H CONTRACTORS, LLC v. E.J.H. CONSTRUCTION, INC
MEMORANDUM OPINION on the 26 MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM filed by TREEPOINT, LLC. Signed by Magistrate Judge Lisa Pupo Lenihan on 02/16/2017. (jmb)
IN THE UNITED ST ATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF PENNSYLVANIA
H CONTRACTORS, LLC,
E.J.H. CONSTRUCTION, INC.,
E.J.H. CONSTRUCTION, INC.,
Treepoint, LLC d/b/a/ D HOSPITALITY,
Civil Action No. 16-368
Magistrate Judge Lenihan
Presently before the Court is Third-Party Defendant Treepoint, LLC d/b/a D Hospitality's
("D Hospitality") Motion to Dismiss the Third-Party Complaint filed by Defendant/Third-Party
Plaintiff, E.J.H. Construction, Inc. ("EJH"). For the reasons discussed below, the Motion to
Dismiss (ECF No. 26) 1 will be denied.
RELEVANT FACTS AND ALLEGATIONS
The original Plaintiff, H Contractors, LLC ("H Contractors"), initiated the abovecaptioned case against EJH for breach of contract on March 29, 2016. (ECF No. 1.) H
Contractors filed an Amended Complaint on April 1, 2016. (ECF No. 4.) H Contractors alleges
When originally filed on August 8, 2016, D Hospitality's Motion to Dismiss also included, in
the alternative, a Motion to Strike pursuant to Federal Rule of Civil Procedure Rule 14(a)( 4). On
December 8, 2016, D Hospitality made an oral motion to withdraw the Motion to Strike. (ECF
that it contracted with EJH to perform various construction services on three (3) separate Park
Inn by Radisson hotels located in Uniontown, Clarion and Beaver Falls. H Contractors alleges
that EJH was the general contractor and that it was a subcontractor. H Contractors alleges that it
was not paid for its work. (ECF No. 4
1, 7, 11, 45.)
After filing its Answer on May 31, 2016, EJH filed its Third-Party Complaint against D
Hospitality on June 14, 2016. (ECF No. 19.) Therein, EJH alleges that D Hospitality was the
general contractor on renovation work at four (4) Park Inn by Radisson hotels located in Beaver
Falls, Uniontown, Indiana, and Clarion ("the Projects"). (ECF No. 19 ~~ 7-8.) EJH further
alleges that D Hospitality hired EJH as a subcontractor to immediately begin work on the
Projects. (ECF No. 19 ~~ 9, 12-14.) D Hospitality, according to Third-Party PlaintiffEJH,
represented that EJH would be paid according to the terms of an unsigned contract totaling
$2,989,388. (ECF No. 19 ~ 10.) Based on that promise, EJH mobilized within two (2) days and
began renovations to the Indiana hotel. (ECF No. 19 ~ 14.) EJH alleges that D Hospitality has
failed to pay it for any of the work performed by EJH and that D Hospitality disputes its own
contractual terms set out in the unsigned contract it provided to EJH before construction began.
(ECF No. 19 ~~ 20-24.) EJH further alleges that as a result ofD Hospitality's actions, EJH could
not pay EJH's subcontractor, H Contractors. (ECF No. 19 ~~ 51-52.)
In its Third-Party Complaint, EJH alleges claims for breach of implied-in-fact contract;
unjust enrichment; promissory estoppel; fraudulent inducement; contribution/indemnification;
and for violation of the Pennsylvania Contractor and Subcontractor Payment Act. (ECF No. 19
On December 18, 2016, H Contractors and EJH filed a Joint Stipulation for Dismissal
wherein the parties stipulated to the dismissal with prejudice of all claims asserted or that could
have been asserted by and between H Contractors and EJH consistent with the terms of their
Settlement Agreement and Mutual Release. (ECF No. 45.) This Court entered an order granting
the Joint Stipulation of Dismissal on December 28, 2016. (ECF No. 46.)
Recently, the United States Court of Appeals for the Third Circuit aptly summarized the
standard to be applied in deciding motions to dismiss filed pursuant to Rule 12(b)(6):
Under the "notice pleading" standard embodied in Rule 8 of the
Federal Rules of Civil Procedure, a plaintiff must come forward
with "a short and plain statement of the claim showing that the
pleader is entitled to relief." As explicated in Ashcroft v. Iqbal, 556
U.S. 662, 678 (2009), a claimant must state a "plausible" claim for
relief, and "[a] claim has facial plausibility when the pleaded
factual content allows the court to draw the reasonable inference
that the defendant is liable for the misconduct alleged." Although
"[f]actual allegations must be enough to raise a right to relief
above the speculative level," Bell Atlantic Corp. v. Twombly, 550
U.S. 544, 555 (2007), a plaintiff "need only put forth allegations
that raise a reasonable expectation that discovery will reveal
evidence of the necessary element." Fowler[v. UPMC Shadyside,
578 F.3d [203,] 213 [(3d Cir. 2009)] (quotation marks and
citations omitted); see also Covington v. Int'! Ass'n of Approved
Basketball Officials, 710 F.3d 114, 117-18 (3d Cir.2013).
Thompson v. Real Estate Mortg. Network, 748 F.3d 142, 147 (3d Cir. 2014).
In addition to the complaint, courts may consider matters of public record and other
matters of which a court may take judicial notice, court orders, and exhibits attached to the
complaint when adjudicating a motion to dismiss under Rule 12(b)(6). Oshiver v. Levin,
Fishbein, Sedran & Berman, 38 F.3d 1380, 1384 n.2 (3d Cir. 1994) (citing SA Wright and
Miller, Federal Practice and Procedure: Civil 2d, § 1357; Chester County Intermediate Unit v.
Pennsylvania Blue Shield, 896 F.2d 808, 812 (3d Cir. 1990)). That is, a "'document integral to
or explicitly relied upon in the complaint" may be considered "without converting the motion [to
dismiss] into one for summary judgment." In re Burlington Coat Factory Sec. Litig., 114 F.3d
1410, 1426 (3d Cir. 1997) (quoting Shaw v. Digital Equip. Corp., 82 F .3d 1194, 1220 (1st Cir.
1996) (emphasis added by Burlington Court)). A court may also consider indisputably authentic
documents. Spruill v. Gillis, 3 72 F .3d 218, 223 (3d Cir. 2004 ); Pension Ben. Guar. Corp. v.
White Consol. Indus., Inc., 998 F .2d 1192, 1196 (3d Cir. 1993 ).
Here, in support of its Motion to Dismiss Third-Party Complaint, D Hospitality argues
the following: 1) the Third-Party Complaint fails to state legally sufficient claims for
contribution and indemnification under Pennsylvania law and therefore, is not proper under
Federal Rule of Civil Procedure 14; 2) Third-Party Plaintiff EJH fails to state a legally sufficient
claim for fraudulent inducement pursuant to Federal Rule of Civil Procedure 9, and because this
claim is barred by the economic loss and/ or gist of the action doctrines. (ECF No. 27 at 4-8.)
Third-Party Plaintiff EJH responds that 1) impleader is proper pursuant to Federal Rule of Civil
Procedure 14 because the unsigned contract in issue contains an indemnification clause; 2) the
Third-Party Complaint survives the Rule 9(b) pleading standard; and 3) the fraudulent
inducement claim is not barred by the gist of the action and/or the economic loss doctrines.
Federal Rule of Civil Procedure 14 sets out the requirements that must be met in order to
implead a third-party defendant. Rule 14 provides in relevant part that "[a] defending party may,
as a third-party plaintiff, serve a summons and complaint on a nonparty who is or may be liable
to it for all or part of the claim against it." Fed. R. Civ. P. 14(a)(l). Impleader "must involve an
attempt to pass on to the third party all or part of the liability asserted against the defendant.
Thus, it must be an assertion of the third-party defendant's derivative liability to the third-party
plaintiff." 3 James Wm. Moore et al., Moore's Federal Practice§ 14.04[a] (3d ed. 2016)
(emphasis in original) (footnote omitted). An example of a third-party defendant's derivative
liability to the third-party plaintiff is as follows:
Perhaps the classic case for impleader is one in which the thirdparty defendant is obligated by contract to indemnify the defendant
against the liability on which the plaintiff has sued. If the claim is
within the scope of the agreement to indemnify, there is no doubt
that impleader is proper.
Id. § 14.04[b] (footnote omitted).
Relevant here is Article 8 of the unsigned contract between the Third-Party Plaintiff EJH,
and the Third-Party Defendant D Hospitality. The contract provides in part as follows:
8.1 Indemnity. The parties agree to indemnify and hold
harmless the other from and against lawsuits, claims, damages,
losses, liabilities, demands, and expenses, including but not limited
to reasonable attorney's fees and reasonable litigations costs, to the
extent the other party is found to be liable for breach of contract,
negligence, or other fault arising out of or resulting from the
performance of the Work under this Agreement, except to the
extent caused by the breach of contract, negligence, or other fault
of the other party.
(Subcontract Agreement, ECF No. 19-1 at 11-12.) Third-Party Plaintiff EJH contends that it had
no choice but to file its Third-Party Complaint against D Hospitality, since "any fault on the part
of EJH as it relates to H Contractors stems from D H[ospitality] 's misrepresentations to induce
EJH to begin work on the Projects, and subsequent failure to pay EJH for the work it performed
on the Projects." (EJH's Response to Motion to Dismiss, ECF No. 35 at 2-3.)
D Hospitality contends that under Pennsylvania common law, claims for contribution and
common law indemnity are available only for liability that sounds in tort and not for breach of
contract. Therefore, impleader is improper here. (Brief in Support of Motion to Dismiss, ECF
No. 27 at 4-5.)
In Pennsylvania, however, "where there is a written indemnity agreement between the
parties, common law indemnity is not available." EQT Prod. Co., v. Terra Servs., LLC, 179 F.
Supp.3d 486, 496 (W.D. Pa. 2016) (citing Fid. Nat. Title Ins. Co. v. B&G Abstractors, Inc., No.
2:15-CV-835, 2015 WL 6472216, at *10 (W.D. Pa. Oct. 27, 2015) ("[T]he Pennsylvania
Supreme Court has held that where 'there is a written contract setting forth the rights and duties
of the parties,' the terms of the contract, rather than common law principles of indemnity,
govern.") (other citation omitted)).
Accepting all of EJH's factual allegations as true, and construing them in the light most
favorable to Third-Party Plaintiff EJH, and drawing all reasonable inferences therefrom, EJH has
stated a plausible claim for relief and imp leader is proper in light of Article 8 of the unsigned
contract. Therefore, the Court will deny Third-Party Defendant D Hospitality's Motion to
Dismiss the Third-Party Complaint on this basis.
As to the fraudulent inducement claim, D Hospitality first argues that the allegations of
the Third-Party Complaint do not satisfy the heightened pleading standard of Rule 9(b ).
EJH responds that it has adequately pled fraud in the inducement, especially in light of
Exhibit 4 to the Third Party Complaint. EJH contends that this email demonstrates in D
Hospitality's own words, that it never intended to be bound by the terms of the unsigned
contract, and that it would refuse to adhere to those terms. (ECF No. 35 at 6-7.)
Federal Rule of Civil Procedure 9(b) provides that "[i]n alleging fraud or mistake, a party
must state with particularity the circumstances constituting fraud or mistake. Malice, intent,
knowledge, and other conditions of a person's mind may be alleged generally." Fed. R. Civ. P.
More specifically, in order to state a claim for fraudulent inducement, a plaintiff must
allege the following:
"(1) a representation; (2) which is material to the transaction at
hand; (3) made falsely, with knowledge of its falsity or
recklessness as to whether it is true or false; (4) with the intent of
misleading another into relying on it; (5) justifiable reliance on the
misrepresentation; and (6) the resulting injury was proximately
caused by the reliance." Skurnowicz [v. Lucci], 798 A.2d [788,] 
793 [(Pa. Super. Ct. 2002)], quoting  Bortz v. Noon,  729 A.2d
555, 560 (1999)."
Eigen v. Textron Lycoming Reciprocating Engine Div., 874 A.2d 1179, 1185 (Pa. Super. Ct.
In Count IV of its Third Party Complaint, EJH alleges that D Hospitality represented to
EJH that it would sign the contract once EJH began its work per the terms of the contract and
that EJH would be paid pursuant to those terms. D Hospitality made this representation
knowing, at the time, that it had no intention of signing the contract and paying EJH. D
Hospitality made this representation to induce EJH to begin its performance without the intention
of paying EJH. EJH, relying upon D Hospitality's representation, began its work and expected
to be paid pursuant to the contract terms. Finally, Plaintiff alleges that D Hospitality failed to
pay EJH for any of the work it performed, and that as a result, EJH suffered damages. (ECF No.
19 ~~ 44-49.) The Court finds that at the motion to dismiss stage, Plaintiff has stated facts
sufficient to state a plausible claim for fraudulent inducement pursuant to Twombly and its
progeny. See Twombly, 550 U.S. at 555. Upon the completion of discovery, D Hospitality may
file a motion for summary judgment on the fraudulent inducement claim if the summary
judgment record does not support the claim.
D Hospitality further argues that the fraudulent inducement claim is barred by the
economic loss and/or gist of the action doctrines. (ECF No. 27 at 6-8.) EJH responds that the
claim of fraudulent inducement is collateral to the terms of the contract itself, and therefore, the
gist of the action doctrine does not apply.
"Generally, the gist-of-the-action doctrine precludes a party from raising tort claims
where the essence of the claim actually lies in a contract that governs the parties' relationship."
Sullivan v. Chartwell Inv. Partners, LP, 873 A.2d 710, 718 (Pa. Super. Ct. 2005). "[T]he
important difference between contract and tort actions is that the latter lie from the breach of
duties imposed as a matter of social policy while the former lie for the breach of duties imposed
by mutual consensus." Redev. Auth. of Cambria Cnty. v. Int'! Ins. Co., 685 A.2d 581, 590 (Pa.
Super. Ct. 1996) (en bane), quoted in Bohler-Uddeholm America, Inc. v. Ellwood Grp., Inc., 247
F.3d 79, 103 (3d Cir. 2001). Accordingly, a claim is limited to contract law 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." Bash v. Bell Tel. Co., 601 A.2d 825, 830 (1992). 2
The Pennsylvania Superior Court has frequently applied the gist of the action doctrine to
claims for fraud in performance of a contract, but not to claims for fraud in the inducement. See
Sullivan, 873 A.2d at 719 ("Following a thorough analysis of the issue, the eToll court concluded
that the gist-of-the-action doctrine would apply to bar a claim for fraud in the performance of a
contract. However, it also observed that the gist-of-the-action doctrine would not necessarily bar
a fraud claim stemming from the fraudulent inducement to enter into a contract.") (citing eToll,
See also Koresko v. Bleiweis, Civ. A. 04-CV-769, 2004 WL 3048760, *3 (E.D. Pa. Dec.
30, 2004) (observing that the existence of a contractual relationship is not dispositive in
determining whether a tort claim may lie; rather, the essential question is the violation of
an additional duty distinct from the contractual obligations) (citing Bohler-Uddeholm).
Inc. v. Elias/Savion Adver., Inc., 811 A.2d 10 (Pa. Super. Ct. 2002)). 3 See also Air Prod. &
Chem., Inc. v. Eaton Metal Prod. Co., 256 F. Supp.2d 329, 341 (E.D. Pa. 2003), quoted in
Sullivan, 873 A.2d at 719 (noting that "fraud in the inducement claims are much more likely to
present cases in which a social policy against the fraud, external to the contractual obligations of
the parties, exists"). 4 This distinction becomes somewhat problematic, however, where the
alleged misrepresentations that induce a contract also constitute promises that form the contract's
In Williams v. Hilton Group PLC, 93 F. App'x 384 (3d Cir. 2004) (per curiam), the Third
Circuit affirmed dismissal of fraud claims under the gist of the action doctrine involving breach
of an exclusive negotiation agreement despite evidence that the defendant never intended to
honor its promise of exclusivity. However, the Williams court did not have the benefit of the
Superior Court's subsequent decision in Sullivan, which permitted a claim for fraud in the
inducement predicated upon the same promises that it found to be sufficient to make out a
contract claim. As the Sullivan court explained,
Appellant alleged that Appellee fraudulently and/or negligently
agreed to perform obligations that it never intended to perform in
order to induce Appellant to agree to the proposed changes ....
Accordingly, we conclude that since Appellant's tort claims relate
to the inducement to contract, they are collateral to the
performance of the contracts and therefore, are not barred by the
gist-of-the action doctrine.
The eToll court summarized the "persuasive authority interpreting Pennsylvania law"
on the gist of the action doctrine as barring tort claims: (1) "arising solely from a contract
between the parties," (2) where "the duties allegedly breached were created and grounded
in the contract itself," (3) where "the liability stems from a contract," or (4) where the tort
claim "essentially duplicates a breach of contract claim or the success of which is wholly
dependent on the terms of a contract." 811 A.2d at 19 (internal citations omitted).
The court in Air Products further explained that "fraud to induce a person to enter a
contract is generally collateral to (i.e., not 'interwoven' with) the terms of the contract
itself." 256 F. Supp.2d at 341.
Sullivan, 873 A.2d at 719. This conclusion undercuts the majority holding in Williams, and
supports the dissent's view that under the Pennsylvania cases, where there is "fraudulent intent,
i.e. a subjective and undisclosed intent not to perform, a fraud claim is stated." Williams, 93 F.
App'x at 390 (Becker, J., dissenting). See also Williams, 93 F. App'x at 386, 387 (recognizing
that the gist of the action doctrine "appears to call for a fact-intensive judgment as to the true
nature of a claim," and accordingly explicitly limiting its per curiam opinion to "the particular
facts presented"). 5
In 2014, the Pennsylvania Supreme Court expounded upon the gist of the action doctrine
for the first time in Bruno v. Erie Ins. Co., 106 A.3d 48 (Pa. 2014). In Bruno, the Pennsylvania
Supreme Court announced that the "source of duty" inquiry is the "touchstone standard for
ascertaining the true gist or gravamen of a claim[.]" 106 A.3d at 68. The Bruno court noted the
If the facts of a particular claim establish that the duty breached is
one created by the parties by the terms of their contract-i.e., a
specific promise to do something that a party would not ordinarily
have been obligated to do but for the existence of the contractthen the claim is to be viewed as one for breach of contract. . . . If,
however, the facts establish that the claim involves the defendant's
violation of a broader social duty owed to all individuals, which is
imposed by the law of torts and, hence, exists regardless of the
contract, then it must be regarded as a tort.
Id. Therefore, if the facts underlying the claim "establish that the duty owed to a plaintiff arises
from the defendant's specific promise to do something, the doctrine applies as the duty breached
is rooted in the contract." Patel v. Patel, Civil Action No. 14-5845, 2016 WL 3000821, at *3
As noted above, Judge Becker's dissent in Williams distinguished, in light of
Pennsylvania case law, those breach of contract cases in which the party had no present
intention to perform the contract terms from those in which the party intended - but later
failed - to perform.
(E.D. Pa. May 25, 2016). 6
Here, the Court is further guided by the United States Court of Appeals for the Third
"[W]hile the existence of a contractual relationship between two
parties does not prevent one party from bringing a tort claim
against another, the gist of the action doctrine precludes tort suits
for the mere breach of contractual duties"; the plaintiff must
instead point to independent events giving rise to the tort. Addie v.
Kjaer, 737 F.3d 854, 865-66 (3d Cir. 2013). Thus, "[a]pplication of
this doctrine frequently requires courts to engage in a factually
intensive inquiry as to the nature of a plaintiff's claims." Id. at
Frank C. Pollara Grp., LLC v. Ocean View Investment Holding, LLC, 784 F.3d 177, 186 (3d Cir.
2015) (quoting Addie, 737 F.3d at 865-66, 868). In light of this guidance, the Court must
proceed cautiously in evaluating Third-Party Plaintiff's fraudulent inducement claim and
whether it is barred by the gist of the action doctrine. Therefore, the Court will deny Third-Party
Defendant D Hospitality's Motion to Dismiss the fraudulent inducement claim. D Hospitality
may revisit this issue after the close of discovery.
The United States Court of Appeals for the Third Circuit has noted that Bruno did not explicitly
overrule eToll or its progeny, and created inconsistencies that were not discussed by the Bruno
Bruno provides that "a negligence claim based on the actions of a
contracting party in performing contractual obligations is not
viewed as an action on the underlying contract itself, since it is not
founded on the breach of any of the specific executory promises
which comprise the contract," whereas eToll provides that the "gist
of the action doctrine should apply to claims for fraud in the
performance of a contract."
Dommel Properties LLC v. Jonestown Bank & Trust Co., 626 F. App'x 361, 366 (3d Cir. 2015)
(footnotes omitted) (vacating district court's order with respect to negligent misrepresentation
and fraud claims where district court did not engage in duty-based analysis that Bruno
Likewise, as argued by Third-Party Plaintiff EJH, the economic loss doctrine, which
"prohibits plaintiffs from recovering in tort economic losses to which their entitlement flows
only from contract[,]" EJH's fraudulent inducement claim cannot be dismissed at this time. As
noted above, without developing the record, it is unclear whether the gist of the action is one in
contract or in tort. Moreover, the current state of the law suggests that the economic loss
doctrine bars only claims sounding in negligence that result solely in economic damages
unaccompanied by physical injury or property damage. See Landau v. Viridian Energy PA LLC,
Civil Action No. 16-2383, 2016 WL 6995038, at* 6 (E.D. Pa. Nov. 30, 2016) (discussing the
applicability of Knight v. Springfield Hyundai, 81 A.3d 940, 952 (Pa. Super. Ct. 2013), and the
rejection of Werwinski v. Ford Motor Co., 286 F.3d 661 (3d Cir. 2002), by the Pennsylvania
appellate courts.). Again, D Hospitality may revisit this issue after the close of discovery.
For the reasons discussed above, D Hospitality's Motion to Dismiss Third-Party
Complaint will be denied. An appropriate order will follow.
BY THE COURT
cc: All counsel of record
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