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GIST OF
THE ACTION DOCTRINE
Jack W. Plowman*
A relatively old concept has re-appeared, dressed in new apparel. The
“gist of the action” doctrine seems to have taken on new life and may
be useful in defending claims against contractors and design
professionals. Most recently, two Superior Court decisions have
applied the “gist of the action” doctrine so as to bar claims.
In Etoll, Inc. v. Elias/Savion Advertising, Inc., 811 A.2d 10 (Pa.
Super. 2002), a software developer entered into a contract with an
advertising agency under the terms of which the agency was to market
and advertise Etoll’s software. But things did not go well, and Etoll
filed suit charging fraud, breach of fiduciary duty, professional
negligence, and breach of contract for failing to perform and
performing under the contract in a substandard way. Elias/Savion
contended that the gist of the action was a breach of contract and
that the other claims (fraud, breach of fiduciary duty and
professional negligence) should be dismissed. The Trial Court agreed
and Etoll appealed.
On appeal, the Superior Court affirmed, stating that the “gist of the
action” doctrine has not been expressly adopted by the Pennsylvania
Supreme Court. However, the Superior Court applied the doctrine,
stating that “the doctrine precludes plaintiffs from re-casting
ordinary breach of contract claims into tort claims.” The Court, in
an opinion by Judge Lally-Green, went on to hold that a claim should
be limited to a breach of contract claim where the rights and duties
of the parties are defined by the terms of a contract, not by social
policies. Whether the “gist of the action” doctrine applies is an
issue of law for the Court, and not an issue of fact for a jury.
Why would a plaintiff plead a case of negligence rather than a breach
of contract? Without attempting to be exhaustive on the subject, the
following would appear to be reasons for doing so.
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Insurance Coverage. If a plaintiff can recover on a tort
(negligence) claim insurance coverage would very likely be
available, making it relatively easy to obtain payment without the
necessity of executing.
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More defendants. In Etoll, the plaintiff sued not only the
corporate entity with which it contracted, but also persons employed
by Etoll. Thus, breach of contract claims could not be made against
the employees, but perhaps negligence claims could be made.
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Longer Statute of Limitations. In several instances, e.g. bond
claims, the statute of limitations may be briefer than the statute
of limitations for tort. Thus, a second tier claimant who has let
the time expire under Pennsylvania’s one-year statute of limitations
on bond claims could perhaps seek to recover on some theory of
conversion or breach of fiduciary duty.
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Greater Damages. It is not unusual for professional design
contracts to contain a clause limiting the design professional’s
liability to a specified amount, as perhaps the contract amount.
This limitation might be circumvented by a non-contractual claim of
negligence.
A still more recent decision, Freestone v. New England Log Homes,
Inc., 819 A.2d 550 (Pa. Super 2003), is an example of the insurance
motivation. The Court held that, since the insurer of defendant had
no obligation to defend a breach of contract claim, the “gist of the
action” doctrine relieved the insurer of a duty to defend, since the
gravamen of the claim was in contract, and not tort. This issue will
frequently arise in construction contracts, and design professional
claims. The insurers will welcome the “gist of the action” doctrine,
and for the most part so will those in the construction industry.
*Of counsel, Bentz Law Firm, P.C.; fellow, American
College of Trial Lawyers; member, American Bar Association Forum on
the Construction Industry; member, American Bar Association Fidelity
and Surety Committee; Member, National Bond Claims Association;
Adjunct Professor, Emeritus, Duquesne University School of Law,
Author, Pennsylvania Mechanics’ Liens (Professional Education Systems,
1989); Author, with K.W. Lee, Construction Contracting for Public
Entities in Pennsylvania (Lorman Education Services, 2002).
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