HUCKESTEIN MECHANICAL SYSTEMS, INC. v. IC STAFFING SOLUTIONS, LLC et al
Filing
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MEMORANDUM AND OPINION, ORDER granting 5 (Partial) Motion to Dismiss filed by PHILIP M. SAUVAGEOT, IC STAFFING SOLUTIONS, LLC. Count V of complaint is dismissed. Signed by Magistrate Judge Robert C. Mitchell on 4/25/2013. (spc)
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF PENNSYLVANIA
HUCKESTEIN MECHANICAL SYSTEMS, INC., )
Plaintiff,
)
)
vs.
)
)
IC STAFFING SOLUTIONS, LLC and PHILIP M. )
SAUVAGEOT,
)
Defendants.
)
Civil Action No. 13-479
MEMORANDUM OPINION
Plaintiff, Huckestein Mechanical Systems, Inc., brings this action against Defendants, IC
Staffing Solutions, LLC (“IC Staffing”) and Philip M. Sauvageot, alleging claims of professional
malpractice, breach of contract, conversion and negligent hiring/supervising, arising out of
accounting services that were provided to it by IC Staffing, Sauvageot and IC Staffing’s former
employee, Douglas Michael Foster.
Presently pending before the Court for resolution is Defendants’ motion to dismiss Count
V of the complaint, the claim for negligent hiring/supervising against IC Staffing. For the
reasons that follow, the motion will be granted.
Facts
From approximately January 2011 to August 2011, Sauvageot provided accounting
services to Huckestein as an employee of non-party Independent Controller Services, Inc.
(Compl. ¶ 5.) In approximately August 2011, Sauvageot left that company to form IC Staffing
and continued performing accounting services to Huckestein. (Compl. ¶ 6.) Plaintiff alleges that
IC Staffing and its employees lacked the proper accounting expertise and committed several
accounting errors that financially harmed Huckestein. (Compl. ¶¶ 7-17.) Specifically, Plaintiff
alleges that, after Foster’s death in June 2012, it “learned that his qualifications and experience
were not as represented and were grossly inadequate for the job.” (Compl. ¶ 9.) In addition,
Plaintiff “uncovered fraud and theft that was committed by Foster during the course and scope of
his work with IC Staffing.” (Compl. ¶ 10.) According to the allegations of the complaint, Foster
falsified financial records, produced erroneous reports, and engaged in numerous “reckless and
negligent accounting practices.” (Compl. ¶¶ 11-12.) In addition, Plaintiff alleges that IC
Staffing did not provide adequate oversight of his work and that Sauvageot improperly
performed certain work. (Compl. ¶¶ 14-16.)
Procedural History
On March 14, 2013, Plaintiff1 filed a complaint against IC Staffing and Sauvageot in the
Court of Common Pleas of Allegheny County, Pennsylvania. Count I alleges a claim of
professional malpractice against IC Staffing and Count II alleges it against Sauvageot. The
remainder of the complaint consists of three claims against IC Staffing: Count III alleges a claim
of breach of contract, Count IV alleges a claim of conversion and Count V alleges a claim of
negligent hiring/supervising.
On March 28, 2013, Defendants filed a notice of removal, removing the action to this
Court on the basis of diversity jurisdiction. On April 8, 2013, Defendants filed an amended
notice of removal, to clarify that: Plaintiff is a Pennsylvania corporation with a principal place of
business in Duquesne, Pennsylvania; IC Staffing is a limited liability company whose sole
member is Sauvageot, a citizen of Ohio; and the amount in controversy, exclusive of interest and
costs, exceeds the sum of $75,000.00. (ECF No. 3 ¶¶ 3-6, 10-16 & Ex. A.)
On April 8, 2013, Defendants filed a motion to dismiss Count V of the complaint. On
1
In the complaint, Plaintiff identifies itself as “Huckestein Mechanical Services, Inc.” but in the
notice of removal, Defendants refer to Plaintiff as “Huckestein Mechanical Systems, Inc.”
2
April 17, 2013, Plaintiff filed a brief in opposition and on April 19, 2013, Defendants filed a
reply brief.2
Standard of Review
The Supreme Court has issued two decisions that pertain to the standard of review for a
motion to dismiss for failure to state a claim upon which relief could be granted under Federal
Rule of Civil Procedure 12(b)(6). The Court held that a complaint must include factual
allegations that “state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S.
662, 678 (2009) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “[W]ithout some
factual allegation in the complaint, a claimant cannot satisfy the requirement that he or she
provide not only ‘fair notice’ but also the ‘grounds’ on which the claim rests.” Phillips v.
County of Allegheny, 515 F.3d 224, 232 (3d Cir. 2008). In determining whether a plaintiff has
met this standard, a court must reject legal conclusions unsupported by factual allegations,
“[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory
statements;” “labels and conclusions;” and “‘naked assertion[s]’ devoid of ‘further factual
enhancement.’” Iqbal, 556 U.S. at 678 (citations omitted). Mere “possibilities” of misconduct are
insufficient. Id. at 679. District courts are required to engage in a two part inquiry:
First, the factual and legal elements of a claim should be separated. The District
Court must accept all of the complaint’s well-pleaded facts as true, but may
disregard any legal conclusions…. Second, a District Court must then determine
whether the facts alleged in the complaint are sufficient to show the plaintiff has a
“plausible claim for relief.” … In other words, a complaint must do more than
allege the plaintiff’s entitlement to relief. A complaint has to “show” such an
entitlement with its facts.
Fowler v. UPMC Shadyside, 578 F.3d 203, 210-11 (3d Cir. 2009) (citations omitted).
Defendants move to dismiss Count V on the grounds that it is barred by the economic
2
On April 17, 2013, Defendants filed an answer with respect to the remaining counts.
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loss rule and the gist of the action doctrine. Plaintiff contends that the claim for negligent
hiring/supervising is not barred because the duty that it cites is imposed by social policy, not by
contractual agreement.
Determining State Law
The Court of Appeals has stated that:
In adjudicating a case under state law, we are not free to impose our own
view of what state law should be; rather, we are to apply state law as interpreted
by the state’s highest court in an effort to predict how that court would decide the
precise legal issues before us. Kowalsky v. Long Beach Twp., 72 F.3d 385, 388
(3d Cir. 1995); McKenna v. Pacific Rail Serv., 32 F.3d 820, 825 (3d Cir. 1994).
In the absence of guidance from the state’s highest court, we are to consider
decisions of the state’s intermediate appellate courts for assistance in predicting
how the state’s highest court would rule. McKenna, 32 F.3d at 825; Rolick v.
Collins Pine Co., 925 F.2d 661, 664 (3d Cir. 1991) (in predicting state law, we
cannot disregard the decision of an intermediate appellate court unless we are
convinced that the state’s highest court would decide otherwise).
Gares v. Willingboro Township, 90 F.3d 720, 725 (3d Cir. 1996). Because this is a diversity
action, the Court must predict how the Pennsylvania Supreme Court would rule if presented with
this situation. Whether these doctrines apply in this case is an issue of law to be resolved by the
court. Bohler-Uddehom America, Inc. v. Ellwood Group, Inc., 247 F.3d 79, 103 (3d Cir. 2001).
The Pennsylvania Supreme Court recognizes that the “economic loss doctrine provides
[that] no cause of action exists for negligence that results solely in economic damages
unaccompanied by physical injury or property damage.” Excavation Tech., Inc. v. Columbia
Gas Co. of Pa., 985 A.2d 840, 841 n.3 (Pa. 2009) (quotation omitted). Pennsylvania has adopted
the Restatement (Second) of Torts § 552 exception (when professionals provide false
information for the guidance of others in a business transaction) with respect to an
architect/contractor situation, Bilt-Rite Contractors, Inc. v. The Architectural Studio, 866 A.2d
270 (Pa. 2005), but has refused to extend it to a utility company (sued by an excavator for
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economic damages when the utility erred in marking the locations of some gas lines), because
the utility company did not engage in supplying information to others for pecuniary gain.
Excavation Tech., 985 A.2d at 843-44. See also Azur v. Chase Bank, USA, N.A., 601 F.3d 212,
223 (3d Cir. 2010) (credit card company not in the business of providing cardholder with
information for pecuniary gain, so cardholder could not invoke § 552 exception).
Pennsylvania courts have also recognized the “gist of the action doctrine,” which states
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.’”
Bohler-Uddehom, 247 F.3d at 104 (quoting Bash v. Bell Tel. Co., 601 A.2d 825, 830 (Pa. Super.
1992)). Although the Pennsylvania Supreme Court has not expressly adopted the gist of the
action doctrine, the Pennsylvania Superior Court and federal courts applying Pennsylvania law
have predicted that it would adopt it and have applied it. See Reardon v. Allegheny College, 926
A.2d 477, 486 (Pa. Super. 2007); Bohler-Uddehom, 247 F.3d at 103-04. The Court of Appeals
has twice noted that the gist of the action doctrine and the economic loss doctrine are
“remarkably similar” and has indicated that, in a non-products liability context, gist of the action
is a “better fit.” Pediatrix Screening, Inc. v. Telechem Int’l, Inc., 602 F.3d 541, 544 n.5 (3d Cir.
2010); Bohler-Uddeholm, 247 F.2d at 104 n.11. As the court has explained:
The gist of the action “doctrine is designed to maintain the conceptual
distinction between breach of contract claims and tort claims. As a practical
matter, the doctrine precludes plaintiffs from re-casting ordinary breach of
contract claims into tort claims.” eToll, Inc. v. Elias/Savion Adver., Inc., 2002 PA
Super 347, 811 A.2d 10, 14 (2002) (citation omitted). In some circumstances, “it
is possible that a breach of contract also gives rise to an actionable tort[.] To be
construed as in tort, however, the wrong ascribed to defendant must be the gist of
the action, the contract being collateral.” Id. (alteration in original) (quoting Bash
v. Bell Tel. Co., 411 Pa. Super. 347, 601 A.2d 825, 829 (1992)). That the
misconduct was fraudulent does not bar application of the gist of the action
principle. Werwinski v. Ford Motor Co., 286 F.3d 661, 681 (3d Cir. 2002).
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Pediatrix, 602 F.3d at 548.
Negligent Hiring and Supervision Claims
Recently, the Court of Appeals stated that:
To recover for negligent supervision under Pennsylvania law, a plaintiff
must prove that his loss resulted from (1) a failure to exercise ordinary care to
prevent an intentional harm by an employee acting outside the scope of his
employment, (2) that is committed on the employer’s premises, (3) when the
employer knows or has reason to know of the necessity and ability to control the
employee. Dempsey v. Walso Bureau, Inc., 431 Pa. 562, 246 A.2d 418, 420
(1968); Heller v. Patwil Homes, Inc., 713 A.2d 105, 107–08 (Pa. Super. Ct.1998).
Belmont v. MB Investment Partners, Inc., 708 F.3d 470, 487-88 (3d Cir. 2013) (footnote
omitted). The court rejected the defendants’ argument that the tort relates solely to bodily harm,
observing that “Pennsylvania does not appear to limit the tort of negligent supervision to cases of
physical injury.” Id. at 488 n.23 (citing Heller, 713 A.2d at 109). In Heller, the plaintiffs were
defrauded by William Strouse, sales manager for Patwil Homes, into giving Strouse $49,500 for
him to invest in certain business ventures that turned out to be fraudulent. The court noted that
Strouse had previously engaged in investment fraud resulting in his being disciplined by the
Pennsylvania Securities Commission, but since Patwil Homes hired him to perform unrelated
real estate services, it could not be held liable for negligent hiring. On the hand, the court held
that the total lack of supervision of Strouse exposed Patwil Homes to constructive notice that he
was engaging in activity mushrooming into criminal behavior while operating out of Patwil’s
offices and using Patwil employees to execute his schemes, and thus it could be held liable for
negligent supervision.
In Belmont, the Court of Appeals explained how negligent supervision differs from the
tort of employer negligence under a respondeat superior theory of liability:
A claim for negligent supervision provides a remedy for injuries to third parties
who would otherwise be foreclosed from recovery under the principal-agent
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doctrine of respondeat superior because the wrongful acts of employees in these
cases are likely to be outside the scope of employment or not in furtherance of the
principal’s business.
Id. at 489 (citation omitted). See also Heller, 713 A.2d at107.
Defendants cite several cases in which district courts have held that negligent supervision
claims were barred by the economic loss doctrine. See Estate of Clark ex rel. Clark v. The
Toronto Dominion Bank, 2013 WL 1159014, at *10 (E.D. Pa. March 21, 2013); Flannery v. Mid
Penn Bank, 2008 WL 5113437, at*7 (M.D. Pa. Dec. 3, 2008). However, neither case contains a
detailed examination of the issue and they do not explain how a complaint can state a claim for
negligent supervision involving only economic loss (as in Heller) and yet be barred by the
application of the economic loss doctrine. See Bilt-Rite, 866 A.2d at 288 (observing that it
would be “nonsensical” to allow a party injured by a professional who provided false
information for the guidance of others in a business transaction to pursue a claim for economic
losses under Restatement (Second) of Torts § 552 only to conclude that the party is unable to
recover because it seeks only economic losses).
Nevertheless, several factors lead to the conclusion that the gist of the action doctrine
applies to bar Count V of the complaint. First, the gist of this cause of action arises out of the
duties imposed by the contract entered into by Huckestein to engage IC Staffing and its
employees (including Foster) to perform accounting services. The duties owed by IC Staffing do
not arise out of the general social policies embodied in the law of torts. Plaintiff argues that
Pennsylvania law imposes “on an employer the duty to exercise reasonable care in selecting,
supervising and controlling employees.” R.A. ex rel. N.A. v. First Church of Christ, 748 A.2d
692, 697 (Pa. Super.), appeal denied, 760 A.2d 855 (Pa. 2000). However, that case did not
discuss the gist of the action doctrine and did not involve a breach of contract claim. IC
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Staffing’s liability for Foster’s actions, if any, will arise out of Huckestein’s contract with IC
Staffing to provide accounting services. See Jodek Charitable Trust, R.A. v. Vertical Net, Inc.,
412 F. Supp. 2d 469, 479-80 (E.D. Pa. 2006) (rejecting plaintiff’s argument that the duty to
properly process stock transfers is imposed as a matter of social policy rather than by mutual
consensus).
Second, the negligent hiring/supervising claim is duplicative of other counts of the
complaint, such as the claims for malpractice and breach of contract. See eToll, 811 A.2d at 1921. Plaintiff has alleged that Foster committed the acts that form the basis for the complaint
while he was acting within the scope of his employment. (Compl. ¶¶ 10, 13, 33.) It has also
alleged that Foster’s alleged theft constituted a breach of the services contract between Plaintiff
and IC Staffing. (Compl. ¶¶ 29-30.)
Thus, the gist of the action sounds in contract and Defendants’ motion to dismiss Count
V, alleging a tort claim of negligent hiring/supervising, will be granted.
An appropriate order follows.
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IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF PENNSYLVANIA
HUCKESTEIN MECHANICAL SYSTEMS, INC., )
Plaintiff,
)
)
vs.
)
)
IC STAFFING SOLUTIONS, LLC and PHILIP M. )
SAUVAGEOT,
)
Defendants.
)
Civil Action No. 13-479
ORDER
AND NOW, this 25th day of April, 2013,
IT IS HEREBY ORDERED that Defendants’ motion to dismiss Count V of the
complaint (ECF No. 5) is granted.
s/Robert C. Mitchell__________________
ROBERT C. MITCHELL
United States Magistrate Judge
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