refunds based on a carryback of subsequent tax year losses. Those refunds included refunds of taxes that Penn Treaty paid in prior tax years as offset by Penn Treaty's losses in subsequent years. In each case, PTAC paid over to Penn Treaty the refunds attributable to Penn Treaty's business. As a result, Penn Treaty paid, net of refunds that PTAC received from the I.R.S. and paid over to Penn Treaty, $1,505,813 for the consolidated group's federal tax liability for tax years 2005 through 2007.
In 2008, Penn Treaty had a federal income tax net operating loss of approximately $16 million. The federal income tax net operating loss of Penn Treaty and its subsidiaries combined that year totaled approximately $13.7 million.
In 2009, a change in the federal corporate income tax laws allowed the carryback of 2008 and 2009 net operating losses for up to five years. PTAC thus applied to the I.R.S. for a refund of $1,677,661 in tax payments for the tax years 2003 through 2007 based on a carryback of Penn Treaty's 2008 net operating loss. Of the total refund amount sought, $1,505,813 related to the taxes Penn Treaty paid (net of prior refunds) for the consolidated group for tax years 2005 through 2007. PTAC has received the full amount of the refund that it sought from the I.R.S.
Penn Treaty claims that it is entitled to $1,505,813 of the total refund (Tax Refund Claim). The first four counts of the Complaint relate to the Tax Refund Claim and assert breach of contract (Count I), unjust enrichment (Count II), conversion (Count III), and breach of fiduciary duty (County IV) claims.
In early 2004, PTAC and Penn Treaty officers determined that Penn Treaty's surplus would fall below the level required under Florida law in order for Penn Treaty to continue writing insurance in Florida. To improve Penn Treaty's balance sheet position, PTAC agreed to assume Penn Treaty's liability for accrued paid time off (PTO liabilities) as of December 31, 2003, and to reimburse Penn Treaty for any actual amounts on that liability that Penn Treaty had already paid out to its employees.
PTAC and Penn Treaty reached similar agreements in 2004 and 2005. As a result, PTAC agreed to assume and reimburse Penn Treaty for a total of $699,894 in PTO liabilities. Penn Treaty modified its financial statements to reflect PTAC's assumption of this liability. As a result, Penn Treaty was able to write business in Florida that it would not otherwise have been able to write.
Penn Treaty has paid out $521,396 in PTO liabilities, which PTAC agreed to assume and for which PTAC agreed to reimburse Penn Treaty. Despite requests by the statutory rehabilitator for Penn Treaty (Rehabilitator), PTAC has refused to reimburse Penn Treaty. Penn Treaty claims that PTAC must reimburse Penn Treaty for the $521,396 in assumed and paid out PTO liabilities (PTO Claim). The last two counts of the Complaint relate to the PTO Claim and assert breach of contract (Count V) and estoppel (Count VI) claims.
B. Preliminary Objections
PTAC has filed preliminary objections, objecting to all but one count of the Complaint-Count I (breach of contract for Tax Refund Claim). PTAC argues that this Court should strike Counts II and VI from the Complaint because the Rehabilitator lacks the statutory authority to assert causes of action for unjust enrichment and estoppel. PTAC argues that the Court should dismiss Counts III (conversion) and IV (breach of fiduciary duty) under the "gist of the action" doctrine. PTAC also argues that the Court should dismiss Counts III, IV, and VI (estoppel) for failure to state a claim upon which relief can be granted (demurrer). Finally, PTAC argues that the Court should strike Count V (breach of contract for PTO Claim) for lack of specificity.
A. Lack of Capacity to Sue (Counts II & VI)
PTAC seeks dismissal of Counts II and VI of the Complaint because the Rehabilitator lacks the capacity to assert claims of unjust enrichment and promissory estoppel. Both PTAC and Penn Treaty direct this Court to Section 516(c) of Article V*fn2 as the source of the Rehabilitator's authority to bring this action. Section 516(c) provides:
If it appears to the rehabilitator that there has been criminal or tortious conduct, or breach of any contractual or fiduciary obligation detrimental to the insurer by any officer, manager, agent, broker, employe, or ...