eToll, Inc. v. ELIAS/SAVION ADVERTISING

811 A.2d 10

2002 Pa. Super. 347

ETOLL, INC., A Corporation Organized under the Laws of the Commonwealth of Pennsylvania, Appellant v. ELIAS/SAVION ADVERTISING, INC., a Corporation Organized under the Laws of the Commonwealth of Pennsylvania, and Philip L. Elias, and Ronnie J. Savion, and Daniel McCarthy, Appellees.

Superior Court of Pennsylvania.

Argued May 14, 2002.

Filed November 8, 2002.

Peter N. Georgiades, Pittsburgh, for appellant.

Anthony J. Basinski, Pittsburgh, for appellee.

Before: FORD ELLIOTT, LALLY-GREEN, and HESTER, JJ.

OPINION BY LALLY-GREEN, J.

¶ 1 Appellant, eToll, Inc., appeals from the order dated November 8, 2000, granting summary judgment to defendants/Appellees, Elias/Savion Advertising, Inc. (Elias/Savion), Philip L. Elias, Ronnie J. Savion, and Daniel McCarthy.¹ We affirm.

¶ 2 The procedural history of the case is as follows. On August 3, 1998, Appellant filed a complaint alleging the following facts. Appellant developed an email product called "e-mail 97." On February 25, 1997, Appellant entered into an agreement with Elias/Savion to market and advertise the product.

¶ 3 Count 1 for fraud was asserted against all Appellees. Appellant asserted that the Appellees told Appellant that they had the knowledge, expertise, and experience to advertise and market the product properly, when in fact they did not. Moreover, the individual Appellees "executed several schemes designed to allow Elias/Savion to fraudulently obtain money from eToll," including: (1) "contracting for goods and services which were unauthorized, unnecessary, excessive or in some cases entirely fictitious"; and (2) "accepting payments from eToll for services which were not actually performed." In essence, Appellant alleged that the Appellees stole money from Appellant under the guise of performing the contract. Appellant also contended that the Appellees lied to Appellant in order for Appellant to relax its guard, so the overbilling could continue.

¶ 4 Count 2 for breach of fiduciary duty was asserted against all Appellees. Appellant alleged that even though the contract was an arms' length bargain for services, the Appellees took on a position of confidence and trust because they held themselves out as marketing experts. Appellant alleged that a fiduciary duty arose because the Appellees acted as Appellant's agent.

¶ 5 Count 3 for professional negligence was asserted only against the corporate Appellee, Elias/Savion, and only in the alternative to Appellant's breach of contract claim (discussed below). Appellant alleged that Elias/Savion failed to perform under the contract and performed substandard work under the contract.

¶ 6 Count 4 for breach of contract was asserted only against the corporate Appellee, Elias/Savion. Appellant alleged that Elias/Savion failed to perform under the contract and performed substandard work under the contract.²

¶ 7 Appellees filed preliminary objections in the nature of a demurrer. Appellees argued, inter alia, that the tort claims should be dismissed under the "gist of the action" doctrine (described further infra). The trial court (Strassburger, J.) denied all of the preliminary objections.

¶ 8 The case proceeded to discovery. On July 19, 2000, Appellees filed a motion for summary judgment.³ Appellant later filed a "motion to re-open the record" on summary judgment to include various facts that had come to light after the Appellees filed their summary judgment motion. Appellant argued that after months of stalling, Appellees finally produced voluminous records which helped to establish Appellant's claims.

¶ 9 On November 8, 2000, the trial court (Baer, J.) granted partial summary judgment and dismissed Appellant's tort claims. The court ruled as follows. Count I for fraud was dismissed based on the "gist of the action" doctrine. Count II for breach of fiduciary duty was dismissed because "as a matter of fact and law no principal-agent relationship existed between [Appellant] and [Appellees]." Trial Court Order, 11/8/2000, at 2. Count III for professional negligence was dismissed under the "gist of the action" doctrine. Count IV for breach of contract was not dismissed. The court ruled that most, if not all, of Appellant's claims could be asserted either as express breaches of the contract or as breaches of the implied warranty of good faith and fair dealing. Id. On the same day, the court denied Appellant's motion to re-open the record. The court did allow Appellant to depose an official from Elias/Savion.

¶ 10 Because Appellant's breach of contract claim was not dismissed, the November 8, 2000 order was not appealable. To make it so, Appellant voluntarily discontinued the breach of contract claim. Appellant filed a timely appeal from the November 8, 2000 orders. Judge Baer wrote an opinion in support of the summary judgment order on November 2, 2001, almost one year after the order itself. This appeal followed.

¶ 11 Appellant raises five issues on appeal:

1. Whether the lower court erred in holding that fraud perpetrated by one contracting party upon the other in the course of a contractual relationship is not a breach of a legal duty independent of the underlying contract, and on that basis dismissing the plaintiff's count for fraud and deceit.

2. Whether the lower court erred in dismissing the plaintiffs' lead count under the "gist of the action" doctrine, where the complaint contained express allegations of deceit.

3. Whether the lower court erred when, in deciding a motion for summary judgment, it limited its review of the record to the complaint.

4. Whether the lower court erred in holding the relationship between an advertising agency and a client was not one of principal and agent, where there was evidence the agency ordered goods and services for its client, and bound the client to contracts with third parties.

5. Whether the lower court erred in holding there was no special relationship of trust and confidence between an advertising agency and its client, where there was evidence the client retained the agency based upon representations by the agency it possessed special skill, knowledge and expertise, and the client relied upon those representations.

Appellant's Brief at 6.

¶ 12 Our standard of review is well settled.

Summary judgment properly is granted after the close of the relevant pleadings "whenever there is no genuine issue of any material fact as to a necessary element of the cause of action or defense which could be established by additional discovery or expert report" and the moving party is entitled to judgment as a matter of law. Pa.R.C.P. 1035.2(1). The scope of our review of an order granting or denying a motion for summary judgment is well established. In reviewing an order granting summary judgment, an appellate court must examine the record in the light most favorable to the non-moving party. We will reverse only if there has been an error of law or a clear abuse of discretion.

Abbott v. Schnader, Harrison, Segal & Lewis, LLP, 2002 PA Super 247, ¶ 6, 805 A.2d 547 (citations omitted).

¶ 13 First, Appellant argues that the trial court erred by applying the "gist of the action" doctrine to dismiss Appellant's fraud claim. While the doctrine has not yet been expressly adopted by our Supreme Court, it was recognized by this Court for the first time in Bash v. Bell Tel. Co., 411 Pa.Super. 347, 601 A.2d 825 (1992).

¶ 14 Generally, the doctrine is designed to maintain the conceptual distinction between breach of contract claims and tort claims. Id. at 829. As a practical matter, the doctrine precludes plaintiffs from re-casting ordinary breach of contract claims into tort claims. Id. The Bash Court explained the difference between contract claims and tort claims as follows:

[a]lthough they derive from a common origin, distinct differences between civil actions for tort and contract breach have developed at common law. Tort actions lie for breaches of duties imposed by law as a matter of social policy, while contract actions lie only for breaches of duties imposed by mutual consensus agreements between particular individuals.... To permit a promisee to sue his promisor in tort for breaches of contract inter se would erode the usual rules of contractual recovery and inject confusion into our well-settled forms of actions.

Id. at 829, citing, Iron Mountain Sec. Storage Corp. v. American Specialty Foods, Inc., 457 F.Supp. 1158, 1165 (E.D.Pa.1978).

¶ 15 Thus, "[a]lthough mere non-performance of a contract does not constitute a fraud[,] 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." Bash, 601 A.2d at 829,citing, Closed Circuit Corp. v. Jerrold Electronics Corp., 426 F.Supp. 361, 364 (E.D.Pa.1977). "The 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." Redevelopment Auth. v. International Ins. Co., 454 Pa.Super. 374, 685 A.2d 581, 590 (1996) (en banc), appeal denied, 548 Pa. 649, 695 A.2d 787 (1997), quoting, Phico Ins. Co. v. Presbyterian Med. Srvs. Corp., 444 Pa.Super. 221, 663 A.2d 753, 757 (1995). "In other words, 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 by the law of torts."' Bohler-Uddeholm Am., Inc. v. Ellwood Group, Inc., 247 F.3d 79, 104 (3rd Cir.Pa.2001),cert. denied, 534 U.S. 1162, 122 S.Ct. 1173, 152 L.Ed.2d 116 (2002), quoting, Bash, 601 A.2d at 830.⁴

¶ 16 The question of whether the gist of the action doctrine applies is an issue of law subject to plenary review. Id. at 106. As one federal court noted:

"[T]he test is not limited to discrete instances of conduct; rather, the

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