Dansko Holdings, Inc. v. Benefit Tr. Co.

DANSKO HOLDINGS, INC., Appellant in No. 19-3892 v. BENEFIT TRUST CO., Appellant in No. 19-3847

No. 19-3847

No. 19-3892

UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT

Argued: November 16, 2020

March 16, 2021

PRECEDENTIAL

On Appeal from the United States District Court for the Eastern District of Pennsylvania

(D.C. No. 2:16-cv-00324)

District Judge: Hon. Jan E. DuBois

Before: AMBRO, BIBAS, and ROTH, Circuit Judges

Richard N. Bien [ARGUED]

J. Bradley Leitch

Lathrop GPM

2345 Grand Boulevard, Suite 2200

Kansas City, MO 64108

Joshua Bachrach

Wilson Elser Moskowitz Edelman & Dicker LLP

2001 Market Street,

Two Commerce Square, Suite 3100

Philadelphia, PA 19103

Counsel for Appellant in No. 19-3847

Robert W. Hayes [ARGUED]

Cozen O'Connor

1650 Market Street, Suite 2800

Philadelphia, PA 19103

Counsel for Appellee in No. 19-3847

OPINION OF THE COURT

BIBAS, Circuit Judge.

A shoe company hired a trust company as trustee for its employees' stock ownership plan. After that, the trustee hinted that it would help the shoemaker refinance its debt, but then backed out of that deal. The shoemaker sued the trustee. The trustee counterclaimed for the cost of defending the suit. Onsummary judgment, the District Court rejected both parties' claims.

We will vacate and remand. The court erred in rejecting the shoe company's contract, estoppel, and fraud claims. But under the trust agreement, the shoe company must advance the trustee's reasonable litigation expenses.

I. BACKGROUND

A. Dansko and Benefit's falling out

Dansko Holdings, a maker of shoes, offers its employees a stock ownership plan. In 2011, it hired Reliance Trust Company as the plan's trustee. Dansko and Reliance signed a trust agreement.

In 2014, Dansko considered replacing Reliance with Benefit Trust Company. During its due diligence, it asked Benefit whether it had recently been investigated by the Department of Labor. Benefit had been, but falsely denied it.

Dansko hired Benefit. In June 2014, Dansko's board passed a resolution "appoint[ing]" Benefit as the new trustee. App. 396-97. The resolution added that Benefit would be "substituted for Reliance Trust Company in the Trust Agreement." App. 396. About two weeks later, Benefit "accepted its appointment." App. 399.

Around that time, Dansko decided to refinance its debt. It needed a trustee's help with that and raised the issue a few times with Benefit over the next six months. Benefit never agreed in writing to do this work. But it allegedly said it would"be able to do the [deal]" and estimated that it would need a month or more to do due diligence for the trust. App. 2 (emphasis added). So Dansko thought Benefit would be the trustee for the deal.

But Benefit backed out. In December 2014, it told Dansko that it would not serve as trustee for the debt deal. That caught Dansko off guard and delayed the deal. The delay allegedly cost Dansko more than $2 million in extra interest.

B. District court proceedings

Dansko sued Benefit, making three claims relevant here: First, Benefit breached the trust agreement, which required it to help with the deal. Second, when Benefit hinted that it would help with the deal, it made an implied promise that is now enforceable by promissory estoppel. And third, Benefit fraudulently induced Dansko to hire it by falsely denying the Department of Labor's investigation. Benefit counterclaimed for its defense costs under an indemnification clause in the trust agreement.

After discovery, the District Court granted summary judgment. It rejected Dansko's claims but held that Dansko did not have to indemnify Benefit for its defense costs. Dansko Holdings, Inc. v. Benefit Trust Co., 418 F. Supp. 3d 100, 105-12 (E.D. Pa. 2019).

Both sides now appeal. As the parties agree, Pennsylvania law governs this case. Sitting in diversity, we must predict how the Supreme Court of Pennsylvania would resolve each issue.

II. DANSKO'S CONTRACT CLAIM SURVIVES

First, Dansko claims that Benefit must help with the debt deal under the trust agreement. The District Court thought that Dansko had waived this claim in its summary-judgment brief. But we read its brief as preserving that claim. Alternatively, Benefit asks us to hold the claim barred by federal and Pennsylvania law. But those arguments fail too.

A. Dansko did not waive its contract claim

Throughout this case, Dansko has pressed its contract claim. It first raised this claim in its complaint, alleging that Benefit both "breached the express terms of the Trust Agreement" and "breached the implied duty of good faith and fair dealing." App. 46-47. Dansko repeated the second contract theory in its summary-judgment brief, narrowing its position by pressing "only . . . its claim for breach of the duty of good faith and fair dealing." Supp. App. 47. It claimed that although the contract did not expressly address Benefit's obligation to help with a refinancing, that duty came within the contract's broad purpose.

The District Court thought that by pressing "only" the good-faith theory, "Dansko withdrew its breach of contract claim." 418 F. Supp. 3d at 106. We disagree. Dansko's good-faith theory was not an alternative to the contract claim, but a version of the claim. Under Pennsylvania law, a good-faith claim is a type of contract claim. Burton v. Teleflex Inc., 707 F.3d 417, 432 (3d Cir. 2013). By relying "only" on a good-faith theory for its contract claim, Dansko abandoned its first theorythat Benefit had breached the agreement's express terms. It did not abandon the contract claim entirely.

B. Dansko's claim is not barred by federal or Pennsylvania law

Benefit says that even if Dansko did not waive the contract claim, we can affirm its rejection under ERISA or Pennsylvania trust law. We disagree.

1. Federal law. Benefit argues that ERISA preempts this suit. Employee Retirement Income Security Act of 1974, 29 U.S.C. ch. 18 (ERISA). We disagree. ERISA does preempt some state-law claims, but only those that are "challenge[s] to the actual administration of [an employee benefit] plan." Nat'l Sec. Sys., Inc. v. Iola, 700 F.3d 65, 85 (3d Cir. 2012). It does not preempt "run-of-the-mill state law claims" that just happen to "affect[] and involv[e] ERISA plans and their trustees." Mackey v. Lanier Collection Agency & Serv., Inc., 486 U.S. 825, 833 (1988).

Dansko's contract claim happens to involve an ERISA plan. But its claim is "quite remote from the areas with which ERISA is expressly concerned—reporting, disclosure, fiduciary responsibility, and the like." Iola, 700 F.3d at 85 (internal quotation marks omitted). It is thus not preempted.

2. Pennsylvania law. Benefit adds that Dansko cannot sue for breach of trust. In Pennsylvania, a breach of trust is "[a] violation by a trustee of a duty the trustee owes to a beneficiary." 20 Pa. C.S.A. § 7781(a) (emphasis added). Dansko is not a beneficiary of the trust; only its employees are. But Dansko did not sue for breach of trust. It sued Benefit not onbehalf of its employees, but for itself. So Benefit's argument is off base.

Finally, Benefit says that it never breached the contract. But because the District Court thought Dansko had waived the contract claim, it never addressed this issue. We will let the District Court consider Benefit's remaining arguments about the duty of good faith and fair dealing on remand.

III. DANSKO'S ESTOPPEL CLAIM SURVIVES

Next, Dansko claims promissory estoppel. It alleges that along with whatever promises Benefit made in the trust agreement, it also promised to serve as trustee for the debt deal. Even though Benefit never put the promise in a formal contract, Dansko says, it is enforceable by estoppel.

The District Court thought that the estoppel claim was barred because Dansko and Benefit did have a formal contract: the trust agreement. We disagree. True, a party cannot bring an estoppel claim when a contract claim could cover the same ground. But here, the estoppel claim is about a promise that Benefit made years after it signed the agreement. Thus, though Dansko cannot recover on both its contract and promissory estoppel claims because they allege the same injury, it can still bring both claims for now.

Benefit asks us to affirm on two other grounds, arguing that estoppel cannot enforce implied or oral promises. Both these arguments are mistaken too.

A. The estoppel claim is not barred by the trust agreement

A party may not use estoppel to enforce a contractual promise. After all, estoppel is only a contract "substitute" for when "the formal requirements of contract formation have not been satisfied." Carlson v. Arnot-Ogden Mem'l Hosp., 918 F.2d 411, 416 (3d Cir. 1990) (internal quotation marks omitted). But Dansko is not trying to use estoppel to enforce the words of the trust agreement. Instead, it relies on statements Benefit allegedly made after signing the agreement. Compare App. 46 (Complaint) (pleading that Benefit agreed to serve as trustee on June 18, 2014), with id. at 48 (alleging estoppel based on statements made over the next six months). So the estoppel claim is proper.

B. The estoppel claim need not rely on an express promise

In the alternative, Benefit argues that it never expressly promised to help with the deal. In Pennsylvania, it argues, estoppel applies only to express promises.

Though the Supreme Court of Pennsylvania has never addressed this issue, we doubt it would agree. First, "Pennsylvania has adopted the Restatement view of promissory estoppel." Edwards v. Wyatt, 335 F.3d 261, 277 (3d Cir. 2003); see Kreutzer v. Monterey Cty. Herald Co., 747 A.2d 358, 361 (Pa. 2000). And one of the Restatement's examples of estoppel involves an "implied promise." Restatement (Second) of Contracts § 90 illus. 3. Plus, in dicta, many lower Pennsylvania courts have said that "[m]isleading words, conduct, or silence" can amountto a "promise" that will support promissory estoppel. Penn-Aire Aviation, Inc. v. Adapt Appalachia, LLC, No. 565 WDA 2016, 2017 WL 3169280, at *5 (Pa. Super. Ct. July 26, 2017) ...