Dolan et al v. Phl Variable Insurance Company et alBRIEF IN SUPPORT re MOTION TO DISMISS FOR FAILURE TO STATE A CLAIMM.D. Pa.February 9, 2017 1 UNITED STATES DISTRICT COURT FOR THE MIDDLE DISTRICT OF PENNSYLVANIA TIMOTHY AND ANN DOLAN, et al., Plaintiffs, v. PHL VARIABLE INSURANCE COMPANY, et al., Defendants. Civil Action No. 3:15-cv-01987 Judge A. Richard Caputo NORTH AMERICAN COMPANY FOR LIFE AND HEALTH INSURANCE’S MEMORANDUM OF LAW IN SUPPORT OF ITS MOTION TO DISMISS Timothy O’Driscoll (PA 32326) Christopher F. Petillo (PA 309339) Drinker Biddle & Reath LLP One Logan Square, Ste. 2000 Philadelphia, PA 19103-6996 Paul F. Heaton Anthony S. Baish Daniel C.W. Narvey Godfrey & Kahn, S.C. 833 E. Michigan Street, Ste. 1800 Milwaukee, WI 53202 Case 3:15-cv-01987-ARC Document 70 Filed 02/09/17 Page 1 of 27 ii TABLE OF CONTENTS TABLE OF AUTHORITIES……………..……………………………………..iii INTRODUCTION .................................................................................................... 1 PROCEDURAL HISTORY AND STATEMENT OF FACTS ........................... 2 STATEMENT OF QUESTIONS INVOLVED ..................................................... 6 STANDARD ON A MOTION TO DISMISS ........................................................ 7 ARGUMENT ............................................................................................................ 7 I. The Amended Complaint Should Be Dismissed Because Plaintiffs Failed To Remedy the Defects Identified in the Court’s Order. ........... 7 A. The Plaintiffs Still Have Not Pled Fraud with Requisite Particularity. .. 7 B. Plaintiffs’ Negligence Claim Still Does Not Comply with Rule 8(a). . 11 II. The Economic Loss Doctrine Bars Plaintiffs’ Negligence Claim. ....... 12 III. Plaintiffs’ Negligent Supervision Claim Fails as a Matter of Law. ..... 13 IV. Plaintiffs Fail to Allege the Existence of a Fiduciary Relationship. .... 15 V. The Plaintiffs Fail to Plead That Hyduk Acted as North American’s Agent. ......................................................................................................... 18 CONCLUSION ....................................................................................................... 21 Case 3:15-cv-01987-ARC Document 70 Filed 02/09/17 Page 2 of 27 iii TABLE OF AUTHORITIES Cases Ashcroft v. Iqbal, 556 U.S. 662 (2009) ...................................................................... 7 Baker v. Family Credit Counseling Corp., 440 F. Supp. 2d 392 (E.D. Pa. 2006) .. 15 Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) ...................................................... 7 Belmont v. MB Inv. Partners, Inc., 708 F.3d 470 (3d Cir. 2013) ..................... 13, 14 Capan v. Divine Providence Hospital, 287 Pa. Super. 364, 430 A.2d 647 (1980) . 14 Dorley v. S. Fayette Twp. Sch. Dist., 129 F. Supp. 3d 220 (W.D. Pa. 2015) .......... 20 Excavation Techs., Inc. v. Columbia Gas Co. of Pa., 604 Pa. 50, 985 A.2d 840 (2009) .................................................................................................................... 13 Glauser v. Deutsche Bank Nat'l Trust Co., 365 B.R. 531 (Bankr. E.D. Pa. 2007) . 17 In re Burlington Coat Factory Sec. Litig. 114 F.3d 1410 (3d Cir. 1997) .................. 7 In re Prudential Ins. Co. of Am. Sales Practices Litig., 975 F. Supp. 584 (D.N.J. 1996) ..................................................................................................................... 16 Longenecker-Wells v. Benecard Servs. Inc., 658 F. App’x 659 (3d Cir. 2016) ..... 13 Morse v. Lower Merion Sch. Dist., 132 F.3d 902 (3d Cir. 1997) ....................... 7, 20 Muckelman v. Companion Life Ins. Co., No. 4:13-CV-00663, 2014 WL 957425 (M.D. Pa. Mar. 12, 2014) ..................................................................................... 13 My Space Preschool & Nursery, Inc. v. Capitol Indem. Corp., No. CIV.A. 14- 2826, 2015 WL 1185959 (E.D. Pa. Mar. 13, 2015) ............................................. 19 Parker v. Freilich, 2002 PA Super. 188, 803 A.2d 738 (2002) .............................. 14 Quandry Solutions, Inc. v. Verifone Inc., No. 07-97, 2007 WL 655606 (E.D. Pa. Mar. 1, 2007) ........................................................................................................ 14 Slapikas v. First Am. Title, 298 F.R.D. 285 (W.D. Pa. 2014) .......................... 16, 17 Smith v. John Hancock Ins. Co., No. CIV.A. 06-3876, 2008 WL 4072585 (E.D. Pa. Sept. 2, 2008) ................................................................................................. 13, 17 Case 3:15-cv-01987-ARC Document 70 Filed 02/09/17 Page 3 of 27 iv Taylor v. Crowe, 444 Pa. 471, 282 A.2d 682 (1971) ............................................... 18 Todd v. Skelly, 384 Pa. 423, 120 A.2d 906 (1956) ............................................. 9, 20 Transguard Ins. Co. of Am. v. Hinchey, 464 F. Supp. 2d 425 (M.D. Pa. 2006) ...... 18 UHS of Delaware, Inc. v. United Health Services, Inc., 2015 WL 7294454 (M.D. Pa. 2015) ............................................................................................................... 10 Weir by Gasper v. Ciao, 521 Pa. 491, 556 A.2d 819 (1989) ................................... 16 Weisblatt v. Minnesota Mut. Life Ins. Co., 4 F. Supp. 2d 371 (E.D. Pa. 1998) ....... 16 Wisniski v. Brown & Brown Ins. Co. of PA, 2006 PA Super. 216, 906 A.2d 571 (2006) .................................................................................................................... 19 Young v. Kaye, 443 Pa. 335, 279 A.2d 759 (1971) .................................................. 16 Rules Fed. R. Civ. P. 8(a) .................................................................................... 1, 7, 11, 12 Fed. R. Civ. P. 9(b) .......................................................................................... passim Case 3:15-cv-01987-ARC Document 70 Filed 02/09/17 Page 4 of 27 1 INTRODUCTION The Court dismissed the Plaintiffs’ initial Complaint because the Plaintiffs impermissibly “lumped together” the Plaintiffs and Defendants in “sweeping, undifferentiated” allegations throughout the Complaint and failed to provide each Defendant fair notice of the basis for the claims against them. Rather than pleading new facts to cure the deficiencies identified by the Court, the Plaintiffs’ Amended Complaint merely repeats the identical, boilerplate allegations four times, once for each of the four Defendants. The Amended Complaint alleges few new facts, fails to differentiate among the conduct of the Defendants, does not identify specific allegedly fraudulent statements, and fails to allege a factual basis for holding North American (or any of the Defendants) responsible for the conduct of Joseph Hyduk. The Amended Complaint thus fails to meet the standards of Rules 9(b) and 8(a) or the admonitions of this Court’s November 22, 2016 decision on the motions to dismiss. All three claims asserted by the Plaintiffs in the Amended Complaint fail as a matter of law for additional, independent reasons. The Plaintiffs’ negligence claim runs afoul of Pennsylvania’s economic loss doctrine, which bars negligence claims that seek only economic damages, rather than damages for physical injury. To the extent the negligence claim is cast as a negligent supervision claim, it also fails. Joseph Hyduk was not an employee of North American, and the Plaintiffs Case 3:15-cv-01987-ARC Document 70 Filed 02/09/17 Page 5 of 27 2 allege no physical injury, both of which are requirements of negligent supervision claims. The Plaintiffs do not allege the “special circumstances” required to establish the existence of a fiduciary duty, a defect fatal to their breach of fiduciary duty claim. Finally, the Amended Complaint is bereft of factual allegations to support the suggestion that Hyduk was an agent of North American, rather than a broker and independent contractor, and as a result there is no basis to hold North American vicariously liable for Hyduk’s conduct. For each of these reasons, North American requests that the Court dismiss the claims against North American with prejudice. PROCEDURAL HISTORY AND STATEMENT OF FACTS The Plaintiffs’ original Complaint asserted three claims against all four Defendants: violation of Pennsylvania’s Unfair Trade Practices and Consumer Protection Law (“UTPCPL”), breach of fiduciary duty, and negligence. On November 13, 2016, the Court granted motions to dismiss filed by three of the Defendants. In its Order, the Court held that the Plaintiffs had violated the requirements of Rule 9(b) by “lumping together” the Plaintiffs and the Defendants throughout the Complaint, by failing to identify any specific misrepresentations or omissions made to the Plaintiffs, and by failing to “put each Defendant on fair notice of the individual conduct that purportedly gives rise to a claim against it.” (Order [D.E. 54] at 10.) The Court also dismissed the Plaintiffs’ negligence claim Case 3:15-cv-01987-ARC Document 70 Filed 02/09/17 Page 6 of 27 3 because the Complaint did not allege how each Defendant acted negligently in its dealings with Hyduk. (Order at 15.) The Court dismissed the Complaint in its entirety but permitted the Plaintiffs to file a new complaint in compliance with the Order. The Plaintiffs filed an Amended Complaint on December 13, 2016, alleging that they were victims of a scheme perpetrated by insurance salesman Joseph Hyduk. (Am. Compl. [D.E. 56] ¶ 16.) Hyduk sold annuities issued by each of the four Defendants to the Plaintiffs. (Am. Compl. ¶ 36.) After the Plaintiffs purchased these annuities, Hyduk convinced them to make partial withdrawals or full surrenders of the annuities, incurring substantial fees in the process. (Id. ¶ 37.) Plaintiffs allege that after surrendering their North American annuities, they “provide[d] those funds to Hyduk” to purchase “alternative investment products” based on his promises to purchase “new annuities” from other insurers. (Id. ¶¶ 268-69). Hyduk allegedly retained some of these surrender proceeds for his own benefit, rather than reinvesting the funds for the Plaintiffs as promised. (Id. ¶ 40.) The Plaintiffs conclusorily allege Hyduk acted “as an agent of North American,” and for each of the other Defendants, without pleading any facts supporting the establishment or scope of the alleged agency. (Id. ¶¶ 57, 118, 188, 241.) Plaintiffs allege without reference to time, date, content, or other specifics Case 3:15-cv-01987-ARC Document 70 Filed 02/09/17 Page 7 of 27 4 that Hyduk allegedly “pitched Plaintiffs on investment opportunities with North American in person (typically at the victim’s home) and on the telephone.” (Id. ¶ 241.) Plaintiffs allege in a single sentence without distinguishing among the multiple Plaintiffs, and again without reference to time, date, content, or other specifics, that Hyduk “informed the Dolans, J. Dolan, the Flannerys, the Gruners, Fierro and Hetherington … that North American annuities were a safe investment option without any risk to principal” and that there was a “minimum guaranteed return” on the annuities. (Id. ¶¶ 254, 257.) The Plaintiffs further allege that Hyduk presented them with pro forma statements and other North American marketing materials “demonstrating the anticipated returns” from the annuities. (Id. ¶ 258.) “Not long” after their purchase of annuities, Plaintiffs allege that Hyduk “manipulated” the Plaintiffs into withdrawing funds “despite substantial charges … under suspicious and alarming circumstances.” (Id. ¶ 262.) Plaintiffs allege that unspecified “withdrawal requests” submitted by the Plaintiffs were “inconsistent” with Plaintiffs’ collective retirement objectives, and that the “rates” of these “early” withdrawals were “unusually high” and thus should have “alerted” North American that Hyduk was acting improperly. (Id. ¶¶ 265-266.) Plaintiffs allege upon “information and belief” that unspecified withdrawal forms for unidentified Plaintiffs were “on occasion” forged by Hyduk, and should have been “easily” discovered by North American. (Id. ¶ 267.) Case 3:15-cv-01987-ARC Document 70 Filed 02/09/17 Page 8 of 27 5 On October 16, 2013, Hyduk’s office was raided by the FBI. (Id. ¶ 50.) He subsequently pled guilty to tax evasion and wire fraud and was sentenced to five years’ prison on July 30, 2015. (Id. ¶¶ 54-55.) Based on these uniform allegations asserted on behalf of all Plaintiffs and against all Defendants without material distinction, the Amended Complaint asserts the same three claims as the initial Complaint: violation of the UTPCPL, breach of fiduciary duty, and negligence. In support of their UTPCPL claim, the Plaintiffs allege that Hyduk misrepresented that each annuity was “a safe investment option with no risk to principal” and “a guaranteed 1.00% return.” (Id. ¶ 305.) The Plaintiffs assert that North American (and each Defendant) is liable for Hyduk’s misrepresentations because he acted as their agent (Id. ¶¶ 302-304.) The Plaintiffs further allege that each of the Defendants, as well as Hyduk himself, owed the Plaintiffs fiduciary duties, and that the Defendants breached those duties by “intentionally and recklessly misleading them” and “permitting [Hyduk] to steal their money.” (Id. ¶¶ 311, 312, 315.) The Plaintiffs claim that the Defendants also are vicariously liable for Hyduk’s breaches of fiduciary duty. (Id. ¶ 316.) Finally, the Plaintiffs’ negligence claim alleges that the Defendants failed to act reasonably by permitting Hyduk to operate in a position of trust, and failed to properly engage, supervise, and monitor Hyduk. (Id. ¶¶ 322-325.) The Plaintiffs Case 3:15-cv-01987-ARC Document 70 Filed 02/09/17 Page 9 of 27 6 also contend, apart from their allegedly negligent conduct, that the Defendants are vicariously liable for Hyduk’s conduct. (Id. ¶ 326.) STATEMENT OF QUESTIONS INVOLVED 1. Does the Amended Complaint meet the particularity pleading requirements of Rule 9(b) by remedying the deficiencies identified in the Order? 2. Does the economic loss doctrine bar Plaintiffs’ negligence claim where they seek relief for purely economic losses? 3. Do the Plaintiffs state a claim for negligent supervision where no facts are pled to show that Hyduk was North American’s employee and where there are no allegations of physical injury? 4. Do the Plaintiffs adequately plead facts showing the “special circumstances” required for the existence of a fiduciary duty owed by either Hyduk or North American? 5. Do the Plaintiffs adequately plead facts showing that Hyduk acted as North American’s agent, such that Hyduk’s conduct should be imputed to North American, where Hyduk was an independent broker who solicited annuity products for Plaintiffs from at least four different insurance companies, and acted against North American’s interests by inducing the surrenders of North American annuities? Case 3:15-cv-01987-ARC Document 70 Filed 02/09/17 Page 10 of 27 7 STANDARD ON A MOTION TO DISMISS To survive a motion to dismiss for failure to state a claim, the plaintiff’s allegations must plausibly suggest an entitlement to relief. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). The court must assume the truth of well-pleaded factual allegations, but it need not credit “bald assertions” or “legal conclusions.” Morse v. Lower Merion Sch. Dist., 132 F.3d 902, 906 (3d Cir. 1997) (quoting In re Burlington Coat Factory Sec. Litig. 114 F.3d 1410, 1429-30 (3d Cir. 1997). A complaint must be dismissed where the plaintiff has failed to allege sufficient facts to state a claim for relief that is plausible on its face. Twombly, 550 U.S. at 570. ARGUMENT I. The Amended Complaint Should Be Dismissed Because Plaintiffs Failed To Remedy the Defects Identified in the Court’s Order. The Amended Complaint should be dismissed with prejudice because the Plaintiffs have merely repackaged and repeated the same allegations previously criticized and dismissed by the Court. The Amended Complaint still fails to comply with Rule 9(b) and Rule 8(a). A. The Plaintiffs Still Have Not Pled Fraud with Requisite Particularity. The Court dismissed the Complaint in large part because it “lumped together” the Plaintiffs and Defendants without differentiating between them, and in so doing, failed to provide fair notice to the Defendants of the nature of the Case 3:15-cv-01987-ARC Document 70 Filed 02/09/17 Page 11 of 27 8 claims against them. (Order at 10.) Despite this Court’s prior Order, the Amended Complaint merely asserts the same, boilerplate allegations against each Defendant four times, once for each Defendant, drawing no distinction whatsoever between and among the multiple, collectively labeled “Plaintiffs.” While the Amended Complaint now contains a section devoted to each Defendant, the vast majority of the allegations in those sections are substantially identical, boilerplate allegations. (Compare Am. Compl. ¶¶ 240-295 with ¶¶ 56-116, ¶¶ 117-186, and ¶¶ 187-239.) The few allegations that are new to the Amended Complaint neither address the deficiencies noted in this Court’s Order nor cure the pleading defects in the original Complaint. In particular, in dismissing the Complaint the Court described the following deficiencies, which persist in the Amended Complaint: Failure to plead with particularity why each and every Defendant is responsible for every action taken by Hyduk regarding every Plaintiff (Order at 10.) The Amended Complaint adds no new factual allegations in support of its contention that North American is responsible for Hyduk’s conduct. The Plaintiffs allege no facts demonstrating either the existence or the scope of an agency relationship affording a basis for vicarious liability. As with the initial Complaint, the Plaintiffs merely allege that Hyduk had a contract with North American. (Am. Compl. ¶ 33.) Contrary to the conclusory assertion of agency, the Amended Case 3:15-cv-01987-ARC Document 70 Filed 02/09/17 Page 12 of 27 9 Complaint makes clear that Hyduk solicited insurance products for Plaintiffs from multiple, competing carriers (including the Defendants), and acted against North American’s interests by inducing the replacement of North American annuities. (Am. Compl. ¶¶ 57, 118, 188, 241, and 268-69.) Such allegations demonstrate Hyduk acted as an independent broker and are insufficient to plead agency. See Todd v. Skelly, 384 Pa. 423, 429, 120 A.2d 906, 909 (1956) (principal not liable for putative agent’s conduct where agent acts in his own interest which is antagonistic to that of principal.) Failure to plead exactly what acts or omissions each Defendant allegedly committed in ignoring or failing to discover Hyduk’s fraud (Order at 10.) The Amended Complaint adds no new allegations as to how North American ignored or failed to discover Hyduk’s fraud. Instead, the Plaintiffs simply re- inserted the previous allegations and repeated them in separate sets of identical allegations for each defendant. (Compare Am. Compl. ¶¶ 262-286 with ¶¶ 206- 230.) These allegations are conclusory, moreover, alleging unspecified “red flag” withdrawals, asserting unidentified “forgeries” perpetrated “on occasion” upon “information and belief,” and citing “unusually high” withdrawal rates without a single supporting fact. (Am. Compl. ¶¶ 265-67.) Failure to allege what proceeds were taken from which Defendant or which Defendant’s annuity (Order at 10.) Case 3:15-cv-01987-ARC Document 70 Filed 02/09/17 Page 13 of 27 10 Plaintiffs now allege “on information and belief” that Hyduk took proceeds of North American annuities from two Plaintiff households for his own benefit. (Am. Compl. ¶¶ 291, 293.) No facts are alleged as to the amount taken, the date or circumstances of these withdrawals, or any acts or omissions of North American suggesting the company’s responsibility for these withdrawals. Further, pleadings based “on information and belief” are insufficient to satisfy Rule 9(b). See UHS of Delaware, Inc. v. United Health Services, Inc., 2015 WL 7294454, at *7 (M.D. Pa. 2015) Failure to plead which Defendant provided a pro forma statement that convinced which Plaintiff to rollover an existing investment into the annuity of another Defendant (Order at 10.) The Amended Complaint adds no new allegations related to the pro forma statements; again, the Plaintiffs simply re-inserted the previous allegations and repeated them in four sets of identical, boilerplate allegations - one for each defendant. (Compare Am. Compl. ¶¶ 80-83, 140-43, 202-205, 258-261.) Failure to identify any specific fraudulent statements, omissions, or misrepresentations Plaintiffs’ only new allegation regarding alleged misrepresentations is that they were made “in person (typically at the victim’s home) and on the telephone,” an allegation that is repeated verbatim for each Defendant. (Am. Compl. ¶¶ 57, 118, 188, 241.) However, the Amended Complaint fails to specify dates or even approximate time periods for the alleged misrepresentations, who was present Case 3:15-cv-01987-ARC Document 70 Filed 02/09/17 Page 14 of 27 11 when they were made, or what specifically was said. The Amended Complaint also fails to distinguish among the Plaintiffs themselves, lacking any description of what alleged misrepresentations were made to which Plaintiff. This falls far short of the heightened pleading standards of Rule 9(b). B. Plaintiffs’ Negligence Claim Still Does Not Comply with Rule 8(a). The Court dismissed the Plaintiffs’ negligence claim under Rule 8(a), instructing the Plaintiffs to plead how each Defendant “acted unreasonably and irresponsibly in entering into a contractual arrangement with Hyduk, how it … failed to properly engage and supervise Hyduk, and how it failed to implement a system of checks and approvals or failed to investigate the frequency of all the Plaintiffs’ withdrawals on all annuities issued by all Defendants.” (Order at 15.) The Amended Complaint, however, fails to add any individualized allegations to support a negligence claim. All but one of the allegations related to the Defendants’ failure to supervise Hyduk or to monitor the transactions appeared in the original Complaint. The Amended Complaint again merely breaks the original allegations into four sets of identical allegations, one for each defendant. (Compare Am. Compl. ¶¶ 262-86 with ¶¶ 206-230.) The only new allegation - that “withdrawal requests were inconsistent with information supplied by the annuity holder and Hyduk,” purportedly constituting a “red flag” - was also repeated verbatim for each Defendant. (Am. Compl. ¶¶ 87, Case 3:15-cv-01987-ARC Document 70 Filed 02/09/17 Page 15 of 27 12 147, 209, and 265.) This new allegation about non-specific “information” supplied by an otherwise unidentified “annuity holder” does not cure the impermissible vagueness of the Plaintiffs’ claim, as it simply does not address any of the Court’s concerns with the original Complaint. This pleading deficiency is particularly problematic where, as here, the purported “red flag” was the (unspecified) Plaintiffs’ exercise of their contractual right to make (unspecified) withdrawals from their own (unspecified) annuity contracts. Conclusory allegations of “unusually high” withdrawal rates-bereft of any supporting facts to support a plausible inference of wrongdoing by North American-afford no basis for Plaintiffs’ negligence claim. The Court ordered the Plaintiffs to set forth specific allegations as to each Defendant sufficient to put the Defendant on notice of the particular allegations against them, as required by Rule 8(a). The Plaintiffs have not done so, and the Amended Complaint should be dismissed with prejudice. II. The Economic Loss Doctrine Bars Plaintiffs’ Negligence Claim. The economic loss doctrine “provides that no cause of action exists for negligence that results solely in economic damages unaccompanied by physical or property damage.” Longenecker-Wells v. Benecard Servs. Inc., 658 F. App’x 659, 661 (3d Cir. 2016) (quoting Excavation Techs., Inc. v. Columbia Gas Co. of Pa., 604 Pa. 50, 985 A.2d 840, 841 n.3 (2009)). Courts have granted motions to Case 3:15-cv-01987-ARC Document 70 Filed 02/09/17 Page 16 of 27 13 dismiss on this basis in similar cases brought against insurers by policyholders and annuitants. See Smith v. John Hancock Ins. Co., No. CIV.A. 06-3876, 2008 WL 4072585, at *11 (E.D. Pa. Sept. 2, 2008) (dismissing negligent misrepresentation claim arising from alleged misrepresentations that induced plaintiffs to purchase annuities); Muckelman v. Companion Life Ins. Co., No. 4:13-CV-00663, 2014 WL 957425, at *7 (M.D. Pa. Mar. 12, 2014) (dismissing claim because “noticeably lacking from the complaint [was] an allegation that the plaintiffs suffered a separate physical injury aside from the purported economic loss.”) Plaintiffs’ negligence claim seeks only economic damages; they do not allege that they suffered any physical or property damage. Accordingly, the economic loss doctrine bars the negligence claim. III. Plaintiffs’ Negligent Supervision Claim Fails as a Matter of Law. The gist of Plaintiffs’ negligence claim - negligent supervision - is available under Pennsylvania law only when: (1) the claim is based on the conduct of an employee; or (2) physical injury is suffered. Belmont v. MB Inv. Partners, Inc., 708 F.3d 470, 490 (3d Cir. 2013) (“[W]hen, as in this case, ‘Plaintiff alleges in the Complaint that [Defendant] is ... not an employer ... negligent supervision is not a viable theory of liability.’”) (quoting Quandry Solutions, Inc. v. Verifone Inc., No. 07-97, 2007 WL 655606, at *5 (E.D. Pa. Mar. 1, 2007)); Parker v. Freilich, 2002 PA Super. 188, 803 A.2d 738 (2002) (employer not liable for torts committed by Case 3:15-cv-01987-ARC Document 70 Filed 02/09/17 Page 17 of 27 14 an independent contractor unless physical harm is caused by the negligence of the contractor). In Belmont, the Third Circuit surveyed Pennsylvania case law and found that “[v]irtually all of the cases in which liability for negligent supervision has been found under Pennsylvania law concern corporations and their employees.” 708 F.3d at 489-90. Accordingly, the court held “that clear feature to be dispositive” because there was no employer-employee relationship alleged and upheld dismissal of the claim. Id. Pennsylvania courts have also adopted Section 429 of the Restatement (Second) of Torts, which recognizes the general rule that “an employer is not liable for torts committed by an independent contractor” and imposes liability for such conduct only when the negligence of the contractor caused physical harm. See Parker, 2002 PA Super. at ¶¶ 17 (quoting Capan v. Divine Providence Hospital, 287 Pa. Super. 364, 430 A.2d 647 (1980)). There can be little doubt that Plaintiffs fault North American and the other Defendants for alleged negligent supervision of Hyduk. The Plaintiffs assert that North American “permitted Hyduk to operate in a position of trust” with respect to their annuities, “failed to properly engage and supervise Hyduk,” failed to implement “a system of checks and approvals” with respect to Hyduk, and failed to “inquire or investigate” the early withdrawals of Hyduk’s “customers.” (Am. Compl. ¶¶ 322-325). Case 3:15-cv-01987-ARC Document 70 Filed 02/09/17 Page 18 of 27 15 The Plaintiffs do not (and cannot) allege that Hyduk was a North American employee. To the contrary, the Amended Complaint alleges facts demonstrating that Hyduk was an independent broker who solicited products for Plaintiffs from multiple, competing carriers other than North American, and that Hyduk even encouraged Plaintiffs to surrender North American annuities in order to purchase replacement products from North American’s direct competitors. Nor did the Plaintiffs suffer physical harm. Accordingly, the Plaintiffs’ negligence claim should be dismissed for this additional reason. IV. Plaintiffs Fail to Allege the Existence of a Fiduciary Relationship. The Plaintiffs’ breach of fiduciary duty claim should be dismissed because they fail to allege facts supporting the existence of a fiduciary relationship with either Hyduk or North American. To state a claim for breach of fiduciary duty, a plaintiff must allege facts that would “establish that a fiduciary or confidential relationship exist[s] between her and the defendants.” Baker v. Family Credit Counseling Corp., 440 F. Supp. 2d 392, 414 (E.D. Pa. 2006). Under Pennsylvania law, insurance contracts give rise to a fiduciary relationship only under special circumstances. In re Prudential Ins. Co. of Am. Sales Practices Litig., 975 F. Supp. 584, 617 (D.N.J. 1996) (dismissing breach of fiduciary duty claim against insurer because plaintiff pleaded nothing beyond ordinary breach of the duty of good faith). Further, a fiduciary duty must be based Case 3:15-cv-01987-ARC Document 70 Filed 02/09/17 Page 19 of 27 16 upon a pre-existing contractual relationship between insurer and insured, because only the contract can create such a duty. Accordingly, representations made to induce entry into contracts are not actionable. Weisblatt v. Minnesota Mut. Life Ins. Co., 4 F. Supp. 2d 371, 380 (E.D. Pa. 1998). A fiduciary duty only exists where there are “special or unusual facts” indicating an “overmastering influence.” Slapikas v. First Am. Title, 298 F.R.D. 285, 293-94 (W.D. Pa. 2014) (finding no evidence of fiduciary relationship between title insurer and consumer where there was no overmastering influence or special confidence). This analysis focuses on the disparity in position between the parties. See Weir by Gasper v. Ciao, 521 Pa. 491, 556 A.2d 819, 825 (1989) (a confidential relationship “is created between two persons when it is established that one occupies a superior position over the other; intellectually, physically, governmentally, or morally, with the opportunity to use the superiority to the other’s disadvantage.”) Pennsylvania courts have found such “special or unusual facts” forming a fiduciary relationship, for example, between an accountant/tax consultant and his client. Young v. Kaye, 443 Pa. 335, 279 A.2d 759, 763 (1971). These conditions typically are not present in the context of sale of an insurance policy or an annuity, which instead reflects “the quintessential arm’s- length relationship, that of buyer and seller.” Slapikas, 298 F.R.D. at 293 (quoting Glauser v. Deutsche Bank Nat'l Trust Co., 365 B.R. 531, 537 (Bankr. E.D. Pa. Case 3:15-cv-01987-ARC Document 70 Filed 02/09/17 Page 20 of 27 17 2007)). For example, in Smith v. John Hancock Ins. Co., No. CIV.A. 06-3876, 2008 WL 4072585 (E.D. Pa. Sept. 2, 2008), the court found no fiduciary duty between an insurer and an annuitant, or between annuitant and agent, since all decision-making with respect to the annuity was retained by the annuitant, there had been no relationship between the annuitant and the agent prior to the annuitant’s purchase of the annuity, and there had been no contact at all between the annuitant and the insurer prior to purchase of the annuity. Id. at *7. Here, the Plaintiffs allege no facts that could plausibly establish a fiduciary relationship between North American and the Plaintiffs. Plaintiffs do not allege any direct communication between them and North American, and allege no contact at all with North American prior to their purchase of their annuities. As to Hyduk, even if he owed a fiduciary obligation to Plaintiffs (and he did not), Hyduk’s role as an independent contractor and broker soliciting products from multiple competing carriers other than North American affords no basis to impute Hyduk’s putative fiduciary obligations to North American. In any event, there are no allegations demonstrating an “overmastering influence” by Hyduk over the Plaintiffs or justifying Plaintiffs’ reposing “special confidence” in Hyduk. Rather, the facts reflect nothing more than a commercial relationship between an independent broker and his customers. Case 3:15-cv-01987-ARC Document 70 Filed 02/09/17 Page 21 of 27 18 In short, for the same reasons the court enumerated in Smith, Plaintiffs fail to allege any “special circumstances” that would impose fiduciary duties on North American vis-a-vis Plaintiffs. The claim should be dismissed. V. The Plaintiffs Fail to Plead That Hyduk Acted as North American’s Agent. The allegations of the Amended Complaint, taken as true, demonstrate that Hyduk was an independent broker acting on behalf of the Plaintiffs, not as an agent of North American. Accordingly, Plaintiffs’ vicarious liability claims should be dismissed. Where an insurance broker secures insurance from multiple insurers, the broker is the agent of the insured, not the insurer. Transguard Ins. Co. of Am. v. Hinchey, 464 F. Supp. 2d 425, 432 (M.D. Pa. 2006) (citing Taylor v. Crowe, 444 Pa. 471, 282 A.2d 682, 683 (1971)). A broker is “one who acts as a middleman between the insured and the insurer, soliciting insurance from the public under no employment from any special company, and upon securing an order, placing it with a company selected by the insured or with a company selected by himself or herself.” Wisniski v. Brown & Brown Ins. Co. of PA, 2006 PA Super. 216, ¶ 13, 906 A.2d 571, 577 (2006). In contrast, an agent is “one who represents an insurer under an employment by it.” Id. The Amended Complaint’s explicit allegations of Hyduk’s solicitation of insurance products for Plaintiffs from multiple, competing carriers-even to the point of recommending the replacement of North American Case 3:15-cv-01987-ARC Document 70 Filed 02/09/17 Page 22 of 27 19 annuities with products from those competitors-are flatly at odds with an agency relationship giving rise to vicarious liability. In My Space Preschool & Nursery, Inc. v. Capitol Indem. Corp., No. CIV.A. 14-2826, 2015 WL 1185959, at *3 (E.D. Pa. Mar. 13, 2015), the plaintiff sought to impose vicarious liability on an insurer for negligence and breach of an insurance policy by an insurance broker. The court observed that “in Pennsylvania, insurance brokers are generally considered to be the agent of the insured and not of the insurer.” Id. The court dismissed the claim against the insurer at the pleadings stage because the plaintiff “failed to allege any facts that would trigger an exception to the general rule that an insurance broker acts as an agent of the insured, not the insurer.” Id. The allegations of the Amended Complaint demonstrate that Hyduk was an agent for the Plaintiffs, not North American. The Plaintiffs allege that Hyduk offered and sold them products from at least four different insurance companies. (Id. ¶ 36.) Hyduk allegedly offered to find Plaintiffs “alternative investments” by surrendering and cashing in North American annuities against North American’s interests, and facilitated Plaintiffs’ purchases of and withdrawals from their annuities from each of the four Defendants. (Am. Compl. ¶ 40.) Since the thrust of the fraud perpetrated by Hyduk was his advice to the Plaintiffs to make withdrawals from the Defendants (including North American) in order to invest the Case 3:15-cv-01987-ARC Document 70 Filed 02/09/17 Page 23 of 27 20 withdrawn funds with competing insurers, such allegations are directly contrary to the notion of Hyduk’s purported status as an agent for North American or the other Defendants. Conduct adverse to the interests of North American cannot, as a matter of law, form the basis for an agency relationship between Hyduk and North American. Todd v. Skelly, 384 Pa. 423, 429, 120 A.2d 906, 909 (1956) (principal not liable for putative agent’s conduct where agent acts in his own interest which is antagonistic to that of principal.) Plaintiffs’ bald assertion that “Hyduk served as an agent of North American pursuant to the terms of a written contract” is a legal conclusion, not a factual allegation, and accordingly, is given no credence in a motion to dismiss. (Am. Compl. ¶ 33.) See Morse v. Lower Merion Sch. Dist., 132 F.3d 902, 906 (3d Cir. 1997). Nor should it be presumed true, because it flies in the face of the many underlying factual allegations - detailed above - that are found throughout the Amended Complaint. See, e.g., Dorley v. S. Fayette Twp. Sch. Dist., 129 F. Supp. 3d 220, 236 (W.D. Pa. 2015) (legal conclusions “may not contradict the detailed factual allegations of the Complaint”). The Plaintiffs fail to allege facts that plausibly suggest that Hyduk acted as North American’s agent. In the absence of such allegations, there is no basis for North American to be held vicariously liable for Hyduk’s conduct. Each of the Case 3:15-cv-01987-ARC Document 70 Filed 02/09/17 Page 24 of 27 21 Plaintiffs’ claims relies on such vicarious liability, and therefore, each of those claims must be dismissed. CONCLUSION For the foregoing reasons, North American requests that the Court grant its motion to dismiss the claims of the Amended Complaint with prejudice. DATED THIS 9th day of February 2017. /s/ Anthony S. Baish Paul F. Heaton Anthony S. Baish Daniel C.W. Narvey GODFREY & KAHN, S.C. 833 E. Michigan Street Suite 1800 Milwaukee, WI 53202 Tel: (414) 273-3500 Fax: (414) 273-5198 Email: pheaton@gklaw.com tbaish@gklaw.com dnarvey@gklaw.com Attorneys for NORTH AMERICAN COMPANY FOR LIFE AND HEALTH INSURANCE Timothy O’Driscoll (PA 32326) Christopher F. Petillo (PA 309339) Drinker Biddle & Reath LLP One Logan Square, Ste. 2000 Philadelphia, PA 19103-6996 Tel: (215) 988-2769 Fax: (215) 988-2757 Timothy.ODriscoll@dbr.com Christopher.Petillo@dbr.com Case 3:15-cv-01987-ARC Document 70 Filed 02/09/17 Page 25 of 27 22 CERTIFICATE OF COMPLIANCE WITH LOCAL RULE 7.8 I, Anthony S. Baish, hereby certify pursuant to Local Rule 7.8(b)(2) that the foregoing North American Company for Life and Health Insurance’s Memorandum of Law in Support of Its Motion to Dismiss includes 4,578 words according to Microsoft Word’s word-count feature, and that the brief thus complies with length requirements of the Middle District of Pennsylvania. /s/ Anthony S. Baish Anthony S. Baish Case 3:15-cv-01987-ARC Document 70 Filed 02/09/17 Page 26 of 27 23 16783746.1 CERTIFICATE OF SERVICE I, Anthony S. Baish, hereby certify that on February 9, 2017, a copy of the foregoing North American Company for Life and Health Insurance’s Memorandum of Law in Support of Its Motion to Dismiss was filed electronically. Notice of this filing will be sent to all parties who have appeared in this action via the Court’s ECF system. Parties may access this filing through the Court’s ECF System. /s/ Anthony S. Baish Case 3:15-cv-01987-ARC Document 70 Filed 02/09/17 Page 27 of 27 Longenecker-Wells v. Benecard Services Inc, 658 Fed.Appx. 659 (2016) © 2017 Thomson Reuters. No claim to original U.S. Government Works. 1 658 Fed.Appx. 659 This case was not selected for publication in West's Federal Reporter. See Fed. Rule of Appellate Procedure 32.1 generally governing citation of judicial decisions issued on or after Jan. 1, 2007. See also U.S.Ct. of Appeals 3rd Cir. App. I, IOP 5.1, 5.3, and 5.7. United States Court of Appeals, Third Circuit. Joan Longenecker-Wells; Kenneth Dodson; Genevieve Regal; Benjamin Huffnagle; Nicholas Dankosky, Appellants v. Benecard Services Inc, d/b/a Benecard PBF; Benecard Central Fill of PA, LLC; Benecard Marketing, LLC; National Vision Administrators, LLC; Contact Fill, LLC No. 15-3538 | Submitted Under Third Circuit L.A.R. 34.1(a) July 11, 2016 | (Filed: August 25, 2016 ) Synopsis Background: Former employees and customers of provider of prescription benefit administration services brought putative class action against provider and related parties, asserting claims for negligence and breach of implied contract arising from illegal data breach of provider's computer system. The United States District Court for the Middle District of Pennsylvania, William W. Caldwell, J., granted provider's motion to dismiss. Plaintiffs appealed. Holdings: The Court of Appeals, Fuentes, Circuit Judge, held that: [1] economic loss doctrine barred plaintiffs' negligence claim, and [2] plaintiffs failed to state breach of implied contract claim. Affirmed. West Headnotes (2) [1] Insurance Liabilities Negligence Economic loss doctrine 217 Insurance 217XI Agents and Agency 217XI(E) Third Party Administrators 217k1692 Liabilities 272 Negligence 272XIV Necessity and Existence of Injury 272k463 Economic loss doctrine Pennsylvania's economic loss doctrine barred negligence claim brought against provider of prescription benefit administration services by provider's former employees and customers, whose personal information was obtained by third-party hackers during breach of provider's computer system, even though employees and customers were not in contractual privity with provider and thus had no contractual remedy, where the negligence claim sounded only in purely economic loss resulting from fraudulent tax returns filed with the personal information. Cases that cite this headnote [2] Contracts Sufficiency of allegations to show breach Labor and Employment Records and confidentiality in general 95 Contracts 95VI Actions for Breach 95k331 Pleading 95k337 Breach 95k337(2) Sufficiency of allegations to show breach 231H Labor and Employment 231HIII Rights and Duties of Employers and Employees in General 231Hk88 Records and confidentiality in general Case 3:15-cv-01987-ARC Document 70-1 Filed 02/09/17 Page 1 of 44 Longenecker-Wells v. Benecard Services Inc, 658 Fed.Appx. 659 (2016) © 2017 Thomson Reuters. No claim to original U.S. Government Works. 2 Under Pennsylvania law, allegations by former employees and customers of provider of prescription benefit administration services were insufficient to state claim for breach of implied contract arising from provider's failure to safeguard their personal information from third-party hackers; employees and customers failed to plead any company-specific documents or policies from which one could infer an implied contractual duty to protect their information, and provider's alleged requirement of employees' personal information as a prerequisite to employment did not necessarily create a contractual promise to safeguard that information. Cases that cite this headnote On Appeal from the United States District Court for the Middle District of Pennsylvania, (D.C. No. 1-15-cv- 00422), District Judge: Hon. William W. Caldwell Attorneys and Law Firms Benjamin D. Andreozzi, Esq., Nathaniel L. Foote, Esq., Harrisburg, PA, Gary F. Lynch, Esq., Carlson Lynch Sweet & Kilpela, New Castle, PA, for Plaintiff-Appellant Joan Longenecker-Wells Benjamin D. Andreozzi, Esq., Nathaniel L. Foote, Esq., Harrisburg, PA, Jamisen A. Etzel, Esq., Carlson Lynch Sweet & Kilpela, Pittsburgh, PA, Gary F. Lynch *660 , Esq., Carlson Lynch Sweet & Kilpela, New Castle, PA, for Plaintiffs-Appellants Kenneth Dodson, Genevieve Regal, Benjamin Huffnagle, Nicholas Dankosky Lauren M. Burnette, Esq., Barron & Newburger, St. Johns, FL, John J. Hare, Esq., Shane Haselbarth, Esq., David J. Shannon, Esq., Marshall Dennehey Warner Coleman & Goggin, Philadelphia, PA, for Defendant- Appellee Benecard Services Inc Lauren M. Burnette, Esq., Barron & Newburger, St. Johns, FL, John J. Hare, Esq., Shane Haselbarth, Esq., Marshall Dennehey Warner Coleman & Goggin, Philadelphia, PA, for Defendants-Appellees Benecard Central Fill of PA LLC, Benecard Marketing LLC, National Vision Administrators LLC Lauren M. Burnette, Esq., Barron & Newburger, St. Johns, FL, John J. Hare, Esq., Marshall Dennehey Warner Coleman & Goggin, Philadelphia, PA, for Defendant-Appellee Contact Fill LLC Before: FUENTES, * SHWARTZ, and RESTREPO, Circuit Judges * Honorable Julio M. Fuentes assumed senior status on July 18, 2016. OPINION ** ** This disposition is not an opinion of the full Court and pursuant to I.O.P. 5.7 does not constitute binding precedent. FUENTES, Circuit Judge. Plaintiffs appeal the District Court's judgment granting Benecard Services, Inc.'s (“Benecard”) motion to dismiss. Because we agree that Plaintiffs' negligence claim is barred by Pennsylvania's economic loss doctrine, and that their breach of implied contract claim fails to pass muster under Federal Rule of Civil Procedure 12(b)(6), we will affirm. I. 1 1 Because this appeal arises out of the District Court's grant of a motion to dismiss, we assume the facts alleged in Plaintiffs' complaint are true. See Gould Elec. Inc. v. United States, 220 F.3d 169, 178 (3d Cir. 2000). This case arises from an illegal data breach of Benecard's computer system. Benecard is a prescription benefit administration services company that provides mail and specialty drug dispensing, managed vision services, and contact lens mail services to public and private sector organizations. Plaintiffs are former employees and customer members of Benecard who provided Benecard with their full names, dates of birth, addresses, and social security numbers as a prerequisite to employment or use of Benecard's services. Benecard also maintained Plaintiffs' personal financial information, including W-2 tax forms. Case 3:15-cv-01987-ARC Document 70-1 Filed 02/09/17 Page 2 of 44 Longenecker-Wells v. Benecard Services Inc, 658 Fed.Appx. 659 (2016) © 2017 Thomson Reuters. No claim to original U.S. Government Works. 3 In early 2015, unknown third parties breached Benecard's computer system and gained access to Plaintiffs' personal and confidential information. Plaintiffs suffered financial harm when these unknown third parties used Plaintiffs' information to file fraudulent tax returns and the IRS issued tax refunds to the unknown third parties rather than to Plaintiffs. Plaintiffs filed this putative class action diversity lawsuit on behalf of all former and current Benecard employees and customer members whose information was compromised by the data breach. Plaintiffs brought claims for negligence and breach of implied contract under Pennsylvania law. In granting Benecard's motion to dismiss, the District Court held that Pennsylvania's economic loss doctrine barred Plaintiffs' negligence claim, and that Plaintiffs' breach of implied contract claim *661 failed to state a claim under Rule 12(b)(6). This appeal followed. II. 2 2 The District Court had original jurisdiction under 28 U.S.C. § 1332(d)(2). We have appellate jurisdiction under 28 U.S.C. § 1291. “We exercise plenary review over the grant of a motion to dismiss.” Brown v. Card Serv. Ctr., 464 F.3d 450, 452 (3d Cir. 2006). A. Negligence [1] Pennsylvania's 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.” 3 This doctrine “is concerned with two main factors: foreseeability and limitation of liability.” 4 The District Court held that because Plaintiffs' negligence claim sounds only in economic loss resulting from the fraudulent tax returns filed with their information, the economic loss doctrine bars their claim. We agree. 3 Excavation Techs., Inc. v. Columbia Gas Co. of Pa., 604 Pa. 50, 985 A.2d 840, 841 n.3 (2009) (quoting Adams v. Copper Beach Townhome Communities, L.P., 816 A.2d 301, 305 (Pa. Super. Ct. 2003)). 4 Adams, 816 A.2d at 307. Plaintiffs contend that the “contours of the economic loss doctrine have been broadened and muddied” by virtually all courts that have considered the issue. 5 They ask us to “right the ship” by interpreting it as a bar only against negligence claims that flow from a contract. 6 They argue that, pursuant to the Pennsylvania Supreme Court's interpretation of the doctrine in Bilt-Rite Contractors, Inc. v. The Architectural Studio, 7 the doctrine applies “only in cases where the source of the duty plaintiff seeks to enforce arises from a contract and, even then, only in instances where the harm suffered is limited to economic loss arising from the interference with contractual expectation.” 8 They maintain that because their negligence claim does not arise from a contractual duty, but rather a common law duty grounded in public policy, the economic loss doctrine does not bar their claim. We have rejected this argument before and, without contrary guidance from the Pennsylvania Supreme Court, will do so again here. 5 Pl. Reply Br. 2. 6 Id. at 1. 7 866 A.2d 270 (Pa. 2005). 8 Pl. Br. 12. In Bilt-Rite, the Pennsylvania Supreme Court considered a negligence action against an architectural firm that provided faulty building plans to a school with knowledge that the plans would be used by prospective contractors. 9 The contractor, relying on the faulty plans, spent more money than it had anticipated and sued the architectural firm for negligent misrepresentation under Section 552 of the Restatement (Second) of Torts. Section 552 imposes a duty of care on suppliers of professional information for use by others. 10 The Pennsylvania Supreme Court held that the contractor could recover purely economic damages in this instance. 11 9 Bilt-Rite, 866 A.2d at 272-73. 10 Restatement (Second) of Torts § 552 (1977). 11 Bilt-Rite, 866 A.2d at 288. Plaintiffs read the Bilt-Rite court's interpretation of the economic loss doctrine as a bar to negligence claims only when the alleged duty owed to the plaintiff flows from a contract or, pursuant to the exception the court carved out, when the harm *662 resulted from plaintiff's reliance on the harm-causing party's expert advice. We have Case 3:15-cv-01987-ARC Document 70-1 Filed 02/09/17 Page 3 of 44 Longenecker-Wells v. Benecard Services Inc, 658 Fed.Appx. 659 (2016) © 2017 Thomson Reuters. No claim to original U.S. Government Works. 4 rejected this argument in this past. In Sovereign Bank v. BJ's Wholesale Club, we explained that “Bilt-Rite did not hold that the economic loss doctrine may not apply where the plaintiff has no available contract remedy.” 12 Rather, “the Bilt-Rite Court simply carved-out an exception to allow a commercial plaintiff to seek recourse from an ‘expert supplier of information’ with whom the plaintiff has no contractual relationship” when loss resulted from reliance on the expert's information. 13 Indeed, the Pennsylvania Supreme Court recently confirmed that the economic loss doctrine “generally precludes recovery in negligence actions for injuries which are solely economic,” but does not apply to “claims of negligent misrepresentation under § 552.” 14 Likewise, in Azur v. Chase Bank, we rejected the plaintiff's argument that the economic loss doctrine was inapplicable to his negligence claim because he had no contractual remedy. 15 As that court stated, “we already rejected an identical Sovereign Bank.” 16 12 533 F.3d 162, 180 (3d Cir. 2008). 13 Id. 14 Excavation Techs., 985 A.2d at 841. 15 601 F.3d 212, 223 (3d Cir. 2010). 16 Id. With this case law as our guide, we decline to hold that Pennsylvania's economic loss doctrine is inapplicable here simply because Plaintiffs are not in contractual privity with Benecard and thus have no contractual remedy. While we note that the case law on Pennsylvania's economic loss doctrine can be read in several different ways, we decline to “right the ship” as Plaintiffs here suggest. That task, if necessary, is for the Pennsylvania Supreme Court, not this Court. B. Breach of Implied Contract [2] Plaintiffs argue, in the alternative, that Benecard breached an implied contract by failing to adequately safeguard Plaintiffs' confidential information. The implied contract allegedly arose when Plaintiffs entrusted Benecard with confidential information as a condition of employment or doing business with the company. We agree with the District Court that under Rule 12(b)(6), these allegations do not sufficiently state a claim. An implied contract arises in the same manner as an express contract, except that the parties' intention, “instead of being expressed in words, is inferred from acts in the light of the surrounding circumstances.” 17 That is, the agreement is inferred from the conduct of the parties. Though intent can be gleaned from the parties' “ordinary course of dealing[s],” 18 “naked assertions devoid of further factual enhancement” fail to state an actionable claim. 19 17 Liss & Marion P.C. v. Recordex Acquisition Corp., 603 Pa. 198, 983 A.2d 652, 659 (2009) (quoting Elias v. Elias, 428 Pa. 159, 237 A.2d 215, 217 (1968)). 18 Id. (quoting Ingrassia Const. Co. v. Walsh, 337 Pa.Super. 58, 486 A.2d 478, 483 (1984)). 19 Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (internal quotation marks omitted). Here, Plaintiffs have failed to plead any facts supporting their contention that an implied contract arose between the parties other than that Benecard required Plaintiffs' personal information as a prerequisite to employment. This requirement alone did not create a contractual promise to safeguard that information, especially from third party hackers. By way of contrast, in *663 Enslin v. Coca-Cola Co., the plaintiff's breach of implied contract claim survived a motion to dismiss when he pled that Coca-Cola, “through privacy policies, codes of conduct, company security practices, and other conduct, implicitly promised to safeguard his [personal information] in exchange for his employment.” 20 Plaintiffs here do not plead any company-specific documents or policies from which one could infer an implied contractual duty to protect Plaintiffs' information. Merely claiming that an implied contract arose “from the course of conduct” 21 between Plaintiffs and Benecard is insufficient to defeat a motion to dismiss. 20 136 F.Supp.3d 654, 675 (E.D. Pa. 2015). 21 J.A. 39 ¶ 84. III. Case 3:15-cv-01987-ARC Document 70-1 Filed 02/09/17 Page 4 of 44 Longenecker-Wells v. Benecard Services Inc, 658 Fed.Appx. 659 (2016) © 2017 Thomson Reuters. No claim to original U.S. Government Works. 5 For the foregoing reasons, we conclude that the District Court did not err in granting Benecard's motion to dismiss Plaintiffs' negligence and breach of implied contract claims. We will therefore affirm. All Citations 658 Fed.Appx. 659 End of Document © 2017 Thomson Reuters. No claim to original U.S. Government Works. Case 3:15-cv-01987-ARC Document 70-1 Filed 02/09/17 Page 5 of 44 Muckelman v. Companion Life Ins. Co., Not Reported in F.Supp.3d (2014) 2014 WL 957425 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 1 2014 WL 957425 Only the Westlaw citation is currently available. United States District Court, M.D. Pennsylvania. Tracy MUCKELMAN and Allison Muckelman, Plaintiffs v. COMPANION LIFE INSURANCE COMPANY, Defendant. Civil Action No. 4:13-cv-00663. | Signed March 12, 2014. Attorneys and Law Firms Bret J. Southard, Norman M. Lubin, Casale & Bonner, P.C., Williamsport, PA, for Plaintiffs. Brian P. Downey, Stacey I. Gregory, Pepper Hamilton LLP, Harrisburg, PA, for Defendant. ORDER MATTHEW W. BRANN, District Judge. *1 On January 15, 2014, Magistrate Judge Susan E. Schwab issued a Report and Recommendation in which she advised the Court to grant in part and deny in part defendant's motion to dismiss. (ECF No. 14) (hereinafter, the “R & R”). No party filed objections, so the Court has reviewed the R & R for clear error and conformity with well-established law. See Henderson v. Carlson, 812 F.2d 874, 878 (3d Cir.1987) (although Court is not required to review magistrate judge's report absent objections, “the better practice is for the district judge to afford some level of review to dispositive legal issues raised by the report”). The Court is Case 4:13-cv-00663-MWB-SES Document 21 Filed 03/12/14 Page 2 of 2 persuaded that Magistrate Judge Schwab's Report and Recommendation should be adopted in its entirety. NOW, THEREFORE, this 12th day of March, 2014, IT IS HEREBY ORDERED that the January 15, 2014 Report and Recommendation (ECF No. 14) is ADOPTED; defendant's motion to dismiss (May 13, 2013, ECF No. 8) is GRANTED IN PART AND DENIED IN PART in conformity with the R & R; and the case is REMANDED to Magistrate Judge Schwab. REPORT AND RECOMMENDATION SUSAN E. SCHWAB, United States Magistrate Judge. In this civil action, the plaintiffs, Tracy and Allison Muckelman, seek to recover incurred medical expenses under a term health insurance policy that was rescinded by the defendant, Companion Life Insurance Co. (“Companion”). In their complaint, the plaintiffs raise three claims: Count I-Bad Faith; Count II-Breach of Contract; and Count III-a Violation of Pennsylvania's Unfair Trade Practices and Consumer Protection Law (“UTPCPL”), 73 P.S. § 201.1-1, et. seq. Before me now is Companion's motion to dismiss Counts I and III pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. For the following reasons, I recommend that the motion be granted in part and denied in part. I. Background. On March 13, 2013, the plaintiffs initiated this action by filing a complaint against Companion seeking to recover damages for Companion's denial of insurance coverage for certain medical expenses and its rescission of a term health insurance policy between the parties. More specifically, by the terms of the insurance policy issued to the plaintiffs (Policy # CST0230000), Companion was to provide coverage in accordance with the provisions of the policy, which was in effect from February 10, 2012 through February 10, 2013. During the policy period, Tracy was diagnosed with multiple myeloma and his doctors recommended that he undergo two bone marrow transplants. Before his diagnosis, Tracy had no knowledge of his condition. After Tracy's doctors informed him of the need for two bone marrow transplants, he promptly sought approval for the procedures from Companion, in accordance with the insurance policy's terms. For a period of 10 months, Tracy waited for Companion's Case 3:15-cv-01987-ARC Document 70-1 Filed 02/09/17 Page 6 of 44 Muckelman v. Companion Life Ins. Co., Not Reported in F.Supp.3d (2014) 2014 WL 957425 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 2 approval. While Tracy was awaiting approval, he received chemotherapy treatments, and he was assured by Companion that the bills relative to his treatment would be paid. Consequently, Tracy incurred medical expenses exceeding $162, 550.45; expenses that are still due and owing. Through correspondence dated February 8, 2013, Companion denied coverage for his medical expenses, rescinded the insurance policy, and sent Tracy a check for $3,715.15 representing the payment of all the paid premiums. At no previous time was Tracy aware that Companion was considering rescission. As well, Companion never approved the two bone marrow transplants, and Tracy claims that he cannot obtain other affordable insurance because he now has a “pre-existing condition.” *2 Companion's decision to rescind the insurance policy was based on Tracy's answer to question three on the application for insurance coverage. 1 Question three apparently had to do with previous treatments and diagnosis. As such, based upon the plaintiffs' information and belief, Companion's decision to rescind was based on a neurative stress test that Tracy received in 2007, five years before applying for the insurance policy, and which was allegedly not disclosed on the insurance application. Plaintiffs claim, however, that Tracy's answer was not fraudulent, intentional, or material; similarly Companion has not contended that Tracy's answer to question three was fraudulent, intentional, or material. Moreover, the plaintiffs claim that Companion's rescission was retroactive given part three of the policy in regard to termination of insurance, which states in pertinent part: 1 In Companion's original notice to Tracy that it was denying coverage, Companion erroneously stated that it was denying coverage based upon Tracy's answer to question five. Doc. 1 at ¶ 19; see Doc. 9-1 at 11. In a follow up letter, mailed after this complaint was filed, Companion informed Tracy of its error in that it was denying coverage based upon his response to question three. Doc. 9-1 at 11. Coverage of a Covered Person under the Policy shall automatically terminate on the earliest of the following dates: ... 8. The date We specify that the Covered Person's insurance is terminated because of: ... c. Material misrepresentation, fraud, or omission of information on any application form, or in requesting the receipt of benefits under the Policy. Doc. 1 at ¶ 28-29. In addition to not paying for Tracy's medical expenses, Companion has not paid for any other person covered by the policy, including Allison and the plaintiffs' children. Based on these allegations, the plaintiffs raise three claims: Count I for bad faith under 42 Pa .C.S. § 8371; Count II for breach of contract; and Count III for violation of the UTPCPL. 2 By way of remedy, plaintiffs demand judgment against Companion in an amount in excess of $100,000 plus additional compensation or consequential damages or both, with interest, court costs, attorney's fees, and delay damages. 2 Plaintiffs cite to the incorrect statute, Doc. 1 at ¶ 49, but their brief in opposition to Companion's motion to dismiss affirms that plaintiffs intend to raise a claim under the UTPCPL. See generally, Doc. 10 at 12-15. On May 13, 2013, Companion filed this motion to dismiss Counts I & III, along with a corresponding brief in support and exhibits. Docs. 8 & 9. On May 28, 2013, plaintiffs filed a timely brief in opposition. Doc. 10. Subsequently, on June 6, 2011, Companion filed a timely reply brief. The motion, having been fully briefed by the parties, is ripe for disposition on the merits. II. Jurisdiction and Legal Standard. Given the alleged citizenship of the parties, Doc. 1 at ¶¶ 1-2, coupled with the alleged amount in controversy, I find that this Court maintains subject matter jurisdiction over the plaintiffs' claims pursuant to 28 U.S.C. § 1332. Moreover, Companion has not challenged the Court's personal jurisdiction, and since it is a defense than can be waived, see Fed.R.Civ.P. 12(h) (1), I do not address that issue here. With respect to the applicable legal standard, Federal Rule of Civil Procedure 12(b)(6) provides for the dismissal of a complaint, in whole or in part, for failure to state a claim upon which relief can be granted. Fed.R.Civ.P. 12(b)(6). Under Rule 12(b)(6), a dismissal motion may be granted only if, accepting all well-pleaded allegations in the complaint as true and viewing them in the light most favorable to the plaintiff, a court finds that plaintiff's claims lack facial plausibility. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555-56, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). This requires a plaintiff to plead “sufficient factual matter to show that the claim is facially plausible,” thus enabling “the court to draw the reasonable inference that Case 3:15-cv-01987-ARC Document 70-1 Filed 02/09/17 Page 7 of 44 Muckelman v. Companion Life Ins. Co., Not Reported in F.Supp.3d (2014) 2014 WL 957425 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 3 the defendant is liable for misconduct alleged.” Fowler v. UPMC Shadyside, 578 F.3d 203, 210 (3d Cir.2009) (internal quotations and citation omitted). After Twombly and Ascroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009), “conclusory or bare-bones allegations will no longer survive a motion to dismiss: threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Fowler, 578 F.3d at 210 (internal quotations and citation omitted). While the complaint “does not need detailed factual allegations ... a formulaic recitation of the elements of a cause of action will not do.” Twombly, 550 U.S. at 555. III. Discussion. 3 3 The parties agree that Pennsylvania law governs this action, and it is well-established that “federal courts sitting in diversity cases are required to apply the substantive law of the state whose laws govern [s] ....“ Robertson v. Allied Signal, Inc., 914 F.2d 360, 378 (3d Cir.1990). Where there is no guidance from the Commonwealth's highest court, my task is to predict how that high court would resolve the matter. See id. “In making such predictions [I] recognize that the state's highest authority is the best authority on its own law and that if there be no decision by that Court then [I] must apply what [I] find to be the state law after giving proper regard to the relevant rulings of other courts of the state.” Id. (quotations and citations omitted). Thus, “[my] role is not to form or create state law but to decide the case as [I] believe it would have been decided by the state's highest court had the [issue] arisen in the state court system.” Id. (citing Becker v. Interstate Properties, 569 F.2d 1203, 1205 n. 5 (3d Cir.1977)). *3 As stated, supra, the plaintiffs raise three claims in separate counts. The claims raised in Counts I & III, respectively, are the subject of Companion's dismissal motion, and they will be addressed seriatim, applying the Rule 12(b)(6) legal standard. A. Count I: Bad Faith. Plaintiffs assert their claim for bad faith pursuant to 42 Pa.C.S. § 8371, which provides a statutory remedy for an insurer's bad faith conduct. The statute provides: In an action arising under an insurance policy, if the court finds that the insurer has acted in bad faith toward the insured, the court may take all of the following actions: (1) Award interest on the amount of the claim from the date the claim was made by the insured in an amount equal to the prime rate of interest plus 3%. (2) Award punitive damages against the insurer. (3) Assess court costs and attorney fees against the insurer. 42 Pa.C.S. § 8371. The statute does not define what constitutes bad faith, but Pennsylvania courts, the Third Circuit, and decisions from district courts within the Third Circuit provide ample guidance. Accordingly, “[t]he term ‘bad faith’ under Section 8371 concerns ‘the duty of good faith and fair dealing in the parties' contract and the manner in which an insurer discharged ... its obligation to pay for a loss in the first party claim context.’ ” Berg v. Nationwide Mut. Ins. Co., Inc., 44 A.3d 1164 (Pa.Super.Ct.2012) (quoting Toy v. Metrolpolitan Life Ins. Co., 593 Pa. 20, 928 A.2d 186, 199 (Pa.2007)) (alteration in original). Recently, the Third Circuit set out the relevant legal framework: “Bad faith” under Pennsylvania's bad faith statute-42 Pa. Const. Stat. § 8371, which provides a remedy in an action under an insurance policy-is defined as “any frivolous or unfounded refusal to pay proceeds of a policy.” J.C. Penney Life Ins. Co. v. Pilosi, 393 F.3d 356, 367 (3d Cir.2004) (quoting Terletsky v. Prudential Prop. & Cas. Ins. Co., 437 Pa.Super. 108, 649 A.2d 680, 688 (Pa.Super.Ct.1994)). A valid cause of action for bad faith requires “clear and convincing evidence ... that the insurer: (1) did not have a reasonable basis for denying benefits under the policy; and (2) knew or recklessly disregarded its lack of a reasonable basis in denying the claim.” Id. Under the “clear and convincing” standard, “the plaintiff [must] show ‘that the evidence is so clear, direct, weighty and convincing as to enable a clear conviction, without hesitation, about whether or not the defendants acted in bad faith.’ “ Id. (quoting Bostick v. ITT Hartford Grp., Inc., 56 F.Supp.2d 580, 587 (E.D.Pa.1999)). Though we have found that bad faith may be found in circumstances other than an insurer's refusal to pay, “[a] reasonable basis is all that is required to defeat a claim of bad faith.” Id. See also Frog, Switch & Mfg. Co. v. Travelers Ins. Co., 193 F.3d 742, 751 n. 9 (3d Cir.1999). Case 3:15-cv-01987-ARC Document 70-1 Filed 02/09/17 Page 8 of 44 Muckelman v. Companion Life Ins. Co., Not Reported in F.Supp.3d (2014) 2014 WL 957425 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 4 *4 Treadways LLC v. Travelers Indem. Co., No. 11- 2596, 2012 WL 764917, at *2 (3d Cir.Mar.12, 2012) (not precedential) (alteration in original). The Pennsylvania Superior Court has further observed that “[b]ad faith claims are fact specific and depend on the conduct of the insurer vis à vis the insured.” Condio v. Erie Ins. Exchange, 899 A.2d 1136, 1143 (Pa.Super.Ct.2006) (citing Williams v. Nationwide Ins. Co., 750 A.2d 881, 887 (2000)). Thus, since the statute is not limited to an insurer's bad faith in denying a claim, a plaintiff may also successfully assert an action for an insurer's bad faith in investigating a claim, O'Donnell v. Allstate Ins. Co., 734 A.2d 901, 906 (Pa.Super.Ct.1999), such as a failure to conduct a “sufficiently thorough” investigation to yield a reasonable foundation for its action based upon available information, Giangreco v. U.S. Life Ins. Co., 168 F.Supp.2d 417, 423 (E.D.Pa.2001), and failure to communicate with the claimant. Romano v. Nationwide Mut. Fire Ins. Co., 435 Pa.Super. 545, 646 A.2d 1228, 1232 (Pa.Super.Ct.1994) (citing 3 Appleman, Ins. Law & Practice § 1612 (1967 & Supp.1991)); see also Johnson v. Progressive Ins. Co., 987 A.2d 781, 784 (Pa.Super.Ct.2009). In addition, “[d]elay is a relevant factor in determining whether bad faith has occurred,” Kosierowski v. Allstate Ins. Co., 51 F.Supp.2d 583, 588 (E.D.Pa.1999) (citing Klinger v. State Farm Mut. Auto. Ins. Co., 115 F.3d 230, 234 (3d Cir.1997)); see Gallatin Fuels, Inc. v. Westchester Fire Insurance Co., 244 F. App'x 424 (3d Cir.2007) (nonprecedential) (insurer found liable for bad faith absent duty of coverage on the grounds that it “dragged its feet in the investigation of the claim, hid information from the insured, and continued to shift its basis for denying the claims.”). Still, however, negligence or bad judgment does not constitute bad faith. Brown v. Progressive Ins. Co., 860 A.2d 493, 501 (Pa.Super.Ct.2004) (citing Adamski v. Allstate Ins. Co., 738 A.2d 1033, 1036 (Pa.Super.Ct.1999)). Rather, “[t]o support a finding of bad faith, the insurer's conduct must be such as to ‘import a dishonest purpose.’ In other words, the plaintiff must show that the insurer breached its duty of good faith through some motive of self-interest or ill will.” Id. (quoting Adamski, 738 A.2d at 1036). In their complaint, Plaintiffs state that their bad faith claim is based on the factual background as well as the following: (1) Companion's delay of payment for Tracy's claim, resulting in economic harm; (2) Companion's denial of Tracy's use and benefit of monies to which he was entitled; (3) Companion's misplaced interest; (4) Companion's act of engaging in post-claim underwriting; and (5) Companion's decision to rescind the policy without a reasonable basis and in violation of the Patient Protection and Affordable Care Act. 4 Doc. 1 at ¶¶ 35, 37(a)-(h). 4 Based on the allegations in the complaint, it does not appear that the plaintiffs intend to bring a claim under the Patient Protection and Affordable Care Act. Nevertheless, the Act was enacted in March 2010, and it is designed to regulate the national health insurance market by directly regulating group health plans and insurance issuers. Under the Act: A group health plan and a health insurance issuer offering group or individual health insurance coverage shall not rescind such plan or coverage with respect to an enrollee once the enrollee is covered under such plan or coverage involved, except that this section shall not apply to a covered individual who has performed an act or practice that constitutes fraud or makes an intentional misrepresentation of material fact as prohibited by the terms of the plan or coverage. Such plan or coverage may not be cancelled except with prior notice to the enrollee, and only as permitted under section 2702(c) or 2742(b). 42 U.S.C. § 300gg-12. The “prior notice” must be in writing and provided at least 30 days in advance to each participant who would be affected before coverage can be rescinded. See 26 C.F.R. § 54.9815-2712T (expired on June 21, 2013 pursuant to the sunset provision set forth in subsection (d)). Here, the plaintiffs have alleged that Companion did not send the requisite notice, an allegation that will be taken into consideration in analyzing the plaintiffs' bad faith claim. See Doc. 1 at ¶¶ 16, 18. Before reaching the merits, there are threshold procedural questions that must be addressed. In support of its motion to dismiss, Companion contends that Doc. 9-1 [Exh. A and B], can be considered because they strike at the heart of the plaintiffs' bad faith claim; Exhibit A is an electronic copy of an insurance application allegedly filled out by the plaintiffs, and Exhibit B contains copies of Tracy's medical records. As such, I must determine whether this motion should be converted to a summary judgment motion pursuant to Fed.R.Civ.P. 56 and, if not, whether I can consider the exhibits as part of Companion's motion under Fed.R.Civ.P. 12(b)(6). Case 3:15-cv-01987-ARC Document 70-1 Filed 02/09/17 Page 9 of 44 Muckelman v. Companion Life Ins. Co., Not Reported in F.Supp.3d (2014) 2014 WL 957425 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 5 *5 With respect to the first issue, it is unclear whether the parties have engaged in any meaningful discovery. Moreover, although Companion has appended exhibits to their brief, it has not attached any affidavits attesting to their authenticity. Such proof is necessary in order to present this evidence on a motion for summary judgment. See In re Mezvinsky, 265 B.R. 681, 693 n. 19 (Bankr.E.D.Pa.2001) (citing Berk v. Ascott Inv. Corp., 759 F.Supp. 245, 249 (E.D.Pa.1991) (“Documents attached to a summary judgment brief, absent affidavit support attesting to their validity, are not evidence.”)); see also Nolla Morell v. Riefkohl, 651 F.Supp. 134, 140 (D.Puerto Rico 1986) (excluding on summary judgment documents filed by defendants unaccompanied by affidavits attesting to their validity). If I am ever to consider a motion for summary judgment in this matter, I would prefer to do so with properly authenticated documents and a full record compiled after an appropriate discovery period. I shall, therefore, treat Companion's current motion as one seeking dismissal under Rule 12(b) (6). Next, in addition to the Rule 12(b)(6) legal standard, supra, a court ruling on a motion to dismiss will not consider “matters extraneous to the pleadings.” In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1426 (3d Cir.1997). “However, an exception to the general rule is that 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.” Id. (quotation marks omitted) (alteration in original). The rationale behind this exception is that a plaintiff has notice of such a document and should not be able to predicate a claim on statements taken out of context. Accordingly, when ruling on a 12(b)(6) motion, a court may “consider only the allegations contained in the complaint, exhibits attached to the complaint and matters of public record [along with] an undisputedly authentic document that a defendant attaches as an exhibit to a motion to dismiss if the plaintiff's claims are based on the document.” Pension Benefit Guar. Corp. v. White Consol. Indus., 998 F.2d 1192, 1196 (3rd Cir.1993). Here, the exhibits that Companion seeks to be considered are not explicitly relied upon by the plaintiffs. In fact, not once do the plaintiffs cite to any of Companion's exhibits in their complaint, rather the only reference to those documents is made in passing, see Doc. 1 at ¶¶ 19-20. As well, there is no question that Companion's exhibits were neither attached to the complaint nor matters of public record. Further, the plaintiffs dispute the authenticity of the exhibits and raise specific objections to their consideration; objections which I find have merit. Doc. 10 at 5-6. Thus, I decline to consider Companion's exhibits in conjunction with its dismissal motion. Having set aside Companion's exhibits, I find that plaintiffs' allegations are sufficient to show that they have a “plausible claim for relief as is required to defeat Companion's motion to dismiss. Iqbal, 556 U.S. at 678. Specifically, the complaint, viewed in the light most favorable to the plaintiffs, contains allegations of potentially unacceptable delays in denying the plaintiffs' rights under the policy and paying benefits under it. For a period of 10 months, Companion was allegedly aware of the insurance claims submitted by the plaintiffs. Rather than providing a prompt response, Companion allegedly misled the plaintiffs into believing that their claims would be covered under the insurance policy. Moreover, the length of the delay is suspect given Companion's ultimate reason for denying coverage for Tracy's cancer treatments and rescinding the policy; a reason apparently unconnected to Tracy's condition for which he sought insurance coverage, and a reason that should have and could have been easily established once the insurance application was first submitted. *6 Additionally, prior to rescinding the policy, Companion did not notify the plaintiffs that their insurance claims would be denied. As well, Companion never informed the plaintiffs that Tracy's response to question three was material, contrary to what the defendant-insurance company did in Neiman v. Am. Intern. Group, Inc., Civil No. 1:CV-08-1535, 2009 WL 3764027, at *5 (M.D.Pa. Nov.9, 2009) (denying defendants' motion for summary judgment). In a similar vein, it is not clear that Tracy's answer to question three was in fact material, fraudulent, or intentional. As the plaintiffs here explain, the Neiman-plaintiff erroneously answered questions relating to his medical care on a life insurance application even though he had visited a doctor on numerous occasions immediately prior to completing the insurance application. As such, the Neiman-Court determined that the plaintiff's answer on the application was material. In contrast, here, there is currently evidence of only a single doctor visit by Tracy that occurred five years before applying for insurance coverage. To find at this stage that Tracy's misrepresentation was material, Case 3:15-cv-01987-ARC Document 70-1 Filed 02/09/17 Page 10 of 44 Muckelman v. Companion Life Ins. Co., Not Reported in F.Supp.3d (2014) 2014 WL 957425 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 6 or that Companion engaged in a “sufficiently thorough” investigation, would be putting the cart before the horse and have the potential effect of chilling litigation in this area of the law. Health insurance companies would effectively be permitted to simply comb through insurance applications to later find reasons for denying coverage knowing full-well that the insured, despite a well-pleaded complaint, would not be permitted to look behind the curtain to see the wizard. I conclude, therefore, that this is a case in which discovery is needed regarding Companion's handling of the plaintiffs' insurance claim. Accordingly, Companion's motion to dismiss should be denied on the plaintiffs' bad faith claim. B. Count III: Violation of the UTPCPL. Plaintiffs assert that Companion engaged in unfair and deceptive business practices in violation of the UTPCPL. Under the UTPCPL, a private cause of action is explicitly allowed (73 P.S. § 201-9.2(a)); however, it is unnecessary here to evaluate the sufficiency of the plaintiffs' claim because it is nevertheless barred under the economic loss doctrine. As Judge Rambo thoroughly explained: The economic loss doctrine provides that “no cause of action can be maintained in tort for negligence or strict liability where the only injury was ‘economic loss'-that is, loss that is neither physical injury nor damage to tangible property.” 2-J Corp. v. Tice, 126 F.3d 539, 541 (3d Cir.1997) (citing Aikens v. Baltimore & Ohio R.R. Co., 348 Pa.Super. 17, 501 A.2d 277, 279 (1985)). The doctrine developed in the products liability context to prevent tort recovery where the only injury was to the product itself. See East River S.S. Corp. v. Transamerica Delaval, Inc., 476 U.S. 858, 106 S.Ct. 2295, 90 L.Ed.2d 865 (1986) (adopting the doctrine in an admiralty products liability case). Within the Third Circuit, it has since been applied in the context of ... the UTPCPL, see, e.g., Werwinski v. Ford Motor Co., 286 F.3d 661, 681 (3d Cir.2002). *7 In Werwinski, the Third Circuit held that Pennsylvania law made no exception to the economic loss doctrine for intentional tort claims and UTPCPL claims. Id. at 674. Although Pennsylvania's Supreme Court had yet to address the issue, the Third Circuit predicted that the Pennsylvania Supreme Court would likely apply the doctrine to claims under the UTPCPL. Id. at 680. In reaching this conclusion, the Third Circuit relied on two decisions from other states, Huron Tool & Eng'g Co. v. Precision Consulting Servs ., Inc., 209 Mich.App. 365, 532 N.W.2d 541, 545 (1995) and Rich Prod. Corp. v. Kemutec, Inc., 66 F.Supp.2d 937, 977-80 (E.D.Wis.1999), both of which held that a fraud-in-the-inducement claim is actionable, despite the economic loss doctrine, only if the fraud is extraneous to the alleged breach of contract. The Werwinski court explained that where the allegedly fraudulent misrepresentations concerned the subject of a contract, the tort claims are clearly intertwined with, rather than extraneous to, the contract claims. 286 F.3d at 678. Furthermore, “the alleged fraudulent concealment did not cause harms to the plaintiffs distinct from those cause by the breach of contract.” Id. (citations omitted). Thus, the court held that the economic loss doctrine barred the claim. Id. Sarsfield v. Citimortgage, Inc., 707 F.Supp.2d 546, 556-57 (M.D.Pa.2010). 5 5 In Sarsfield, Judge Rambo also persuasively discussed how the Third Circuit's interpretation of Pennsylvania law in Werwinski could be incorrect. 707 F.Supp.2d at 556-59. Nevertheless, despite her thorough and well-thought out analysis, this Court is bound by the Third Circuit's opinion. Id. at 558. In the case sub judice, the plaintiffs' UTPCPL claim is barred by the economic loss doctrine. Unlike in Smith v. John Hancock Insurance Company, No. 06-3876, 2008 WL 4072585 (E.D.Pa. Sept.2, 2008), the plaintiffs have not alleged that they were induced to enter a contract through deceptive conduct or that Companion's acts were related to anything other than performance of the insurance policy. Quite the contrary, the plaintiffs' allegations are critically related to the alleged breach of contract under the insurance policy in that the plaintiffs' UTPCPL claim is primarily concerned with Companion's claim processing methods. See Doc. 1 at ¶¶ 50-51. Noticeably lacking from the complaint is an allegation that the plaintiffs suffered a separate physical injury aside from the purported economic loss. Moreover, despite being denied insurance coverage, Tracy avers that he has received certain medical treatments for his illness. As such, the only reasonable inference that can be made is that any loss incurred by the plaintiffs was purely economical. Case 3:15-cv-01987-ARC Document 70-1 Filed 02/09/17 Page 11 of 44 Muckelman v. Companion Life Ins. Co., Not Reported in F.Supp.3d (2014) 2014 WL 957425 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 7 Plaintiffs' UTPCPL claim should, therefore, be dismissed. The Court should also not grant leave to amend, because amendment would be futile. This claim, as explained, is inextricably tied in with the insurance policy between the parties, a factor that the Third Circuit considered in Werwinski, and no amount of artful pleading will permit them to be separated. IV. Recommendation. Based on the foregoing reasons, IT IS RECOMMENDED that: (1) Companion's motion to dismiss (Doc. 8) be GRANTED IN PART and DENIED IN PART consistent with this Report and Recommendation: *8 (a) Companion's motion should be DENIED with respect to the plaintiffs' bad faith claim; and (b) Companion's motion should be GRANTED with respect to the plaintiffs' UPTCPL claim. (2) The case should be REMANDED to the undersigned for further pre-trial proceedings. The Parties are further placed on notice that pursuant to Local Rule 72.3: Any party may object to a magistrate judge's proposed findings, recommendations or report addressing a motion or matter described in 28 U.S.C. § 636(b)(1) (B) or making a recommendation for the disposition of a prisoner case or a habeas corpus petition within fourteen (14) days after being served with a copy thereof. Such party shall file with the clerk of court, and serve on the magistrate judge and all parties, written objections which shall specifically identify the portions of the proposed findings, recommendations or report to which objection is made and the basis for such objections. The briefing requirements set forth in Local Rule 72.2 shall apply. A judge shall make a de novo determination of those portions of the report or specified proposed findings or recommendations to which objection is made and may accept, reject, or modify, in whole or in part, the findings or recommendations made by the magistrate judge. The judge, however, need conduct a new hearing only in his or her discretion or where required by law, and may consider the record developed before the magistrate judge, making his or her own determination on the basis of that record. The judge may also receive further evidence, recall witnesses or recommit the matter to the magistrate judge with instructions. Failure to file timely objections to the foregoing Report and Recommendation may constitute a waiver of any appellate rights. Submitted this 15th day of January, 2014. All Citations Not Reported in F.Supp.3d, 2014 WL 957425 End of Document © 2017 Thomson Reuters. No claim to original U.S. Government Works. Case 3:15-cv-01987-ARC Document 70-1 Filed 02/09/17 Page 12 of 44 My Space Preschool and Nursery, Inc. v. Capitol Indem. Corp., Not Reported in... 2015 WL 1185959 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 1 2015 WL 1185959 Only the Westlaw citation is currently available. United States District Court, E.D. Pennsylvania. MY SPACE PRESCHOOL AND NURSERY, INC., v. CAPITOL INDEMNITY CORPORATION, et al. Civil Action No. 14-2826. | Signed March 13, 2015. Attorneys and Law Firms Joseph A. Zenstein, Claims Worldwide LLC, Philadelphia, PA, for My Space Preschool and Nursery, Inc. Jeffrey C. Sotland, Mintzer, Sarowitz, Zeris, Ledva & Meyers LLP, Philadelphia, PA, Kristy Castagna, Kane Pugh Knoell Troy Kramer, Paul C. Troy, Kane Pugh Knoell and Driscoll, L.L.P., Norristown, PA, for Capitol Indemnity Corporation, et al. MEMORANDUM SURRICK, District Judge. *1 Presently before the Court is Defendant Capitol Indemnity Corporation's Motion to Dismiss the Complaint (ECF No. 2.); and Defendant Morgan and Associates, Inc.'s Motion to Dismiss Complaint (ECF No. 6). For the following reasons, Defendants' Motions will be granted in part, and denied in part. I. BACKGROUND A. Factual Background 1 1 When considering a Rule 12(b) motion to dismiss, we must “accept as true all of the allegations in the complaint and all reasonable inferences that can be drawn therefrom, and view them in the light most favorable to the non-moving party.” Rocks v. City of Phila., 868 F.2d 644, 645 (3d Cir.1989). This case arose out of an insurance coverage dispute between Plaintiff My Space Preschool and Nursery, Inc. and Defendants Capitol Indemnity Corporation (“Capitol”) and Morgan and Associates (“Morgan”). In June of 2012, Plaintiff's principal and owner, Melani Conti, sought the assistance of Donald Morgan, the owner of the insurance brokerage firm Morgan and Associates, to procure an insurance policy for a new daycare center. (Compl. ¶ 3, Notice of Removal Ex. A, ECF No. 1.) Plaintiff selected Morgan as a broker because Morgan held itself out as having specialized expertise in insurance for daycare centers. (Id. ¶¶ 7, 18.) Plaintiff never met Morgan in person; they communicated exclusively by telephone, fax, and email. (Id. ¶ 8.) Plaintiff disclosed to Morgan that she had never owned or operated a daycare business and that she had no knowledge about the type of insurance that she would need. Morgan responded that he was “an expert in obtaining insurance for daycare centers and that he had been handling insurance for daycare centers for many years.” (Id. ¶¶ 8a, 8b.) At Morgan's request, Plaintiff provided him with (1) pictures of the building; (2) a copy of her lease; (3) a copy of her license to operate the daycare center; and (4) her handbook of policies and procedures. (Id. ¶ 8c.) Plaintiff advised Morgan that she would be making betterments and improvements to the property. (Id. ¶¶ 8d, 8e.) Morgan assured Plaintiff that he would be able to provide her with an insurance policy that would cover her needs and properly protect her daycare business. (Id. ¶ 8c, 8g.) On July 1, 2012, Morgan gave Plaintiff an insurance quote. (Id . ¶ 9 & Ex. A.) After receiving the quote, Plaintiff and Morgan stopped communicating for many months because Plaintiff was not ready to purchase an insurance policy. (Id. ¶ 10.) On November 5, 2012, Plaintiff provided Morgan with a completed Preschool/Daycare/Montessori Application-Questionnaire (“Application”). (Id. ¶ 11 & Ex. B.) Morgan assisted with the completion of this application. (Id. ¶ 11.) On December 6, 2012, Morgan e-mailed Plaintiff a Certificate of Liability Insurance (“Certificate”). (Id. ¶ 12. & Ex. C.) In the e-mail attaching the Certificate, Morgan advised Plaintiff that the Certificate served as evidence that the daycare center was insured. (Id. ¶ 12.) The Certificate indicates that Plaintiff's Business Personal Property (“BPP”) was insured up to a limit of $85,000. (Id.; Ex. C.) The Certificate also provides that My Space Case 3:15-cv-01987-ARC Docu ent 70-1 Filed 02/09/17 Page 13 of 44 My Space Preschool and Nursery, Inc. v. Capitol Indem. Corp., Not Reported in... 2015 WL 1185959 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 2 Preschool and Nursery Inc. is the named insured and that Capitol Indemnity Corporation is the insurer. (Ex. C.) *2 Plaintiff paid Morgan a premium of $2,683, and shortly thereafter received an insurance policy from Capitol that provided coverage from December 4, 2012 through December 4, 2013. (Id. Ex. D (“Policy”).) The Policy states that the limit for BPP is $1,000, as opposed to the $85,000 that was stated in the Certificate. (Id .) On March 3, 2013, Plaintiff's property suffered water damage as a result of a leaking water tank in the upstairs apartment. (Id. ¶ 22 & Ex. I.) Plaintiff incurred damages in the amount of $66,733.77, which included BPP damages in an amount of $15,411.03. (Id. & Ex. E.) Plaintiff also seeks reimbursement of expenses, mitigation costs, and loss of business income in the amount of $20,000 per month for over a year. (Compl.) Plaintiff reported the claim to both Morgan and Capitol. (Id. ¶ 23.) Capitol advised Plaintiff that the loss was covered by the Policy, but that the BPP coverage was capped at $1,000. (Id.) This was the first time that Plaintiff realized that the BPP coverage on the Policy was $1,000, as opposed to $85,000, and that the Policy did not provide coverage for betterments and improvements, as Plaintiff had requested. (Id. ¶ 24.) Plaintiff avers that Morgan never read the Policy because, if he had, he would have noticed the nonconformities. (Id. ¶¶ 26-28.) After incurring costs to mitigate the property damage, Plaintiff obtained a public adjuster, who prepared a damages estimate. (Id. ¶ 29 & Ex. E.) The adjuster hired a company to prepare an inventory of Plaintiff's business property that was damaged by the water. (Id. Ex. F.) Between March 2013 and October 2013, the adjuster, Morgan and Plaintiff exchanged e-mails about the Policy. (Id. ¶ 29 & Ex. I.) In the e-mails, Plaintiff requested that Morgan cover the cost of the damages. (Id.) Morgan stated that that it was Capitol that failed to include the terms set forth in the Application and Certificate. (Id.) B. Procedural History On April 29, 2014, Plaintiff filed a Complaint in the Court of Common Pleas of Philadelphia County. (Compl.) On May 16, 2014, Capitol removed the matter to this Court. (Notice of Removal.) The Complaint asserts the following claims: (1) breach of contract; (2) violation of Pennsylvania's Unfair Trade Practices and Consumer Protection Law (“UTPCPL”), 73 Pa. Stat. § 201-1, et seq.; (3) negligence; (4) negligent misrepresentation; (5) breach of fiduciary duty; (6) breach of contract against Capitol; and (7) bad faith against Capitol, in violation of 42 Pa. Cons.Stat. Ann. § 8371. (Compl.) The parties stipulated to dismiss the bad faith claim against Capitol. (ECF No. 19.) On May 22, 2014, Capitol filed a Motion to Dismiss. (Capitol Mot ., ECF No. 2.) Plaintiff filed a response. (Pl.'s Capitol Resp., ECF No. 4.) On June 12, 2014, Morgan filed a Motion to Dismiss. (Morgan Mot., ECF No. 6.) Plaintiff filed a response. (Pl.'s Morgan Resp., ECF No. 11.) After the Motions were filed, the parties engaged in settlement discussions, and in November 2014, they participated in a settlement conference, which was ultimately unsuccessful. The Motions are now ripe for disposition. II. LEGAL STANDARD *3 Under Federal Rule 8(a)(2), “[a] pleading that states a claim for relief must contain a short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a)(2). Rule 12(b)(6) provides for the dismissal of a complaint, in whole or in part, for failure to state a claim upon which relief can be granted. See Fed.R.Civ.P. 12(b)(6). A motion under Rule 12(b)(6), therefore, tests the sufficiency of the complaint against the pleading requirements of Rule 8(a). “To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ ” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). A complaint that merely alleges entitlement to relief, without alleging facts that show entitlement, must be dismissed. See Fowler v. UPMC Shadyside, 578 F.3d 203, 211 (3d Cir.2009). Courts need not accept “[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements ....” Iqbal, 556 U.S. at 678. “While legal conclusions can provide the framework of a complaint, they must be supported by factual allegations.” Id. at 679. This “ ‘does not impose a probability requirement at the pleading stage,’ but instead ‘simply calls for enough facts to raise a reasonable expectation that discovery will reveal evidence of’ the necessary element.” Phillips v. Cnty. of Allegheny, 515 F.3d 224, 234 (3d Cir.2008) (quoting Twombly, 550 U.S. at 556). Case 3:15-cv-01987-ARC Docu ent 70-1 Filed 02/09/17 Page 14 of 44 My Space Preschool and Nursery, Inc. v. Capitol Indem. Corp., Not Reported in... 2015 WL 1185959 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 3 In determining whether dismissal of the complaint is appropriate, courts use a two-part analysis. Fowler, 578 F.3d at 210. First, courts separate the factual and legal elements of the claim and accept all of the complaint's well- pleaded facts as true. Id. at 210-11. Next, courts determine whether the facts alleged in the complaint are sufficient to show that the plaintiff has a “ ‘plausible claim for relief.’ ” Id. at 211 (quoting Iqbal, 556 U.S. at 679). Given the nature of the two-part analysis, “ ‘[d]etermining whether a complaint states a plausible claim for relief will ... be a context-specific task that requires the reviewing court to draw on its judicial experience and common sense.’ ” McTernan v. City of York, 577 F.3d 521, 530 (3d Cir.2009) (quoting Iqbal, 556 U.S. at 679). III. DISCUSSION Capitol seeks dismissal of the Complaint in its entirety. Morgan requests dismissal of the following claims: negligent misrepresentation; violation of the UTPCPL; and breach of fiduciary duty. Morgan also moves to strike Plaintiff's requests for punitive damages, counsel fees, and incidental damages. A. Breach of Contract Claim (Count I) Capitol seeks to dismiss the breach of contract claim alleged in Count I of the Complaint. The Complaint alleges that Capitol “breached [its] undertaking to procure and provide proper insurance coverage for Plaintiff in accordance with its request and needs, causing Plaintiff loss and damage.” (Compl.¶ 32.) Under Pennsylvania law, the elements of a breach of contract claim are: (1) the existence of a contract, including its essential terms; (2) a breach of a duty imposed by the contract; and (3) damages. Omicron Sys., Inc. v. Weiner, 860 A.2d 554, 564 (Pa.Super.Ct.2004). *4 Capitol argues that the Policy is the only contract that governs its relationship with Plaintiff, and that it has not breached the Policy. Capitol contends that because it dealt exclusively with Morgan and not Plaintiff prior to issuance of the policy, it could not have breached an agreement with Plaintiff to “procure and provide insurance coverage.” Plaintiff responds that although Plaintiff dealt directly with Morgan in securing insurance coverage, Morgan acted as Capitol's agent, and in accordance with agency principles, Capitol is vicariously liable for the acts of Morgan, its agent. In Pennsylvania, insurance brokers are generally considered to be the agent of the insured and not of the insurer: Where a person desiring to have his property insured applies not to any particular company or its known agent, but to an insurance broker, permitting him to choose which company shall become the insurer, a long line of decisions has declared the broker to be the agent of the insured; not of the insurer. Taylor v. Crowe, 444 Pa. 471, 282 A.2d 682, 683 (Pa.1971); see also Regis Ins. Co. v. All Am. Rathskeller, Inc., 976 A.2d 1157, 1168 (Pa.Super.Ct.2009) (noting that Pennsylvania courts still adhere to the rule espoused in Taylor, and citing cases). Courts often draw a distinction between an insurance agent, who is employed by the insurer and represents the insurer's interests, and an insurance broker, who is not employed by a specific insurance company, but rather acts as a middleman between the insured and the insurer. Rich Maid Kitchens, Inc. v. Pa. Lumbermens Mut. Ins. Co., 641 F.Supp. 297, 303 (E.D.Pa.1986). The broker in these circumstances serves as an agent of the insured unless evidence is presented supporting the existence of an agency relationship between the broker and the insurer. Id.; All Am. Rathskeller, 976 A.2d at 1168. The Pennsylvania Supreme Court instructs that “there must be some evidence of an authorization, or some fact from which a fair inference of an authorization by the company might be deduced to make an insurance broker the agent of the company.” Taylor, 282 A.2d at 683-84. Here, Plaintiff makes few allegations about the relationship between Morgan and Capitol. Plaintiff merely alleges that “[a]t all times material hereto, Defendant MORGAN was acting in the course and scope of its employment as dual agents and in a representative capacity of CAPITOL and Plaintiff.” (Compl.¶ 5.) Plaintiff also alleges that it reached out to Morgan as the broker to find the appropriate insurance coverage; Plaintiff did not reach out to the insurer, Capitol. Plaintiff does not dispute that it never communicated with Capitol until after the policy was purchased. Accepting all of the Complaint's factual allegations as true, and drawing all inferences in Plaintiff's favor, we are not persuaded Case 3:15-cv-01987-ARC Docu ent 70-1 Filed 02/09/17 Page 15 of 44 My Space Preschool and Nursery, Inc. v. Capitol Indem. Corp., Not Reported in... 2015 WL 1185959 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 4 that Morgan served as an agent of Capitol. Morgan was acting merely as the middleman between Plaintiff and Capitol. Plaintiff has failed to allege any facts that would trigger an exception to the general rule that an insurance broker acts as an agent of the insured, not the insurer. Plaintiff's allegation that Morgan served as a dual agent of both Capitol and Plaintiff is nothing more than a legal conclusion. This is not sufficient to state a plausible breach of contract claim against Capitol based on agency principles. Count I will be dismissed against Capitol. B. Unfair Trade Practices and Consumer Protection Law Violation (Count II) *5 Morgan and Capitol both seek to dismiss Plaintiff's claim in Count II for violation of the UTPCPL. Defendants argue that Plaintiff does not have standing to bring a private cause of action under the statute. We agree. The UTPCPL is a remedial statute intended to protect consumers from unfair or deceptive practices. Balderston v. Medtronic Sofamor Danek, Inc., 152 F.Supp.2d 772, 776 (E.D.Pa.2001) (citing Commonwealth by Creamer v. Monumental Props., Inc., 459 Pa. 450, 329 A.2d 812, 816 (Pa.1974)). The statute limits the class of plaintiffs who may pursue private actions. Id.; 73 Pa. Stat. Ann. § 201- 9.2(a). The class of private-action plaintiffs is defined in section 201-9.2 of the UTPCPL as follows: Any person who purchases or leases goods or services primarily for personal, family or household purposes and thereby suffers any ascertainable loss of money or property, real or personal, as a result of the use or employment by any person of a method, act or practice declared unlawful by section 3 of this act, may bring a private action to recover actual damages or one hundred dollars ($ 100), whichever is greater. 73 Pa. Stat. Ann. § 201-9.2(a). Whether a purchase is made primarily for a personal, family or a household reason depends on the purpose of the purchase, not the type of product purchased. Valley Forge Towers S. Condo. v. Ron-Ike Foam Insulators, Inc., 393 Pa.Super. 339, 574 A.2d 641, 648 (Pa.Super.Ct.1990); see also Coleman v. Commonwealth Land Title Ins. Co., 684 F.Supp.2d 595, 618 (E.D.Pa.2010); Balderston v. Medtronic Sofamor Danek, Inc., 285 F.3d 238, 242 (3d Cir.2002) (“In construing claims under the [UTP]CPL, Pennsylvania courts have distinguished between purchases made for business reasons, which are not actionable, from those made for ‘personal, family or household use.’ ” (citing Weinberg v. Sun Co., 565 Pa. 612, 777 A.2d 442, 446 (Pa.2001))). This is also true when the item purchased is an insurance policy. Although a plaintiff may pursue a private cause of action against an insurer based on unfair or deceptive insurance acts or practices, “the insurance being sued upon must have been purchased for personal, family or household purposes.” Britamco Underwriters v. C.J.H., Inc., 845 F.Supp. 1090, 1096 (E.D.Pa.1994), aff'd, 37 F.3d 1485 (3d Cir.1994). When an insurance policy is purchased to provide coverage to a business, courts in Pennsylvania have consistently found that plaintiffs lack standing to assert a claim under the UTPCPL. Id. (dismissing claim under the UTPCPL where the insurance policy provided coverage to a tavern business); Trackers Raceway, Inc. v. Comstock Agency, 400 Pa.Super. 432, 583 A.2d 1193, 1196 (Pa.Super.Ct.1990) (dismissing UTPCPL claim where insurance policy purchased for go-cart track operator was not for personal, family, or household purpose); Perschau v. USF Ins. Co., No. 97-7801, 1999 U.S. Dist. LEXIS 3334, at *13-14, 1999 WL 162969 (E.D.Pa. Mar. 22, 1999) (plaintiff lacked standing under the UTPCPL where insurance policy purchased for business); Mechetti v. Illinois Ins. Exchange, No. 97-5855, 1998 U.S. Dist. LEXIS 4035, at *6, 1998 WL 151024 (E.D.Pa. March 30, 1998) (same); Smalanskas v. Indian Harbor Ins. Co., No. 04-2394, 2008 Pa. Dist. & Cnty. Dec. LEXIS 233 (C.P. Lackawanna Feb. 15, 2008), aff'd, 970 A.2d 490 (Pa.Super.Ct.2009) (same); Novinger Grp., Inc. v. Hartford Ins., Inc., 514 F.Supp.2d 662, 670 (M.D.Pa.2007) (same). *6 Here, Plaintiff purchased the Policy for a daycare business. The name of the “Insured” listed on the Policy is “My Space Preschool and Nursery, Inc.,” and the address of the covered property under the policy is the address of the daycare business. There is nothing in the Policy that supports a finding that the coverage was intended for personal, family, or household purposes. Plaintiff does not dispute that the Policy was intended for her daycare business. Instead, Plaintiff points to the broad definition of “person” under the UTPCPL, which includes “natural Case 3:15-cv-01987-ARC Docu ent 70-1 Filed 02/09/17 Page 16 of 44 My Space Preschool and Nursery, Inc. v. Capitol Indem. Corp., Not Reported in... 2015 WL 1185959 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 5 persons, corporations, trusts, partnerships, incorporated or unincorporated associations, and any other legal entities.” 73 Pa. Stat. Ann. § 201-2. Although Plaintiff is correct that, as a business, it meets the definition of “person” under the statute, Plaintiff nevertheless lacks standing as the insurance policy at issue was not purchased for personal, family, or household purposes. 2 Count II will be dismissed against Morgan and Capitol. 2 Plaintiff's reliance on Star SPA Services, Inc. v. Robert G. Turano Insurance Agency, Inc., No. 07302, 2007 WL 2821959, 2007 U.S. Dist. LEXIS 71781 (M.D.Pa. Sept. 25, 2007), is misplaced. Absent from the district court's opinion is any discussion of standing under the UTPCPL. Nor is there any indication that the parties raised the issue of standing in their briefing. The district court declined to dismiss the plaintiff's UTPCPL on grounds unrelated to the issues presented here. However, it appears as though the insurance policy at issue in Star SPA was a policy for the plaintiff's business. Cases finding that insurance policies purchased for businesses do not qualify under the UTPCPL are legion. We are not persuaded by Plaintiff's argument, or its reliance on a single case that did not address standing. C. Negligence (Count III) In Count III, Plaintiff asserts that Defendants were negligent for failing to obtain insurance coverage that conformed to Plaintiff's requests and demands. (Compl. ¶ 39; Pl.'s Capitol Resp. 7.) Under Pennsylvania law, to prevail on a negligence claim proof of the following four elements is required: “(1) a duty or obligation recognized by law; (2) a breach of that duty; (3) a causal connection between the conduct and the resulting injury; and (4) actual damages.” Grossman v. Barke, 868 A.2d 561, 566 (Pa.Super.Ct.2005). In support of its request to dismiss, Capitol argues that because Plaintiff dealt exclusively with Morgan, there are no facts to support a finding that Capitol owed a duty to Plaintiff, let alone breached a duty to procure adequate insurance coverage. 3 Plaintiff responds that Capitol's duty arose out of it knowing about Plaintiff's insurance requests, providing a policy that was inconsistent with those requests, and failing to notify Plaintiff that the policy differed from the requests. 4 3 Morgan does not seek to dismiss Count III. 4 Plaintiff argues in the alternative that Capitol is vicariously liable for the negligent actions of Morgan, its alleged agent. Similar to our holding on Count I, Plaintiff has failed to allege sufficient facts showing that Morgan was an agent of Capitol. To the extent that Plaintiff's negligence claim against Capitol is based on vicarious liability, it is dismissed. Plaintiff relies on Tonkovic v. State Farm Mutual Automobile Insurance Company, 513 Pa. 445, 521 A.2d 920 (Pa.1987). In Tonkovic, the Pennsylvania Supreme Court held that, where “an individual applies and prepays for specific insurance coverage, the insurer may not unilaterally change the coverage provided without an affirmative showing that the insured was notified of, and understood, the change, regardless of whether the insured read the policy.” 521 A.2d at 925. Tonkovic represents a departure from earlier Pennsylvania cases that deferred to the language of the insurance contract itself to determine an insurer's obligations to pay insurance claims. See, e.g., West v. Lincoln Benefit Life Co., 509 F.3d 160, 168 (3d Cir.2007). Under Tonkovic, “[t]he reasonable expectation of the insured is the focal point.” 521 A.2d at 926; see also id. (“Courts should be concerned with assuring that the insurance purchasing public's reasonable expectations are fulfilled.”). In reconciling its holding with the general rule of adhering to the plain language of insurance agreements, the court in Tonkovic stated that: *7 We find a crucial distinction between cases where one applies for a specific type of coverage and the insurer unilaterally limits that coverage, resulting in a policy quite different from what the insured requested, and cases where the insured received precisely the coverage that he requested but failed to read the policy to discover clauses that are the usual incident of the coverage applied for. When the insurer elects to issue a policy differing from what the insured requested and paid for, there is clearly a duty to advise the insured of the changes so made. The burden is not on the insured to read the policy to discover such changes, or not read it at his peril. 521 A.2d at 925. Case 3:15-cv-01987-ARC Docu ent 70-1 Filed 02/09/17 Page 17 of 44 My Space Preschool and Nursery, Inc. v. Capitol Indem. Corp., Not Reported in... 2015 WL 1185959 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 6 Similar to the plaintiff in Tonkovic, Plaintiff in this case applied for an insurance policy with the understanding that it would include $85,000 of BPP coverage. This amount was not only requested specifically in Plaintiff's insurance Application, but it was also stated in the Certificate, which purported to contain the terms of the coverage and served as proof that Plaintiff was insured. (Compl. Exs. B & C.) Capitol was aware of Plaintiff's insurance requests-indeed, Morgan provided Capitol with Plaintiff's insurance application and questionnaire (see Compl. Ex. I)-and yet provided a policy that was contrary to those requests. Neither Capitol nor Morgan informed Plaintiff that, despite its application and specific requests, the Policy only provided BPP coverage for $1000, not $85,000. Under these circumstances, Capitol owed a duty to advise Plaintiff that the BPP coverage was an amount different than what Plaintiff requested. Tonkovic, 521 A.2d at 925; see also Toy v. Metro. Life Ins. Co., 863 A.2d 1, 13 (Pa.Super.Ct.2004) (affirming that an insurer has a duty to inform an insured that it issued a policy different from what the insured requested). Viewing all of Plaintiff's allegations as true, we are satisfied that Plaintiff has sufficiently alleged a reasonable expectation of coverage that was different than the coverage provided in the policy, and that Capitol breached a duty it owed to Plaintiff. Capitol's request to dismiss Count III will be denied. D. Negligent Misrepresentation (Count IV) In Count IV, Plaintiff alleges that Defendants negligently misrepresented that the insurance policy they procured would adequately protect Plaintiff's property in the event of a loss. Morgan and Capitol each seek to dismiss Count IV, although on different grounds. To establish a claim for negligent misrepresentation under Pennsylvania law, Plaintiff must prove the following elements: “(1) a misrepresentation of a material fact; (2) made under circumstances in which the misrepresenter ought to have known its falsity; (3) with an intent to induce another to act on it; and (4) which results in injury to a party acting in justifiable reliance on the misrepresentation.” Bilt-Rite Contractors, Inc. v. Architectural Studio, 581 Pa. 454, 866 A.2d 270, 277 (Pa.2005). 1. Morgan *8 Morgan argues that the negligent representation claim is barred by the gist of the action doctrine. The gist of the action doctrine “is designed to maintain the conceptual distinction between breach of contract claims and tort claims ... [by] preclude[ing] plaintiffs from recasting ordinary breach of contract claims into tort claims.” eToll, Inc. v. Elias/Savion Advertising, Inc., 811 A.2d 10, 14 (Pa.Super.Ct.2002). The tort claim survives if the wrong ascribed to the defendant is the “gist of the action, the contract being collateral.” Id. at 14; see also Pa. Mfrs. Ass'n Ins. Co. v. L.B. Smith, Inc., 831 A.2d 1178, 1182 (Pa.Super.Ct.2003) (citation omitted) (“When a plaintiff alleges that the defendant committed a tort in the course of carrying out a contractual agreement, Pennsylvania courts examine the claim and determine whether the ‘gist’ or gravamen of it sounds in contract or tort.”). Determination of whether the gist of the action doctrine applies “call[s] for a fact-intensive judgment as to the true nature of a claim.” Williams v. Hilton Group PLC, 93 F. App'x 384,386 (3d Cir.2004). Courts are reluctant to dismiss tort claims at the early stages of proceedings under the gist of the action doctrine. See, e.g., Padalino v. Std. Fire Ins. Co., 616 F.Supp.2d 538, 550 (E.D.Pa.2008) (declining to decide on motion to dismiss whether gist of action precludes tort claim); Victor Buyck Steel Construction v. Keystone Cement Co., No. 09-2941, 2010 U.S. Dist. LEXIS 30897, at *8, 2010 WL 1223594 (E.D.Pa. Mar. 30, 2010) (same); Lebish v. Whitehall Manor, 57 Pa. D. & C.4th 247, 250 (C.P. Lehigh 2002) (“We cannot discern at this [pleading] stage of the proceedings if the contract claim is completely redundant to the tort claim.”). This is particularly true when the claim sought to be dismissed is a fraud in the inducement claim or a negligent misrepresentation claim. Knit With v. Knitting Fever, Inc., No. 08-4775, 2009 U.S. Dist. LEXIS 98217, at *23, 2009 WL 3427054 (E.D.Pa. Oct. 20, 2009) (citing cases); Victor Buyck Steel, 2010 U.S. Dist. LEXIS 30897, at *8, 2010 WL 1223594; Weber Display & Packaging v. Providence Wash. Ins. Co., No. 02-7792, 2003 U.S. Dist. LEXIS 2187, at *12, 2003 WL 329141 (E.D.Pa. Feb. 10, 2003). Here, there are few facts alleged describing the contractual relationship between Plaintiff and Morgan. Without more information, we are unable to discern whether the source of the duty that was breached arose from the parties' agreement to obtain insurance or from social policy. See Redev. Auth. of Cambria Cnty. v. Int'l Ins. Co., 454 Pa.Super. 374, 685 A.2d 581, 590 (Pa.Super.Ct.1996). At this early stage of the proceeding, before the parties have engaged in meaningful discovery, Case 3:15-cv-01987-ARC Docu ent 70-1 Filed 02/09/17 Page 18 of 44 My Space Preschool and Nursery, Inc. v. Capitol Indem. Corp., Not Reported in... 2015 WL 1185959 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 7 it would be inappropriate to dismiss Plaintiff's negligent representation claim. To be clear, this does not mean that Plaintiff's breach of contract claim and negligent misrepresentation claim are both viable. Rather, Plaintiff may proceed under alternative theories of liability and use the discovery process to aid in classifying the gist of its claims. See, e.g., Padalino, 616 F.Supp.2d at 550. Morgan's Motion to dismiss Count IV will be denied. 2. Capitol *9 Capitol argues that the facts alleged do not support a claim against it, highlighting that it never communicated with Plaintiff until after issuance of the policy. Plaintiff does not dispute that it never communicated with Capitol prior to receiving the policy. Instead, Plaintiff argues that Capitol is vicariously liable for damages caused by Morgan's negligent misrepresentation under theories of agency and respondeat superior. We have concluded that the Complaint fails to support an inference that Morgan served as Capitol's agent. See supra at Section III.A. Because Plaintiff's claim for negligent misrepresentation against Capitol depends on vicarious liability, it must be dismissed. E. Breach of Fiduciary Duty (Count V) In Count V of the Complaint, Plaintiff alleges that Morgan and Capitol owed fiduciary duties to Plaintiff to properly advise it of its insurance needs. Plaintiff also alleges that Defendants breached that duty by failing to secure adequate insurance and advise Plaintiff that the Policy did not provide the coverage it had requested. (Compl.¶¶ 51-54.) Morgan and Capitol both move to dismiss this claim. 1. Morgan Morgan argues that Plaintiff has failed to allege the existence of a fiduciary relationship between them. A fiduciary relationship arises under Pennsylvania law when one places a special confidence in another. The Pennsylvania Supreme Court has identified two ways to establish this special confidence: (1) demonstrating that the law recognizes the relationship as confidential, such as the relationship between attorney and client; or (2) proving with facts that the relationship is confidential. Basile v. H & R Block, Inc. ., 617 Pa. 212, 52 A.3d 1202, 1210 (Pa.2012). Plaintiff has not pointed to any authority finding the broker-insured relationship to be a confidential one. Nor were we able to find any cases holding that such a relationship is per se confidential. In fact, at least one Pennsylvania case determined that broker- insured relationships are not per se confidential. See Wisniski v. Brown & Brown Ins. Co., 906 A.2d 571, 578 (Pa.Super.Ct.2006) (observing that relationships between brokers and insureds are diverse and fact-intensive, and declining to conclude that the relationship is confidential as a matter of law). Therefore, we must decide whether Plaintiff has alleged sufficient facts to show that it shared a confidential relationship with Morgan. A few principles gleaned from Pennsylvania caselaw guide this analysis. First, the concept of a confidential relationship is not capable of a precise definition. Basile, 617 Pa. 212, 52 A.3d at 1204; In re Estate of Scott, 455 Pa. 429, 316 A.2d 883, 885 (Pa.1974) (noting that a confidential relationship “cannot be reduced to a catalogue of specific circumstances, invariably falling to the left or right of a definitional line”). Notwithstanding its flexible nature, a confidential relationship has been described as one where the parties deal on unequal terms: one of the parties has the power and means to take advantage of the other, see In re Estate of Evasew, 526 Pa. 98, 584 A.2d 910, 914 (Pa.1990), or occupies the position of advisor or counselor in such a way to “reasonably [ ] inspire confidence that he will act in good faith for the other's interest.” See id. (citing Brooks v. Conston, 356 Pa. 69, 51 A.2d 684 (Pa.1947)); see also Wisniski, 906 A.2d at 577 (“A confidential relationship is marked by such a disparity in position that the inferior party places complete trust in the superior party's advice and seeks no other counsel, so as to give rise to a potential abuse of power.”). *10 Second, determining whether a confidential relationship exists between two parties is “intensely fact- specific.” Wisniski, 906 A.2d at 578; Stauffer v. Stauffer, 465 Pa. 558, 351 A.2d 236, 241-42 (Pa.1976) (“Whether or not a confidential relationship exists in a given case is usually a question of fact to be determined by no inflexible rule but by a weighing of the particular factors present in that case.”). Related to this, the existence of a confidential relationship requires a “substantial quantum of proof.” Basile, 617 Pa. 212, 52 A.3d at 1211 n. 9; see also id. (noting that “the evidence to sustain a confidential relation must be certain”). Case 3:15-cv-01987-ARC Docu ent 70-1 Filed 02/09/17 Page 19 of 44 My Space Preschool and Nursery, Inc. v. Capitol Indem. Corp., Not Reported in... 2015 WL 1185959 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 8 Finally, a confidential relationship does not generally arise between two parties to an arm's-length business contract. Valley Forge Convention & Visitors Bureau v. Visitor's Servs., Inc., 28 F.Supp.2d 947, 952-953 (E.D.Pa.1998). The reason for this is because “[m]ost commercial contracts for professional services involve one party relying on the other party's superior skill or expertise in providing that particular service.” eToll, Inc., 811 A.2d at 23. If a fiduciary duty arose in this context, then “virtually every breach of such a contract would support a tort claim.” Id. (quoting Valley Forge, 28 F.Supp.2d at 952). Thus, in determining whether a fiduciary duty arose in the context of an ordinary business transaction, courts must ask “whether the relationship goes beyond mere reliance on superior skill, and into a relationship characterized by overmastering influence on one side or weakness, dependence, or trust, justifiably reposed on the other side.” Id. (internal quotation marks omitted); see also Valley Forge, 28 F.Supp.2d at 953 (noting that there is a “crucial distinction between surrendering control of one's affairs to a fiduciary or confidant or party in a position to exercise undue influence and entering an arm's length commercial agreement”). Here, the facts alleged reveal that the parties dealt on unequal terms. The Complaint alleges that Morgan held himself out as an expert in obtaining insurance for daycare centers, and that he had been in this field for many years. Plaintiff confessed that she had never owned or operated a daycare center and that “she had no idea of the type and amounts of insurance” that she would need. (Compl.¶ 8.) Plaintiff relied on the knowledge and expertise of Morgan as a counselor or trusted advisor to obtain an insurance policy, and relied on Morgan's assurance that whatever insurance procured would adequately protect Plaintiff's property and provide sufficient coverage in the event of a loss. Viewing all of these allegations as true, it is plausible that Plaintiff's relationship with Morgan moved beyond mere reliance on superior skill into a realm where Morgan had an overmastering influence on Plaintiff's insurance decisions. We are satisfied that Plaintiff's claim for breach of fiduciary duty should survive dismissal at this juncture. If after discovery Morgan believes that the evidence does not support the existence of a confidential relationship, it may move for summary judgment. 2. Capitol *11 Similar to the arguments raised in support of other claims, Plaintiff contends that agency principles save from dismissal its claim for breach of fiduciary duty. Again, we disagree. Plaintiff has failed to allege any facts demonstrating that Morgan served as an agent for Capitol. Indeed, the facts support a finding that Morgan served as a middleman, and under these circumstances, is more appropriately considered an agent of Plaintiff, the insured. Because Plaintiff's claim against Capitol relies entirely on a finding that Morgan was Capitol's agent, it must be dismissed. F. Breach of Contract against Capitol (Count VI) In Count VI, Plaintiff asserts a claim for breach of contract against Capitol. Unlike the allegations in Count I, which center on Defendants' duty to procure adequate insurance, in this Count Plaintiff alleges that Capitol breached its duty to pay benefits for the actual loss of Plaintiff's business income under the Policy. (Compl.¶ 57.) In support of dismissing Count VI, Capitol makes the same arguments that it made with respect to the breach of contract claim alleged in Count I, even though the allegations in support of these two Counts are different from one another. As a result of Capitol's misinterpretation of this claim, it has failed to address Plaintiff's arguments or dispute Plaintiff's allegation that Capitol breached the Policy by failing to pay benefits owed to Plaintiff. We are compelled to deny Capitol's request to dismiss Count VI at this juncture. H. Morgan's Motion to Strike Morgan also seeks to strike allegations from Plaintiff's Complaint related to its request for: (1) punitive damages; (2) attorney's fees; and (3) incidental damages. 1. Punitive Damages Morgan seeks to strike Plaintiff's request for punitive damages, including allegations that Morgan acted with recklessness. As Plaintiff points out, the only Count on which Plaintiff seeks punitive damages is Count VI, which asserts bad faith against Capitol, not Morgan. Since the time that the Motions were filed, the parties have agreed to voluntarily dismiss Count VII. Morgan's request to strike on this basis is therefore denied as moot. 2. Attorney's Fees Case 3:15-cv-01987-ARC Docu ent 70-1 Filed 02/09/17 Page 20 of 44 My Space Preschool and Nursery, Inc. v. Capitol Indem. Corp., Not Reported in... 2015 WL 1185959 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 9 Morgan also seeks to strike Plaintiff's request for attorney's fees. Plaintiff responds that the UTPCPL explicitly provides for reasonable attorney's fees. Plaintiff cites no other statutory authority permitting the recovery of attorney's fees. Since we have concluded that Plaintiff fails to state a claim under the UTPCPL, the request for attorney's fees will be stricken. 3. Incidental Damages Finally, Morgan asks that Plaintiff's request for incidental damages be stricken from the ad damnum clause of Count I, arguing that it amounts to a claim for special damages, and thus must be pled specifically under Rule 9(g) of the Federal Rules of Civil Procedure. For breach of contract claims, a plaintiff may recover incidental damages that “would naturally and ordinarily result from the breach .” Dehart v. HomEq Servicing Corp., No. 11-416, 2014 U.S. Dist. LEXIS 132414, at *19 (E.D.Pa. Sept. 12, 2014) (citing Liss & Marion, P.C. v. Recordex Acquisition Corp., 603 Pa. 198, 983 A.2d 652, 662 (Pa.2009)). The Pennsylvania Supreme Court has defined the damages element of breach of contract claims as follows: *12 Where one party to a contract without any legal justification, breaches the contract, the other party is entitled to recover, unless the contract provided otherwise, whatever damages he suffered, provided (1) they were such as would naturally and ordinarily result from the breach, or (2) they were reasonably foreseeable and within the contemplation of the parties at the time they made the contract, and (3) they can be proved with reasonable certainty. Ferrer v. Trs. of the Univ. of Pa., 573 Pa. 310, 825 A.2d 591, 610 (Pa.2002). Although incidental damages must be proven with reasonable certainty, there is no authority supporting Morgan's argument that these damages must be alleged at the pleading stage with the same level of reasonable certainty. Indeed, Rule 9(g) states only that, at the pleading stage, “[i]f an item of special damage is claimed, it must be specifically stated.” Fed.R.Civ.P. 9(g). Rule 9(g) is silent with respect to incidental and consequential damages. Morgan's attempt to conflate these two types of damages is misguided. Morgan's request to strike reference to incidental damages in Count I will be denied. IV. CONCLUSION For the foregoing reasons, Capitol's Motion to dismiss Counts I (breach of contract), II (violations of the UTPCPL), IV (negligent misrepresentation), and V (breach of fiduciary duty) will be granted, and these Counts will be dismissed. Capitol's Motion to dismiss Counts III (negligence) and VI (breach of contract) will be denied. Morgan's Motion to dismiss Count II (violations of the UTPCPL) will be granted, and its Motion to dismiss Counts IV (negligence) and V (breach of fiduciary duty) will be denied. Finally, Morgan's request to strike punitive damages will be denied as moot, its request to strike attorney's fees will be granted, and its request to strike incidental damages will be denied. An appropriate Order follows. ORDER AND NOW, this 13th day of March, 2015, upon consideration of Defendant Capitol Indemnity Corporation's Motion to Dismiss the Complaint (ECF No. 2), and Defendant Morgan and Associates, Inc.'s Motion to Dismiss Complaint (ECF No. 6), and all papers submitted in support thereof and in opposition thereto, it is ORDERED as follows: 1. Capitol's Motion is GRANTED in part and DENIED in part. Count I (breach of contract), Count II (violation of the UTPCPL), Count IV (negligent misrepresentation), and Count V (breach of fiduciary duty), are DISMISSED against Capitol. The Motion is denied in all other respects. 2. Morgan's Motion is GRANTED in part and DENIED in part. Count II (violation of the UTPCPL) is DISMISSED. Morgan's Motion as to Count IV (negligence) and Count V (breach of fiduciary duty) is DENIED. 3. Morgan's Motion to Strike is GRANTED in part and DENIED in part. Morgan's request to strike punitive damages is DENIED as moot. Morgan's request to Case 3:15-cv-01987-ARC Docu ent 70-1 Filed 02/09/17 Page 21 of 44 My Space Preschool and Nursery, Inc. v. Capitol Indem. Corp., Not Reported in... 2015 WL 1185959 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 10 strike attorney's fees is GRANTED. Morgan's request to strike incidental damages is DENIED. *13 IT IS SO ORDERED. All Citations Not Reported in F.Supp.3d, 2015 WL 1185959 End of Document © 2017 Thomson Reuters. No claim to original U.S. Government Works. Case 3:15-cv-01987-ARC Docu ent 70-1 Filed 02/09/17 Page 22 of 44 Quandry Solutions, Inc. v. Verifone Inc., Not Reported in F.Supp.2d (2007) 2007 WL 655606 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 1 2007 WL 655606 Only the Westlaw citation is currently available. United States District Court, E.D. Pennsylvania. QUANDRY SOLUTIONS, INC. d/b/a QSI Consulting, Plaintiff, v. VERIFONE INC., Verifone Transportation Systems Inc. and Amos Tamam, Defendant. Civil Action No. 07-097. | March 1, 2007. Attorneys and Law Firms Glenn A. Brown, Real World Law, PC, Upper Darby, PA, for Plaintiff. Michael D. Lipuma, Law Office of Michael Lipuma, Philadelphia, PA, for Defendants. ORDER AND MEMORANDUM JAN E. DUBOIS, J. ORDER *1 AND NOW this 1st day of March, 2007, upon consideration of Defendants' Motion to Dismiss Certain Counts of the Complaint (Document No. 6, filed January 17, 2007); Plaintiff's Response to Defendants' Motion to Dismiss Certain Counts of the Complaint (Document No. 7, filed February 6, 2007); and Reply Memorandum in Further Support of Defendants' Motion to Dismiss Certain Counts of the Complaint (Document No. 8, filed February 13, 2007), for the reasons set forth in the attached Memorandum, IT IS ORDERED that Defendants' Motion to Dismiss Plaintiff's Complaint is GRANTED IN PART AND DENIED IN PART, as follows: 1. Defendants' Motion to Dismiss is GRANTED as to Counts Two, Three, Four, Five, Six, Seven, Eight and Nine. 2. Counts Two, Three, Four, Five, Six, Eight and Nine are DISMISSED WITH PREJUDICE. 3. Count Seven is DISMISSED WITHOUT PREJUDICE to plaintiff's right to file an amended complaint with respect to this claim within twenty (20) days if warranted by the facts. 4. Defendants' Motion to Dismiss is DENIED in all other respects. MEMORANDUM I. INTRODUCTION This case arises from the breach of an alleged oral contract between plaintiff and defendant Verifone Transportation Systems, Inc. d/b/a Taxitronic, Inc. (“VTS”). Plaintiff's Complaint raises ten claims against defendants, VTS; Amos Tamam, CEO of VTS; and Verifone, Inc., the parent corporation of VTS. Plaintiff's claims are as follows: • Count One: Breach of contract claim against defendants VTS and Tamam; • Count Two: Intellectual property infringement claim against defendants VTS and Tamam; • Count Three: Conversion claim against defendants VTS and Tamam; • Count Four: Fraud claim against defendants VTS and Tamam; • Count Five: Constructive fraud claim against defendants VTS and Tamam; Case 3:15-cv-01987-ARC Document 70-1 Filed 02/09/17 Page 23 of 44 Quandry Solutions, Inc. v. Verifone Inc., Not Reported in F.Supp.2d (2007) 2007 WL 655606 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 2 • Count Six: Negligent supervision claim against defendant Verifone; • Count Seven: Conspiracy claim against defendants VTS, Tamam, and Verifone; • Count Eight: Misrepresentation claim against defendants VTS and Tamam; • Count Nine: Intentional non-disclosure claim against defendants VTS and Tamam; • Count Ten: Breach of implied covenant of good faith and unjust enrichment claim against defendants VTS, Tamam, and Verifone. Presently before the Court is defendants' Motion to Dismiss. Defendants seek to dismiss Count Ten of the Complaint in part and Counts Two, Three, Four, Five, Six, Seven, Eight, and Nine in their entirety. Defendants' motion does not address the remaining count, Count One. II. BACKGROUND The following facts are taken from the Complaint, and are presented in the light most favorable to plaintiff. On or about October 25, 2004, the Philadelphia Parking Authority (“PPA”) issued a Request for Proposals to upgrade taxicabs in the Philadelphia metropolitan area. Compl. ¶ 14. The PPA “strongly encouraged” the participation of Disadvantaged Minority Business Enterprises, Disadvantaged Women Business Enterprises, and/or Disadvantaged Disabled Business Enterprises. Id. ¶ 17. Plaintiff, Quandry Solutions, Inc. (“QSI”) is registered with the City of Philadelphia as a Disadvantaged Minority Business Enterprise (“M- DBE”). Id. ¶ 18. *2 On or about November 16, 2004, an officer of QSI met with defendant Tamam and the VTS Vice President of Operations. Defendant VTS was not a registered Disadvantaged Business and allegedly sought out the partnership of QSI to comply with PPA's request for proposals. An oral contract was allegedly entered into during the course of the November 16, 2006 meeting. The alleged oral contract provided that QSI was to “provide assistance in training, software development and Value Added Resellers to prepare and implement” a taxicab upgrade proposal for the PPA. Id. ¶ 26. Pursuant to the oral contract, VTS was to compensate QSI for these services by paying “either fees equal to twenty percent of any contract awarded by the City or, in the alternative, consulting fees in the approximate amount of $1,900,000.00.” Id. ¶ 27. VTS filed a Solicitation of Participation form, placing the PPA on notice that QSI was a M-DBE partnered with VTS. VTS submitted a bid in a timely manner, with the active participation of QSI. Following the submission of the bid, the parties had several conversations between January and June 2005, in which VTS agreed to raise QSI's compensation level to thirty percent of any contract awarded. Id. ¶¶ 29-32. On or about September 27, 2005, VTS was awarded the PPA contract. QSI prepared an implementation plan that was provided to VTS on or about October 31, 2005. Following a presentation of the plan, defendant Tamam “sought to unilaterally alter the contractual arrangement,” and “unilaterally and materially breached the contract between [VTS] and QSI.” Id. ¶ 44, 46. Plaintiff filed suit against VTS, Tamam, and Verifone on December 8, 2006 in the Court of Common Pleas, Philadelphia County. Defendants removed the case to this Court on January 9, 2007 pursuant to 28 U.S.C. § 1332 and 28 U.S.C. § 1441(a)-(b). III. DISCUSSION A. Legal Standard In considering a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), a court must take all well pleaded facts in the complaint as true and view them in the light most favorable to the plaintiff. See Jenkins v. Case 3:15-cv-01987-ARC Document 70-1 Filed 02/09/17 Page 24 of 44 Quandry Solutions, Inc. v. Verifone Inc., Not Reported in F.Supp.2d (2007) 2007 WL 655606 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 3 McKeithen, 395 U.S. 411, 421, 89 S.Ct. 1843, 23 L.Ed.2d 404 (1969). The Court must only consider those facts alleged in the complaint in considering such a motion. See ALA v. CCAIR, Inc., 29 F.3d 855, 859 (3d Cir.1994). A complaint should be dismissed if “it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations.” Hishin v. King & Spaulding, 467 U.S. 69, 73, 104 S.Ct. 2229, 81 L.Ed.2d 59 (1984). Therefore, the facts alleged in plaintiff's Complaint are accepted as true in deciding this motion. B. Gist of the Action Doctrine-Counts Three, Four, Five, Eight, and Nine Defendants first move to dismiss Counts Three, Four, Five, Eight, and Nine of the Complaint, arguing that those claims are barred by the “gist of the action” doctrine. Pennsylvania's gist of the action doctrine “bars claims for allegedly tortious conduct where the gist of the conduct sounds in contract rather than tort.” Hospicomm v. Fleet Bank, N.A., 338 F.Supp.2d 578, 582 (E.D.Pa.2004). The purpose of the doctrine is to “preclud[e] plaintiffs from re-casting ordinary breach of contract claims into tort claims.” eToll v. Elias/Savion Advertising, Inc., 811 A.2d 10, 14 (Pa.Super.Ct.2002). Although a breach of contract can give rise to an actionable tort, “to be construed as in tort ... the wrong ascribed to defendant must be the gist of the action, the contract being collateral.” Bash v. Bell Tel. Co., 411 Pa.Super. 347, 601 A.2d 825, 829 (Pa.Super.1992). “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 (3d Cir.Pa.2001) (quoting Bash, 601 A.2d at 830). 1. Fraud Claims-Counts Four, Five, Eight, and Nine *3 The first four claims that defendants allege to be barred by the gist of the action doctrine, Counts Four, Five, Eight, and Nine, are all variations of fraud claims. Specifically, these four tort claims relate to the inducement of plaintiff to enter the alleged oral contract with VTS. Fraud in the inducement claims are not barred by the gist of the action doctrine where the fraud involves representations of fact independent of promises of performance made in the contract. See eToll, 811 A.2d at 17; TruePosition, Inc. v. Sunon, Inc., 2006 U.S. Dist. LEXIS 32918, *8 (E.D.Pa. May 3, 2006); Air Products and Chemicals, Inc. v. Eaton Metal Products Co., 256 F.Supp.2d 329, 341 (E.D.Pa.2003). On the other hand, when fraud described as fraud in the inducement is based on statements made with regard to performance of the contract, such claims are barred under that doctrine. In such circumstances a plaintiff's remedy lies in contract. See Williams v. Hilton Group PLC, 93 F. App'x 384, 386-87 (3d Cir.2004) (finding that fraud in the inducement claim that defendant had no intention of honoring the contract barred by gist of the action doctrine). Defendants argue that claims in this case are inextricably “intertwined” with promises to perform under the contract and, as such, are barred under the gist of the action doctrine. Def. Mot. 9. The Court agrees. Because these four claims essentially allege that defendants committed fraud by inducing plaintiff into a contract that defendants did not intend to honor, the fraud is properly considered as fraud relating to the performance of the contract. See Galdieri v. Monsanto Co., 245 F.Supp.2d 636, 651 (E.D.Pa.2002) (holding that a “breach of contract claim cannot be ‘bootstrapped’ into a fraud claim merely by adding the words ‘fraudulently induced’ or alleging the contracting parties never intended to perform.”). Counts Four, Five, Eight and Nine are barred under Pennsylvania's gist of the action doctrine. The Court grants Defendants' Motion to Dismiss on this ground and Counts Four, Five, Eight and Nine are dismissed. In view of this ruling, the Court need not address defendants' other arguments for dismissal of these claims. 2. Conversion Claim-Count Three Defendants also argue that plaintiff's claim for conversion in Count Three should be barred by the gist of the action doctrine. In that claim, plaintiff alleges that as part of the contract between plaintiff and defendants, plaintiff provided “certain proprietary software and intellectual property” to defendants, and defendants retained possession and control of that property after the breach of the contract. Compl. ¶¶ 80-82. The Superior Court of Pennsylvania has held that a claim for conversion may be barred by the gist of the action doctrine. Pittsburgh Const. Co. v. Griffith, 834 A.2d 572, 584 (Pa.Super.Ct.2003). Specifically, courts have applied the gist of the action doctrine to conversion claims when entitlement to the chattel at issue is predicated solely on the agreement entered into by the parties. See, e.g., Case 3:15-cv-01987-ARC Document 70-1 Filed 02/09/17 Page 25 of 44 Quandry Solutions, Inc. v. Verifone Inc., Not Reported in F.Supp.2d (2007) 2007 WL 655606 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 4 Freedom Med. Inc. v. Royal Bank of Canada, 2005 U.S. Dist. LEXIS 37836, *27 (E.D.Pa. Dec. 30, 2005). *4 Construing plaintiff's conversion claim in the light most favorable to plaintiff, the Court concludes that plaintiff's conversion claim is based upon a duty to pay that arose from the parties' oral contract. The Court further concludes that defendants' contractually-defined obligation to pay is central to the conversion claim. Accordingly, the conversion claim is barred by the gist of the action doctrine. The Court grants defendants Motion to Dismiss on this ground, and Count Three, plaintiff's conversion claim, is dismissed. Because the Court grants the Motion to Dismiss on this ground, it need not reach the additional arguments raised by defendants as to this claim. C. Intellectual Property Infringement Claim-Count Two In Count Two, plaintiff alleges that, pursuant to the oral contract, plaintiff provided “software development in conjunction with the preparation” of the PPA proposal. Compl. ¶ 67. Further, plaintiff states that after the breach of contract, “no compensation or licensing agreement was made for the software packages provided to VTS,” and “upon information and belief, defendants continue to utilize the software developed by QSI in the normal course of their business.” Compl. ¶¶ 72-73. Essentially plaintiff argues that without compensation or licensing the software “remains the intellectual property of QSI,” and “continued use of the software by VTS infringes upon the intellectual rights of QSI.” Compl. ¶¶ 75-76. The Court notes that “intellectual property infringement” is not a recognized cause of action. Even liberally reading Count Two to be a claim for copyright infringement, the claim must fail because plaintiff has not alleged that the software was the subject of a valid copyright. See Feist Publications, Inc. v. Rural Tel. Serv. Co., 499 U.S. 340, 361, 111 S.Ct. 1282, 113 L.Ed.2d 358 (1991) (to state a cause of action for copyright infringement a plaintiff must allege ownership of copyright and copying by the defendant). Similarly, the Complaint does not identify any protectable mark to support a claim of trademark infringement, see Opticians Assoc. of Am. v. Indep. Opticians of Am., 920 F.2d 187, 192 (3d Cir.1990), nor any patent rights to support a claim of patent infringement. Cf. University of Colorado Found., Inc. v. Am. Cyanamid Co., 196 F.3d 1366, 1371 (Fed.Cir.1999). The Court concludes that in Count Two plaintiff has not stated a claim for intellectual property infringement upon which relief may be granted; Count Two is essentially a repetition of the conversion claim in Count Three. Accordingly, as with Count Three, defendants' Motion to Dismiss is granted and Count Two is dismissed. D. Negligent Supervision Claim-Count Six Count Six of the Complaint asserts a claim for negligent supervision against Verifone which relates to the supervision of VTS, its subsidiary. 1 Defendants offer two alternate grounds to dismiss this claim: (1) parent corporations are not automatically liable for the actions of their subsidiaries, and (2) the economic loss doctrine precludes the negligent supervision claim. Because the Court concludes that plaintiff cannot maintain a claim for negligent supervision against Verifone as parent corporation of VTS, the Court need not address defendants' economic loss doctrine argument. 1 Defendant VTS is alleged to be a fully owned subsidiary of defendant Verifone-an allegation contested by defendants. For the purpose of the Motion to Dismiss, the Court will consider all well pleaded facts in the Complaint as true. *5 A claim for “negligent supervision” under Pennsylvania law is properly stated “where the employer fails to exercise ordinary care to prevent an intentional harm to a third party which (1) is committed on the employer's premises by an employee acting outside the scope of his employment and (2) is reasonably foreseeable.” Petruska v. Gannon Univ., 462 F.3d 294, 309 n. 14 (3d Cir.2006) (quoting Mullen v. Topper's Salon & Health Spa, Inc., 99 F.Supp.2d 553, 556 (E.D.Pa.2000)). Plaintiff alleges in the Complaint that Verifone is the parent corporation of VTS, not an employer. Under those circumstances, “negligent supervision” is not a viable theory of liability. In contrast to the employer-employee context, there is no general duty for a parent corporation to supervise its subsidiary; absent a piercing of the corporate veil, a parent corporation is “not normally liable for the wrongful acts or contractual obligations of a subsidiary even if or simply because the parent wholly owns the subsidiary.” Jean Anderson Hierarchy of Agents v. Allstate Life Ins. Co., 2 F.Supp.2d 688, 691 (E.D.Pa.1998). In this case, plaintiff has failed to allege Case 3:15-cv-01987-ARC Document 70-1 Filed 02/09/17 Page 26 of 44 Quandry Solutions, Inc. v. Verifone Inc., Not Reported in F.Supp.2d (2007) 2007 WL 655606 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 5 any reason to pierce the corporate veil. Accordingly, the Court grants the Motion to Dismiss on this ground, and Count Six is dismissed. E. Conspiracy Claim-Count Seven Count Seven of the Complaint is a claim for civil conspiracy alleging that Tamam, VTS and Verifone conspired to harm plaintiff. See Compl. ¶ 117 (“All defendants acted in concert to keep the truth concerning the plans of VTS and Tamen [sic] from Plaintiff.”). Defendants argue that Count Seven should be dismissed because it fails to adequately state a claim for conspiracy. To state a claim for conspiracy, the complaint need not contain “evidentiary details regarding the conspiracy.” Berk v. Ascott Inv. Corp., 759 F.Supp. 245, 260 (E.D.Pa.1991) (quoting Alfaro v. E.F. Hutton & Co., Inc., 606 F.Supp. 1100, 1117-18 (E.D.Pa.1985)). Rather, the complaint need only “describe the general composition of the conspiracy, some or all of its broad objectives, and defendant's general role in that conspiracy.” Id. at 260-61 (quoting Alfaro, 606 F.Supp. at 1117-18); The Complaint fails to aver a conspiracy as required by applicable law. Instead, Count Seven contains “a mere general allegation ... or averment of conspiracy or collusion without alleging the facts which constituted such conspiracy or collusion.” DeAngelo v. Brady, 185 Fed. Appx. 173, 175 (3d Cir.2006). As such, the conspiracy claim “is a conclusion of law and is insufficient to state a claim.” Id. Accordingly, the Court grants defendants' Motion to Dismiss on this ground, and Count Seven is dismissed without prejudice to plaintiff's right to file an amended complaint with respect to this claim within twenty days if warranted by the facts. F. Breach of Implied Duty of Good Faith-Count Ten *6 Count Ten alleges both a claim for unjust enrichment and breach of the “implied covenant of good faith.” Defendants seek to dismiss that part of Count Ten which asserts a claim for breach of implied covenant of good faith on the ground that this claim is precluded by the express contract between the parties. See USX Corp. v. Prime Leasing, Inc., 988 F.2d 433, 438-39 (3d Cir.1993). On the present state of the record, it is not clear what, if any, terms are included in any contract, and therefore it would be premature to grant the Motion to Dismiss on this ground. See id. (“[I]mplied covenants and any express terms of a contract are necessarily mutually exclusive- one can invoke ‘implied’ terms only when there are no express terms in the contract relating to the particular issue.”). Accordingly, defendants' Motion to Dismiss is denied as to this claim. IV. CONCLUSION For the foregoing reasons, defendants' Motion to Dismiss is granted in part and denied in part. Counts Two, Three, Four, Five, Six, Eight, and Nine are dismissed with prejudice, and Count Seven is dismissed without prejudice to plaintiff's right to file an amended complaint with respect to that claim within twenty days if warranted by the facts. In all other respects, defendants' Motion to Dismiss is denied. All Citations Not Reported in F.Supp.2d, 2007 WL 655606 End of Document © 2017 Thomson Reuters. No claim to original U.S. Government Works. Case 3:15-cv-01987-ARC Document 70-1 Filed 02/09/17 Page 27 of 44 Smith v. John Hancock Ins. Co., Not Reported in F.Supp.2d (2008) 2008 WL 4072585 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 1 KeyCite Yellow Flag - Negative Treatment Distinguished by Sicherman v. Nationwide Life Ins. Co., E.D.Pa., April 4, 2012 2008 WL 4072585 Only the Westlaw citation is currently available. United States District Court, E.D. Pennsylvania. Maria SMITH, on behalf of herself and all others similarly situated, Plaintiff, v. JOHN HANCOCK INSURANCE COMPANY, Defendant. Civil Action No. 06-3876. | Sept. 2, 2008. Attorneys and Law Firms John A. Corr, Stephen A. Corr, Mellon, Webster & Shelly, Doylestown, PA, Joseph H. Aughtman, W. Daniel Miles, III, Beasley Allen Crow Methvin Portis & Milies PC, Montgomery, AL, for Plaintiff. Patricia M. Hamill, Conrad, O'Brien, Gellman & Rohn, P.C., Phila, PA, Shaunda Patterson-Strachan, Waldemar J. Pflepsen, Jr., Jorden Burt LLP, Stephen H. Goldberg, Washington, DC, for Defendant. MEMORANDUM AND ORDER SCHILLER, District Judge. *1 Plaintiff Maria Smith brings this action against Defendant John Hancock Insurance Company asserting claims for fraud/intentional misrepresentation, negligent misrepresentation, negligence, breach of fiduciary duty, civil conspiracy, breach of contract, unjust enrichment, disgorgement, and violations of Pennsylvania's Unfair Trade Practices and Consumer Protection Law (“UTPCPL”). Plaintiff's claims arise from her purchase of one of Defendant's “bonus” annuities-Plaintiff asserts that Defendant unlawfully recouped the “bonus” she was credited in the first year of her annuity contract by lowering her interest rate in subsequent years. Presently before this Court is Defendant's motion for summary judgment. 1 For the reasons discussed below, the motion is granted in part and denied in part. 1 Plaintiff brings this case as a putative class action. Defendant's motion for summary judgment pertains solely to Plaintiff in her individual capacity. Plaintiff's outstanding motion for class certification will be addressed in a subsequent opinion. I. BACKGROUND Insurance companies profit from an annuity by investing premiums that the purchaser of the annuity invested in it. (Pl.'s Resp. in Opp'n to Def.'s Mot. for Summ. J. [hereinafter “Pl.'s Resp.”] Ex. G (Affidavit of William C. Cutlip [hereinafter “Cutlip Aff.”] ) ¶ 6.) The company pays for its expenses, captures charges and makes its profit primarily from the investment spread, or the difference between the investment earnings on the premiums and the portion of those earnings credited to the contract holder. (Id.) Purchasers of bonus annuities, such as Plaintiff, are offered a higher interest rate in the first year, “usually 1.0% to 1.5% percentage points higher than what they refer to as the ‘base rate.’ ” (Id. ¶ 7.) Plaintiff claims that bonus annuities are “designed to give the appearance of being initially enhanced” in order to “encourage purchasers to invest with that insurance company.” (Id.) Plaintiff asserts, however, that the higher first year bonus interest rate “creates more early profit loss and a greater demand on reducing future interest rates to recoup that loss” and achieve the target spread. (Id. ¶ 10.) The target spread is “set as a targeted revenue amount used to pay for various expenses, setting up reserves, setting up target surplus, and to achieve a desired level ofprofitability.” (Pl.'s Resp. Ex. D (Deposition of John D. Fenton [hereinafter “Fenton Dep.”] ) at 45:6-9.) A target spread is established by an insurance company when it first designs an annuity in order to ensure its profitability. (Cutlip Aff. ¶ 8; Fenton Dep. at 52:23-35.) Thus, Plaintiff claims that the bonus included in her annuity contract was “illusory and not a true representation of something ‘extra.’ ” (Cutlip Aff. ¶ 11.) A. GPA Choice Fixed Deferred Annuity During the relevant time frame, Defendant sold a product known as the GPA Choice Fixed Deferred Annuity. The GPA Choice Fixed Deferred Annuity credits interest to premiums contributed by the contract holder at rates declared in advance and guaranteed for a time period Case 3:15-cv-01987-ARC Document 70-1 Filed 02/09/17 Page 28 of 44 Smith v. John Hancock Ins. Co., Not Reported in F.Supp.2d (2008) 2008 WL 4072585 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 2 of one or more years (the “Guarantee Period”), as selected by the contract holder. (Def.'s Mot. for Summ. J. Related Solely to the Pl. in her Individual Capacity [hereinafter “Def.'s Mot.”] Declaration of Kristin B. Temple [hereinafter “Temple Dec.”] at ¶ 5.) The declared rate for the contract's initial Guarantee Period is referred to as the “base rate.” (Id.) During the first year of any Guarantee Period, initial or renewed, Defendant has the right to declare in advance an additional “bonus rate” of interest in addition to the declared rate of interest. (Id. at ¶ 7.) *2 At the end of a Guarantee Period, the contract holder can renew an annuity contract for a new Guarantee Period at an interest rate declared by Defendant (the “renewal rate”). (Id. at ¶ 6.) Contract holders may select the length of the renewal Guarantee Period. (Id. Ex. 1 at 5.) However, if the previous Guarantee Period was one year, the renewal Guarantee Period must be one year as well. (Id.) Renewal interest rates are at least 3%. (Id. ¶ 6.) A contract holder can also chose for any reason not to renew and may withdraw the initial premium and accumulated interest. (Id.) However, withdrawals in excess of 10% of the contract value may be subject to charges of up to 7% of the amount being withdrawn if made in the first five to seven years of the contract. (Id. Ex. 1 at 7-8.) B. Plaintiff's Purchase of the Annuity Contract In May 2002, Plaintiff purchased a contract for Defendant's GPA Choice Fixed Deferred Annuity, Contract No. GP 06003233 (“Annuity Contract”), initially funding the annuity with $50,000.00. (Compl.¶¶ 5, 14.) Plaintiff purchased her Annuity Contract from a financial representative named Timothy Lago. (Compl.¶ 14.) It is unclear if Mr. Lago was employed by Keystone Nazareth Bank (“Keystone Bank”) in Pennsylvania, by a registered broker dealer called Invest Financial Corporation & Subsidiaries (“Invest”), or byboth. (Def.'s Statement of Undisputed Facts in Supp. of Mot. for Summ. J. [hereinafter “Undisputed Facts”] ¶ 3; Pl.'s Resp. in Opp'n to Def.'s Mot. for Summ. J. [hereinafter “Pl.'s Resp.”] Ex. O (Deposition of Timothy Lago [hereinafter “Lago Dep.”] ) at 12:12-16; Def.'s Mot. Declaration of Shaunda Patterson-Strachan [hereinafter “Patterson Dec.”] Ex. 1 (Deposition of Ruth A. Burgess [hereinafter “Burgess Dep.”] ) at 34:2-14; Def.'s Mot. Patterson Dec. Ex. 2 (Deposition of Patrick Clifford [hereinafter “Clifford Dep.”] ) at 13:6-14:2.) Nevertheless, at all relevant times, Defendant maintained a contractual relationship with Invest, authorizing Invest through its agents, including banks and their representatives, to solicit applications for certain fixed insurance and annuity products issued by Defendant. (Undisputed Facts ¶ 6.) Moreover, during that same time, Keystone Bank had a relationship with Invest acting as one of its agents. (Id. ¶ 7.) It is undisputed that Mr. Lago never worked directly for Defendant. (Clifford Dep. at 14:19-24.) Prior to purchasing the Annuity Contract, Plaintiff maintained bank accounts at Keystone Bank. (Pl.'s Resp. Exs. P-1, P-2 (Deposition of Maria Smith [hereinafter “Smith Dep.”] ) at 42:3-5.) Moreover, Plaintiff stated that at the same time, she was familiar only with Defendant's name. (Id. at 93:2-8.) In purchasing the Annuity Contract, Plaintiff hoped to make a long-term investment for retirement purposes that would perform better than certificates of deposit (“CDs”). (Id. at 91:14-92:4.) Thus, what was most important to Plaintiff was the interest rate being offered. (Id. at 164:21-23;165:7-10.) The Annuity Contract purchased by Plaintiff had a guarantee period of 1 year at a rate of 5.5% for the first year, which included a 4.5% base rate plus a 1% bonus. (Pl.'s Resp. at 2.) *3 In connection with her purchase of the Annuity Contract, Plaintiff executed a disclosure statement which explained that her Annuity Contract's “current annual yield on [her] initial premium payment is 5.5% (base rate plus bonus) for one year which includes in the first year a one-time 1.00% bonus for each premium payment.” (Def.'s Mot. Patterson Dec. Ex. 10.) With regard to the renewal rate, the disclosure statement expressly stated that the yield for each renewal period would be “based upon rates declared by John Hancock at the time” and would “never be less than 3%.” (Id.) The disclosure statement executed by Plaintiff did not include certain language required by the Pennsylvania Department of Insurance (“PDOI”). (Pl.'s Resp. Ex. C (Deposition of Kristin B. Temple [hereinafter “Temple Dep.”] ) at 22:3-11.) As of June 4, 2001, the PDOI required Defendant to include the following bonus disclosure language in a disclosure statement: The expenses for a contract with a bonus benefit may be higher than expenses for a contract without a bonus benefit. The amount of the bonus benefit may be more Case 3:15-cv-01987-ARC Document 70-1 Filed 02/09/17 Page 29 of 44 Smith v. John Hancock Ins. Co., Not Reported in F.Supp.2d (2008) 2008 WL 4072585 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 3 than offset by the fees and charges associated with the bonus benefit. (Pl.'s Resp. Ex. M.) Defendant ultimately adopted this language into its standard disclosure statement accompanying the sale of the GPA Choice Fixed Deferred Annuity in Pennsylvania. (Temple Dep. at 24:15-19; see also Pl.'s Resp. Exs. J, N.) Without the inclusion of this language, the product would not have been approved by the PDOI for sale in Pennsylvania. (Temple Dep. at 25:10- 20.) Nevertheless, Plaintiff's disclosure statement did not include the required bonus disclosure language (Id.. at 26:2-8), and Defendant made no attempt to rectify this deficiency (Id. at 26:9-27:15). C. Jackson National Annuities Plaintiff also applied for two Jackson National annuities in July of 2002. (Smith Dep. at 194:20-22.) At the time Plaintiff purchased the Jackson National annuities she had the same investment goals as when she purchased Defendant's annuity, namely long-term investment for retirement purposes. (Id. at 199:3-9.) Like the annuity Plaintiff purchased from Defendant, the Jackson National annuities were bonus annuities offering first year interest rate bonuses. (Id. at 200:10-14.) However, unlike Defendant's annuity, the Jackson National annuities contained disclosure language stating that “as a result of the bonus interest rate, rates in subsequent years will be lower than that credited on non-bonus contracts.” (Id. at 212:16-21.) Plaintiff stated that if she had seen that language when she purchased the Jackson National annuities, she would not have bought the contracts as she was looking for a fixed, not variable, interest rate. (Id. at 213:7-20.) D. Plaintiff's Surrender of her Annuity Contract Plaintiff renewed her Annuity Contract with Defendant five times, each for an additional one-year Guarantee Period from 2003 until 2007, all at interest rates greater than 3%. (Temple Dec. ¶ 9.) She also received statements from Defendant on at least an annual basis setting forth the specific rates being credited to her annuity. (Smith Dep. at 180:5-15.) Plaintiff surrendered her Annuity Contract in 2007 for another annuity from a different insurer. (Temple Dec. ¶ 10.) Plaintiff was not charged any withdrawal charges, receiving her $50,000.00 initial premium and $11,279.23 in interest. (Id.) The interest credited to her was consistent with the rates per the Annuity Contract, specifically 5.5% in 2002, 4% in 2003, 3.25% in 2004, 3.25% in 2005, 3.35% in 2006 and 3.35% in 2007. (Id. ¶ 9-10.) No unauthorized charges, fees or deductions were made to Plaintiff's account. (Id. ¶ 10.) E. Plaintiff's Allegations *4 Plaintiff claims that in order to meet the target spread and achieve the desired level of profitability, Defendant offered Plaintiff lower renewal interest rates. (Cutlip ¶ 9.) Plaintiff argues that the renewal interest rates for a non- bonus annuity product would be higher than those for a bonus annuity because the spread required to meet the target spread would be lower. (Pl.'s Resp. Exs. A, A-1 (Deposition of Ian Roke [hereinafter “Roke Dep.”] ) at 80:1-18.) Plaintiff's expert witness found that if the bonus offered Plaintiff was a true bonus, then Plaintiff's base rate would have been 20 basis points higher. (Pl.'s Resp. Exs. E, F (Deposition of William C. Cutlip [hereinafter “Cutlip Dep.”] ) at 88:15-18.) Plaintiff's expert also found that a “ ‘bonus' annuity will usually produce lower returns to a purchaser than a regular non-bonus annuity after only a short period of time.” (Cutlip Aff. ¶ 18.) Plaintiff also highlights that contract holders could not simply withdraw their money if they were unhappy with the renewal interest rate offered. (Id. ¶ 14.) Once purchasers were “brought in with a competitively attractive first year ‘base rate plus bonus,’ ” they were then subject to early withdrawal charges. (Id.) As a result, “if the purchasers were dissatisfied with the renewal rates (reduced ‘base rates') the company established (as a result of the company's charging their first year ‘base rate’), it was going to cost the purchasers much (if not all) the earnings on their investments for at least 5 years if they tried to take their money out.” (Id.) Hence, Plaintiff claims that purchasers of Defendant's bonus annuities had little choice but to accept the renewal interest rates, making market competition a moot point. (Id.) Plaintiff contends that when Defendant offered “what they call their ‘bonus' first year interest on top of their ‘base rate,’ they are not providing any real ‘bonus,’ or extra credit, to the purchaser. They are simply shifting the timing of what they will credit, not necessarily to the benefit of the purchaser.” (Id. ¶ 9.) Moreover, Plaintiff claims that Defendant guaranteed that the bonus credited in the first year of the Annuity Contract was for the permanent benefit of the annuitant. (Roke Dep. at 77:14- 78:4.) Case 3:15-cv-01987-ARC Document 70-1 Filed 02/09/17 Page 30 of 44 Smith v. John Hancock Ins. Co., Not Reported in F.Supp.2d (2008) 2008 WL 4072585 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 4 Defendant offers expert testimony asserting that recoupment did not occur in any form. (Fenton Dep. at 77:17-21.) Defendant's expert found that Plaintiff's renewal credited rate would only be 16 basis points higher if she had purchased a hypothetical non-bonus annuity product. (Id. at 102:4-10.) As a result, Defendant's expert found that because Plaintiff surrendered her annuity after five years, she was better off purchasing the bonus annuity product than a hypothetical non-bonus annuity. (Id. at 108:9-19.) Defendant's expert rejected the idea that the target spread determined the renewal rates. (Id. at 105:11- 106:10.) Instead, he stated that the impact of other factors made it impossible for one to say with any certainty whether renewal interest rates for a bonus annuity would be lower or higher than those for a non-bonus annuity. (Id.) II. STANDARD OF REVIEW *5 Summary judgment is appropriate when the admissible evidence fails to demonstrate a dispute of material fact and the moving party is entitled to judgment as a matter of law. FED.R.CIV.P. 56(c); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). When the moving party does not bear the burden of persuasion at trial, the moving party may meet its burden on summary judgment by showing that the nonmoving party's evidence is insufficient to carry its burden of persuasion at trial. Celotex Corp. v. Catrett, 477 U.S. 317, 323-24, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). Thereafter, the nonmoving party demonstrates a genuine issue of material fact if sufficient evidence is provided to allow a reasonable jury to find for him at trial. Id. at 248. In reviewing the record, “a court must view the facts in the light most favorable to the nonmoving party and draw all inferences in that party's favor.” Armbruster v. Unisys Corp., 32 F.3d 768, 777 (3d Cir.1994). Furthermore, a court may not make credibility determinations or weigh the evidence in making its determination. See Reeves v. Sanderson Plumbing Prods., 530 U.S. 133, 150, 120 S.Ct. 2097, 147 L.Ed.2d 105 (2000); see also Goodman v. Pa. Tpk. Comm'n, 293 F.3d 655, 665 (3d Cir.2002). III. DISCUSSION After consideration of the parties' submissions, this Court concludes that summary judgement is appropriate on Plaintiff's claims for negligent misrepresentation (Count II), negligence (Count III), breach of fiduciary duty (Count IV), breach of contract (Count V), civil conspiracy (Count VI), unjust enrichment (Count VII) and disgorgement (Count IIX). However, Plaintiff's claims for fraud/intentional misrepresentation (Count I) and violations of the UTPCPL (Count IX) are not barred by Pennsylvania law nor do they lack merit as a matter of law. Thus, this Court will grant Defendant's motion for summary judgment in part and deny the motion in part. A. Breach of Contract Claim In order to sustain a claim for breach of contract, Plaintiff must establish “(1) the existence of a contract, including its essential terms; (2) a breach of a duty imposed by the contract; and (3) resultant damages.” CoreStates Bank, N.A. v. Cutillo, 723 A.2d 1053, 1058 (Pa.Super.Ct.1999). Plaintiff's contract claim fails because she does not identify “any contractual duty of immediate performance” that Defendant failed to perform. Barnes v. McKellar, 434 Pa.Super. 597, 644 A.2d 770, 775 (Pa.Super.Ct.1994) (quoting Camenisch v. Allen, 158 Pa.Super. 174, 44 A.2d 309, 310 (Pa.Super.Ct.1945)). Contrary to Plaintiff's assertions, the Annuity Contract has no provision prohibiting Defendant from recouping the bonus interest paid in year one or guaranteeing Plaintiff the permanent benefit of said bonus interest. As a result, this Court finds that Defendant did not breach any duty imposed by the contract and Plaintiff's claim for breach of contract must fail. In an attempt to keep her claim alive, Plaintiff asserts that the “reasonable expectations” doctrine applies to Plaintiff's Annuity Contract. (Pl.'s Resp. 29.) Under Pennsylvania law, the “reasonable expectations” doctrine states that “the reasonable expectations of the insured is the focal point of the insurance transaction.” UPMC Health System v. Metropolitan Life Ins. Co., 391 F.3d 497, 502 (3d Cir.2004) (emphasis added) (quoting Collister v. Nationwide Life Ins. Co., 479 Pa. 579, 388 A.2d 1346, 1353 (Pa.1978)). Plaintiff argues that because annuity contracts are regulated by the PDOI, they are legally the same as life insurance products. (Pl.'s Resp. at 18 n. 7.) However, it is well established under Pennsylvania law that annuity contracts and insurance contracts are distinct animals. In re Bayer's Estate, 345 Pa. 308, 26 A.2d 202, 203-05 (Pa.1942) (explaining the difference between annuity contracts and insurance contracts at length); Commonwealth v. Metropolitan Life Ins. Co., 254 Pa. 510, 98 A. 1072, 1073 (Pa.1916) (same). Thus, this Case 3:15-cv-01987-ARC Document 70-1 Filed 02/09/17 Page 31 of 44 Smith v. John Hancock Ins. Co., Not Reported in F.Supp.2d (2008) 2008 WL 4072585 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 5 Court declines to extend the “reasonable expectations” doctrine to annuity contracts. *6 Plaintiff also argues that Defendant breached the implied covenant of good faith and fair dealing. (Pl.'s Resp. 30.) This doctrine implies “an agreement by the parties to a contract to do and perform those things that according to reason and justice they should do in order to carry out the purpose for which the contract was made and to refrain from doing anything that would destroy or injure the other party's right to receive the fruits of the contract.” Somers v. Somers, 418 Pa.Super. 131, 613 A.2d 1211, 1214 (Pa.Super.Ct.1992) (citing Frickert v. Deiter Bros. Fuel Co., Inc., 464 Pa. 596, 347 A.2d 701, 705 (Pa.1975) (Pomeroy, J., concurring)). However, “this obligation of good faith is tied specifically to and is not separate from the duties a contract imposes on the parties.” Murphy v. Duquesne U. of the Holy Ghost, 565 Pa. 571, 777 A.2d 418, 434 n. 11 (Pa.2001). As discussed supra, Plaintiff cannot establish any breach by Defendant. Since Defendant performed all of the duties imposed on it by the Annuity Contract, the purpose of the contract was carried out and Plaintiff received the benefits she contracted to receive. Therefore, Defendant did not breach the implied covenant of good faith and fair dealing and Defendant is entitled to summary judgment on Plaintiff's claim for breach of contract as a matter of law. B. Unjust Enrichment and Disgorgement Claims Under Pennsylvania law, it is well established that “the doctrine of unjust enrichment is inapplicable when the relationship between parties is founded upon a written agreement or express contract.” Wilson Area Sch. Dist. v. Skepton, 586 Pa. 513, 895 A.2d 1250, 1254 (Pa.2006); Third Nat'l Bank & Trust Co. of Scranton v. Lehigh Valley Coal Co., 353 Pa. 185, 44 A.2d 571, 574 (Pa.1945). The doctrine of unjust enrichment “applies only to situations where there is no legal contract.” Wingert et al. v. T.W. Phillips Gas & Oil Co., 398 Pa. 100, 157 A.2d 92, 94 (Pa.1959). Here, it is undisputed that the relationship between the parties is founded upon a written contract. (See Compl. at ¶ 72.) Thus, Plaintiff is not entitled to any remedy available under the doctrine of unjust enrichment and her claim on this basis fails as a matter of law. 2 2 Plaintiff argues that she should be allowed to plead in the alternative for unjust enrichment because there are disputed issues of fact with regard to the terms of the contract. (Pl.'s Resp. at 33.) As explained above, this Court found that the Annuity Contract had no provision either guaranteeing Plaintiff the permanent benefit of the bonus interest paid in year one or prohibiting Defendant from recouping the same. (See supra Part III.A.) Therefore, there is no genuine issue of fact regarding the interpretation of the Annuity Contract. Although pled as a separate cause of action, disgorgement is actually “an equitable remedy designed to deprive a wrongdoer of his unjust enrichment.” S.E. C. v. Hughes Capital Corp., 124 F.3d 449, 455 (3d Cir.1997); see also Pierson v. Source Perrier, S.A., 848 F.Supp. 1186 (E.D.Pa.1994). As the purpose of this remedy is to “prevent unjust enrichment,” if the doctrine of unjust enrichment is inapplicable, then disgorgement cannot be awarded. Hateley v. S.E.C., 8 F.3d 653, 655 (9th Cir.1993) (citing S.E.C. v. Wang, 944 F.2d 80, 85 (2d Cir.1991)). As the doctrine of unjust enrichment is inapplicable to this action, then Plaintiff's claim for disgorgement fails as well. Hence, Defendant is entitled to judgment as a matter of law on Plaintiff's claims for Unjust Enrichment (Count VII) and Disgorgement (Count IIX). C. Breach of Fiduciary Duty Claim *7 Pennsylvania law finds a fiduciary relationship “where by virtue of the respective strength and weakness of the parties, one has a power to take advantage of or exercise undue influence over the other.” eToll, Inc. v. Elias/Savion Advertising, Inc., 811 A.2d 10, 22 (Pa.Super.Ct.2002). However, the relationship must go “beyond mere reliance on superior skill, and into a relationship characterized by ‘overmastering influence’ on the one side or ‘weakness, dependence, or trust justifiably reposed’ on the other side.” Id. at 23 (quoting Basile v. H & R Block, 777 A.2d 95, 101 (Pa.Super.Ct.2001). A fiduciary duty may exist when “one occupies toward another such a position of advisor or counsellor as reasonably to inspire confidence that he will act in good faith for the other's interest.” Brooks v. Conston, 356 Pa. 69, 51 A.2d 684, 688 (Pa.1947). A fiduciary relationship will also be formed by “those who purport to give advice in business ... if others, by virtue of their own weakness or inability, the advisor's pretense or expertise, or a combination of both, invest such a level of trust that they seek no other counsel.” Basile, 777 A.2d at 102. Here, Plaintiff's claim for breach of fiduciary duty first requires that a fiduciary relationship exist between her Case 3:15-cv-01987-ARC Document 70-1 Filed 02/09/17 Page 32 of 44 Smith v. John Hancock Ins. Co., Not Reported in F.Supp.2d (2008) 2008 WL 4072585 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 6 and Defendant. It is undisputed that Plaintiff had no contact with Defendant before purchasing her Annuity Contract. (See Smith Dep. at 92:5-93:8.) Rather, it was Mr. Lago who counseled her and ultimately sold her the Annuity Contract. Yet a fiduciary relationship did not exist even between Mr. Lago and Plaintiff. Mr. Lago expressly tailored his offerings to Plaintiff's aversion to risk and her desire to protect her principal. (Lago Dep. at 16:22-25.) Plaintiff admitted that the decision to buy Defendant's annuity products was hers. (Smith Dep. 198:9-11.) Finally, Plaintiff also admitted to seeking other counsel, including that of her pastor, with regard to her investment decisions. (Id. at 195:11-197:11.) Moreover, at the time, Mr. Lago was working either for Invest or for Keystone Bank, Invest's agent. As Invest was Defendant's agent, Mr. Lago was Defendant's sub-agent, “a person to whom the agent delegates as his agent, the performance of an act for the principal which the agent has been empowered to perform through his own representative.” Klein v. May Stern & Co., 144 Pa.Super. 470, 19 A.2d 566, 568 (Pa.Super.Ct.1941) (citation omitted). “Liability for the acts of a sub-agent is imposed on the principal only by his express or implied agreement.” Id. Moreover, there is no privity of contract between the sub-agent and the principal. Id. Plaintiff adduces no evidence that Defendant agreed to be liable for the actions of the agents of Invest. Therefore, even if Mr. Lago established a fiduciary relationship with Plaintiff, Defendant would not be liable for any breach thereof. As there is no genuine issue of material fact, Defendant is entitled to judgment as a matter of law on Plaintiff's claim for breach of fiduciary duty (Count IV). D. Negligence Claim *8 Plaintiff's claim for negligence alleges that Defendant “negligently hired, trained, and/or supervised its agents and representatives who sold the bonus annuity.” (Compl.¶ 50.) Although Defendant can be liable for the conduct of its agents or employees, as well as any negligence attendant on their training, supervision, or the decision to hire or retain them, see Heller v. Patil Homes, Inc., 713 A.2d 105, 107 (Pa.Super.Ct.1998), it cannot be liable for the actions, training, supervision or hiring of its sub-agents, Klein, 19 A.2d at 568. Thus, Defendant is entitled to summary judgment on Plaintiff's claim for negligence (Count III). E. Civil Conspiracy Claim A cause of action for civil conspiracy requires “(1) a combination of two or more persons acting with a common purpose to do an unlawful act or to do a lawful act by unlawful means or for an unlawful purpose; (2) an overt act done in pursuance of the common purpose; and (3) actual legal damage.” Gen. Refractories Co. v. Fireman's Fund Ins. Co., 337 F.3d 297, 313 (3d Cir.2003). A combination requires that “two or more persons combine or enter an agreement” to commit the unlawful act. Burnside v. Abbott Labs., 351 Pa.Super. 264, 505 A.2d 973, 980 (Pa.Super.Ct.1985). A “single entity cannot conspire with itself and, similarly, agents of a single entity cannot conspire among themselves.” Rutherfoord v. Presbyterian- University Hosp., 612A.2d 500, 508 (Pa. Super.Ct.1992). Here, Plaintiff alleges that Defendant conspired with unnamed “banks” to commit fraudulent misrepresentations and other unlawful acts. (Compl.¶¶ 65-66.) However, Plaintiff has failed to specify any individual or entity with whom Defendant conspired. Furthermore, Plaintiff has failed to produce any evidence of an agreement or combination between Defendant and another individual to commit an unlawful act. In fact, Plaintiff does not even attempt to defend this claim in her response. As Plaintiff has failed to create a genuine issue of fact, this Court grants Defendant summary judgment on Plaintiff's claim for civil conspiracy (Count VI). F. Negligent Misrepresentation Plaintiff's claim for negligent misrepresentation is barred by the economic loss doctrine. It is well established that if the economic loss doctrine is applicable, it bars actions for negligent misrepresentation. Duquesne Light Co. v. Westinghouse Elec. Corp., 66 F.3d 604, 620-21 (3d Cir.1995); see also Werwinski v. Ford Motor Co., 286 F.3d 661, 679 (3d Cir.2002). Under Pennsylvania law, the economic loss doctrine “prohibits plaintiffs from recovering in tort economic losses to which their entitlement flows only from a contract.” Duquesne, 66 F.3d at 618. “The general rule is that economic losses may not be recovered in tort (negligence) absent physical injury or property damage.” Spivack v. Berks Ridge Corp., Inc., 402 Pa.Super. 73, 586 A.2d 402, 405 (Pa.Super.Ct.1990). The purpose of this doctrine is to maintain the separation between the law of contract and the law of tort. New York State Elec. & Gas Corp. v. Westinghouse Elec. Corp., 387 Pa.Super. 537, 564 A.2d Case 3:15-cv-01987-ARC Document 70-1 Filed 02/09/17 Page 33 of 44 Smith v. John Hancock Ins. Co., Not Reported in F.Supp.2d (2008) 2008 WL 4072585 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 7 919, 925 (Pa.Super.Ct.1989). Plaintiff does not dispute that she is seeking exclusively economic damages in this lawsuit. Nor does she argue that her claims of suffering mental anguish and emotional distress remove her claims from the scope of the economic loss doctrine. Accordingly, since Plaintiff does not allege physical injury or property damage, her negligent misrepresentation claim is barred and summary judgement is granted as to that count. *9 Plaintiff argues that the claim should be allowed under Bilt-Rite Contractors, Inc. v. The Architectural Studio. 866 A.2d 270, 288 (Pa.2005). However, the Third Circuit recently interpreted Bilt-Rite as carving out only a narrow exception to the economic loss doctrine, solely allowing “recourse from an ‘expert supplier of information’ with whom the plaintiff has no contractual relationship.” Sovereign Bank v. BJ's Wholesale Club, Inc., 533 F.3d 162, 2008 WL 2745939 at *14 (3d Cir.2008) (quoting Bilt-Rite, 866 A.2d at 286). This is clearly not the case here. Not only is Defendant not an expert supplier of information but there was a contractual relationship between Plaintiff and Defendant. Hence, the economic loss doctrine bars Plaintiff's claim for negligence misrepresentation (Count II) and Defendant is entitled to summary judgment on the same. G. Fraud/Intentional Misrepresentation To establish her claim for intentional misrepresentation/ fraud, Plaintiff must establish “(1) a false representation of an existing fact or a nonprivileged failure to disclose; (2) materiality, unless the misrepresentation is intentional or involves a nonprivileged failure to disclose; (3) scienter, which may be actual knowledge or reckless indifference to the truth; (4) justifiable reliance on the misrepresentation, so that the exercise of common prudence or diligence could not have ascertained the truth; and (5) damage to him as a proximate result.” Wittekamp v. Gulf & Western, Inc., 991 F.2d 1137, 1142 (3d Cir.1993). Defendant claims that Plaintiff can show neither a material misrepresentation or omission, nor justifiable reliance. 3 3 Defendant contends that Plaintiff's claim must fail because she cannot demonstrate the materiality of the misrepresentations and omissions alleged. However, “materiality becomes important only when the misrepresentation was innocently made or when it involved a privileged failure to disclose.” Hughes v. Consol-Pennsylvania Coal Co., 945 F.2d 594,614 (3d Cir.1991). Here, Plaintiff argues that the misrepresentations were intentional and Defendant's failure to disclose was not privileged. Therefore, she need not establish materiality and the same will not bar her claim. A misrepresentation is “any artifice by which a person is deceived to his disadvantage and may be by false or misleading allegations or by concealment of what should have been disclosed, which deceives or is intended to deceive another to act upon it to his detriment.” Wilson v. Donegal Mut. Ins. Co., 410 Pa.Super. 31, 598 A.2d 1310, 1315 (Pa.Super.Ct.1991). An omission can constitute a misrepresentation as a “misrepresentation need not be in the form of a positive assertion” in order to be actionable. Smith v. Renaut, 564 A.2d 188,191 (Pa.Super.Ct.1988). However, “an omission is actionable as fraud only where there is an independent duty to disclose the omitted information.” In re Estate ofEvasew, 526 Pa. 98, 584 A.2d 910, 913 (Pa.1990) (citation omitted). Thus, to state a claim for fraud, an assertion of an omission must be accompanied by a duty to speak. Wilson, 598 A.2d at 1316. Here, Plaintiff argues Defendant made one positive misrepresentation and one omission. Plaintiff claims that there was no real bonus in her bonus annuity. Thus, in calling it a bonus annuity, Defendant made a false representation. The testimony of Plaintiff's actuarial expert, in addition to that from Ian Roke, Defendant's Assistant Vice President for Fixed Products, is sufficient evidence to create a genuine issue of material fact as to whether any bonus was actually conferred by Plaintiff's Annuity Contract. If it did not, then calling the Annuity Contract a bonus annuity would be a misrepresentation. Thus, summary judgment will not be granted on this claim. *10 Plaintiff also points to the disclosures required by the PDOI, which all parties agree were not included in Plaintiff's disclosure statements. (Temple Dep. at 26:2-8.) Before this omission maybe considered a misrepresentation actionable as fraud, however, this Court must first find a duty to speak. Here, Defendant had a duty to speak because the PDOI required certain disclosures as a condition of selling its products in Pennsylvania. (Id. at 25:10-20, 598 A.2d 1310.) As Defendant was selling its products in Pennsylvania, it had a duty to make the omitted disclosures. Hence, Plaintiff Case 3:15-cv-01987-ARC Document 70-1 Filed 02/09/17 Page 34 of 44 Smith v. John Hancock Ins. Co., Not Reported in F.Supp.2d (2008) 2008 WL 4072585 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 8 has sufficiently established misrepresentations actionable under fraud to withstand summary judgment. Plaintiff explained that the most important factor in her decision to purchase the Annuity Contract was the interest rate. (Smith Dep. at 164:21-23;165:7-10.) Hence, a reasonable juror could decide that Plaintiff relied on Defendant's misrepresentation that there was bonus interest to be had or that she would not have purchased Defendant's products but for Defendant's omission in disclosing that the bonus may be ultimately offset. It is true that Plaintiff bought the Jackson National annuities even though they contained disclosure language alerting her to the fact that the bonus annuities may not be the best deal. (Id. at 212:16-21, 598 A.2d 1310.) However, it is still a genuine issue of material fact whether Plaintiff relied upon Defendant's misrepresentations or omissions. 4 Furthermore, any reliance by Plaintiff would be justified as Plaintiff could not have ascertained that Defendant would recoup this bonus. (See infra Part III.I. 1.) 4 Defendant also argues that Plaintiff cannot show justifiable reliance because the Annuity Contract is fully integrated, requiring the exclusion of all parol evidence, including any representations made to Plaintiff prior to her purchase. Defendant claims that any oral misrepresentations or omissions were contradicted by the written materials Plaintiff failed to review. Defendant's arguments misconstrue Plaintiff's claims. For fully integrated contracts, the parol evidence rule excludes “evidence of any previous oral or written negotiations or agreements involving the same subject matter as the contract ... to explain or vary the terms of the contract.” Yocca v. Pittsburgh Steelers Sports, Inc., 578 Pa. 479, 854 A.2d 425, 436-37 (Pa.2004). However, Plaintiff is not offering evidence of any prior negotiations or agreement. Instead, she is arguing that if Defendant calls something “bonus,” then it should confer something extra to the consumer. Neither the contract nor any of the written materials given to Plaintiff in conjunction with her purchase of the Annuity Contract addressed this issue. Moreover, the basis for Plaintiff's claims is not within the scope of the Annuity Contract. Thus, the parol evidence rule is inapposite. addressed in a subsequent opinion. Defendant argues that this claim is barred by the economic loss doctrine as well. While the Third Circuit declined to carve out a broad exception to the economic loss doctrine, encompassing all intentional fraud, it did acknowledge an emerging trend recognizing “a limited exception to the economic loss doctrine for fraud claims, but only where the claims at issue arise independent [ly] of the underlying contract.” Werwinski, 286 F.3d at 676,681; cf. O'Keefe v. Mercedez-Benz USA, LLC, 214 F.R.D. 266, 278 (E.D.Pa.2003) ( “Pennsylvania's economic loss doctrine is inapplicable to intentional torts.”). In other words, when the fraud is “ ‘extraneous to the contract’ ” and not “ ‘interwoven with the breach of the contract,’ ” the court opined that an exception to the economic loss doctrine may exist. Id. (quoting Huron & Tool Eng'g Co. v. Precision Consulting Servs., Inc., 209 Mich.App. 365, 532 N.W.2d 541, 545 (Mich.Ct.App.1995). Here, the fraud alleged in Count I is a classic fraud-inthe inducement claim where the fraud is not only extraneous to the contract but also unrelated to any breach of contract. Thus, the economic loss doctrine does not bar Plaintiff's claim for fraud/intentional misrepresentation (Count I), and Defendant is not entitled to summary judgment on this count. H. UTPCPL Claim Defendant claims that the Annuity Contract performed exactly as it should have and that therefore Plaintiff's claim under the UTPCPL must be dismissed. However, as discussed supra, Plaintiff has produced sufficient evidence to create a genuine issue of material fact as to whether calling the Annuity Contract a “bonus annuity” was simply a marketing ploy meant to hook potential purchasers. (See supra Part III.G.) Such conduct would certainly be actionable under the UTPCPL as “advertising goods or services with intent not to sell them as advertised” or as “fraudulent and deceptive conduct which creates a likelihood of confusion or of misunderstanding.” 73 Pa. Stat. § § 201-2(4)(ix), (xxi) (1996). *11 A claim under the UTPCPL requires proof of reliance, even if brought under the post-1996 catch- all provision. Hunt v. United States Tobacco Co., --- F.3d ----, 2008 W 2967249 at *2 (3d Cir. April 17, 2008). However, as also explained supra, Plaintiff has produced sufficient evidence of justifiable reliance to defeat summary judgment on such grounds. (See supra Part III.G.) Moreover, this claim is not barred by the economic loss doctrine. The Third Circuit has held that “the same policy Case 3:15-cv-01987-ARC Document 70-1 Filed 02/09/17 Page 35 of 44 Smith v. John Hancock Ins. Co., Not Reported in F.Supp.2d (2008) 2008 WL 4072585 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 9 justifications for applying the economic loss doctrine to common law intentional fraud claims supports the doctrine's application to[ ] UTPCPL claims.” Werwinski, 286 F.3d at 681. Therefore, for the same reasons the economic loss doctrine does not bar Plaintiff's fraud/ intentional misrepresentation claim (see supra Part III.G), the doctrine does not bar Plaintiff's UTPCPL claim either. Hence, Defendant is not entitled to summary judgment on Plaintiff's UTPCPL claim (Count IX). I. Defendant's Remaining Affirmative Defenses Fail 1. Statute ofLimitations Defendant argues that Plaintiff's tort claims are barred by Pennsylvania's two-year statute of limitations pursuant to 42 Pa. Const. Stat. Ann. § 5524(7). (Def.'s Mem. of Law in Supp. of Def.'s Mot. for Summ. J. [hereinafter “Def.'s Mem.”] at 30.) However, under Pennsylvania law, the statute of limitations will be tolled by the discovery rule “when the underlying cause of action sounds in fraud, and [ ] the statute of limitations is tolled until the plaintiff learns or reasonably should have learned through the exercise of due diligence of the existence of the claim.” Beauty Time, Inc. v. VU Skin Systems, Inc., 118 F.3d 140, 148 (3d Cir.1997). The discovery rule is based on “the inability of the injured, despite the exercise of reasonable diligence to know that he is injured and by what cause.” Fine v. Checcio, 582 Pa. 253, 870 A.2d 850, 858 (Pa.2005) (quoting Pocono Int'l Raceway, Inc. v. Pocono Produce, Inc., 503 Pa. 80, 468 A.2d 468, 471 (Pa.1983)). Reasonable diligence “is what is expected from a party who has been given reason to inform himself of the facts upon which his right to recovery is premised.” Fine, 870 A.2d at 858. In other word, there must be “some reason to awaken inquiry.” Id. (quoting Crouse v. Cyclops Indus., 560 Pa. 394, 745 A.2d 606, 611 (Pa.2000)). Here, viewing the record in the light most favorable to Plaintiff, there was no reason for Plaintiff to believe at the time she purchased the annuity that Defendant would ultimately recoup her first year bonus. Neither the contract nor any of the disclosures attached at the time of her purchase served to put Plaintiff on notice, and Defendant does not claim that any subsequent events should have alerted her to the fact that she had been injured. After reviewing the actuarial testimony, this Court is inclined to agree that only a professional actuary could have discovered Defendant's alleged fraud. Thus, this Court finds that Plaintiff was given no reason to exercise reasonable diligence. Plaintiff had no way of ascertaining either that she was injured or the cause thereof. Therefore, Plaintiff's claims are not precluded by the statute of limitations. 5 5 As this Court finds the statute of limitations is tolled by the discovery rule, it need not decide whether the fraudulent concealment doctrine applies. 2. Gist of the Action Doctrine *12 Defendant argues that the gist of the action doctrine bars Plaintiff's tort claims. In Pennsylvania, the gist of the action doctrine requires that the gist of an action in tort be “the [tortious] wrong ascribed to the defendant ... with the contract being collateral.” BohlerUddeholm America, Inc. v. Ellwood Group, Inc., 247 F.3d 79,103 (3d Cir.2001). The doctrine bars 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.” Hart v. Arnold, 884 A.2d 316, 340 (Pa.Super.Ct.2005). Plaintiff's tort claims arise out of Defendant's allegedly fraudulent and deceptive practices in marketing an illusionary bonus and in not making the required disclosures. Thus, her claims do not arise solely from a contract, the duties involved cannot be found in the contract between the parties, liability does not stem from a contract, and their success is not dependent on the terms of the parties' contract. Moreover, Plaintiff's tort claims do not duplicate a breach of contract claim-indeed, Plaintiff's claims sound in tort and not in contract. (See supra Part III.A.) As a result, the gist of the action doctrine does not bar any of Plaintiff's remaining tort claims. 3. Damages Defendant argues that Plaintiff has not produced evidence of actual damages for each of her claims. (Def.'s Mem. at 31.) Defendant contends that since Plaintiff received what she was contractually promised, she did not suffer any legally cognizable damages and this court must dismiss all of her claims. (Def.'s Mem. at 32.) However, Plaintiff asserts that she was entitled to permanently retain the bonus interest initially credited to her. In support of her claim for damages, Plaintiff has produced Case 3:15-cv-01987-ARC Document 70-1 Filed 02/09/17 Page 36 of 44 Smith v. John Hancock Ins. Co., Not Reported in F.Supp.2d (2008) 2008 WL 4072585 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 10 testimony that if her Annuity Contract did not offer a bonus interest rate in its first year, then she would have received more interest in the subsequent years of her Annuity Contract. (Roke Dep. at 73:5-19.) Furthermore, Plaintiff's actuarial expert testified that the base rate paid to Plaintiff should have been 20 basis points higher each year in order for her to have truly received a bonus. (Cutlip Dep. at 109:6-12.) Thus, this Court finds that not only has Plaintiff sufficiently alleged damages, she has also produced enough evidence to create a genuine issue of material fact as to what damages she sustained. Hence, this Court will not dismiss Plaintiff's remaining claims on this ground. As for the punitive damages sought by Plaintiff, when there is sufficient evidence to establish actual fraud, “the decision of whether to award punitive damages and the amount to be awarded are within the discretion of the factfinder.” Noyes v. Cooper, 396 Pa.Super. 592, 579 A.2d 407, 413 (Pa.Super.Ct.1990) (citing Delahanty v. First Pennsylvania Bank, N.A., 318 Pa.Super. 90, 464 A.2d 1243, 1263 (Pa.Super.Ct.1983)). Moreover, a fact pattern supporting “a finding of intentional fraud without providing proof of ‘outrageous conduct’ to support an award of punitive damages” is hard to envision. Id. Therefore, if Plaintiff produces sufficient evidence to support a finding of intentional fraud, then an award of punitive damages is an issue for the factfinder. Hence, this Court will decline at this time to limit Plaintiff's ability to recover such damages. IV. CONCLUSION *13 For the foregoing reasons, Defendant's motion for summary judgment is granted in part and denied in part. An appropriate Order follows. ORDER AND NOW, this 2nd day of September, 2008, upon consideration of Defendant's motion for summary judgment (Document No. 70), Plaintiff's response thereto and Defendant's reply thereon, and for the foregoing reasons it is hereby ORDERED that Defendant's motion is GRANTED in part and DENIED in part as follows: 1. Defendant's motion as to Plaintiff's claims for negligent misrepresentation (Count II), negligence (Count III), breach of fiduciary duty (Count IV), breach of contract (Count V), civil conspiracy (Count VI), unjust enrichment (Count VII) and disgorgement (Count IIX) is GRANTED and said claims are DISMISSED; and Defendant's motion as to Plaintiff's claims for fraud/ intentional misrepresentation (Count I) and violations of the UTPCPL (Count IX) is DENIED. All Citations Not Reported in F.Supp.2d, 2008 WL 4072585 End of Document © 2017 Thomson Reuters. No claim to original U.S. Government Works. Case 3:15-cv-01987-ARC Document 70-1 Filed 02/09/17 Page 37 of 44 UHS of Delaware, Inc. v. United Health Services, Inc., Not Reported in F.Supp.3d (2015) 2015 WL 7294454 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 1 2015 WL 7294454 Only the Westlaw citation is currently available. United States District Court, M.D. Pennsylvania. UHS of Delaware, Inc., Plaintiff v. United Health Services, Inc., et al., Defendants CIVIL ACTION NO. 1:12-CV-485 | Singed 11/19/2015 Attorneys and Law Firms Martin W. Hayes, Williams Mullen, Tysons Corner, VA, Robert C. Van Arnam, Williams Mullen P.C., Raleigh, NC, Thomas B. Schmidt, III, Tucker R. Hull, Pepper Hamilton LLP, Harrisburg, PA, William P. Dickinson, III, Williams Mullen, Richmond, VA, for Plaintiff. Aldo Noto, Charles M. Crout, Robert A. Gutkin, Andrews Kurth LLP, Washington, DC, Timothy J. Nieman, Allen C. Warshaw, Rhoads & Sinon LLP, Harrisburg, PA, for Defendants. MEMORANDUM Christopher C. Conner, Chief Judge, United States District Court Middle District of Pennsylvania *1 The instant matter arises from a trademark dispute between plaintiff UHS of Delaware, Inc. (“UHS Delaware”) and defendants United Health Services, Inc., (“United Health Services”), United Health Services Hospitals, Inc., Professional Home Care, Inc., Twin Tier Home Health, Inc., Ideal Senior Living Center, Inc., Ideal Senior Living Center Housing Corporation, Delaware Valley Hospital, Inc., and United Medical Associates. Presently before the court is UHS Delaware's motion (Doc. 125) to dismiss Counts I, II, and III of the counterclaim. I. Factual Background and Procedural History 1 1 In accordance with the standard of review for a Rule 12(b)(6) motion to dismiss, the court will “accept all well-pleaded facts in the complaint as true and view them in the light most favorable” to United Health Services. Carino v. Stefan, 376 F.3d 156, 159 (3d Cir. 2004). UHS Delaware commenced this action with the filing of a complaint (Doc. 1) on March 16, 2012, subsequently filing an amended complaint (Doc. 9) on April 26, 2012, and a second amended complaint (Doc. 14-3) on June 5, 2012. Therein, UHS Delaware asserts trademark infringement and unfair competition claims under state and federal statutes. UHS Delaware alleges that it owns a federal registration for the word mark “UHS” assigned Registration No. 1,696,433 (“the '433 mark”), and for the stylized logo mark “UHS” assigned Registration No. 2,741,663 (“the '663 mark”). (Doc. 14-3 ¶¶ 21-22; Doc. 114 ¶¶ 21-22). UHS Delaware avers that defendants' recent rebranding initiative involving a similar mark and logo infringes upon its federally registered trademark rights. United Health Services is the parent corporation of a health care delivery system comprised of the collective defendants. (Doc. 114 ¶¶ 152, 154-59). United Health Services asserts a number of counterclaims against UHS Delaware, specifically seeking cancellation of both the '433 and '663 marks in Counts I, II, and III. According to United Health Services, its health care system provides hospital services in the southern tier of New York and has provided such services under the word mark “UHS” since the 1980s. (See id. ¶ 166). United Health Services alleges that it possesses common law ownership rights to the UHS word mark and that its rights are superior to and predate UHS Delaware's federal registrations. (See id. at 6, ¶¶ 192, 199). Central to its cancellation claims, United Health Services contends that UHS Delaware knew of its prior use of, and superior rights to, the subject marks at the time that UHS Delaware applied for federal registrations. (See id. ¶¶ 185-86, 192, 199). United Health Services also asserts that UHS Delaware did not use the UHS word mark in commerce prior to its application for or the registration of the '433 word mark. (See id. ¶¶ 176-79). United Health Services maintains that UHS Delaware misrepresented this information for the purpose of obtaining federal registrations to which it was not lawfully entitled. (Id. ¶¶ 192(d), 199(d)). In Counts IV and V, United Health Services seeks a declaratory judgment that it has common law rights to the '433 word mark and that UHS Delaware has no rights in the word mark for use in the medical equipment rental business. (Id. ¶¶ 201-25). Case 3:15-cv-01987-ARC Document 70-1 Filed 02/09/17 Page 38 of 44 UHS of Delaware, Inc. v. United Health Services, Inc., Not Reported in F.Supp.3d (2015) 2015 WL 7294454 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 2 *2 UHS Delaware responded to United Health Services' counterclaims with the instant motion (Doc. 125) to dismiss pursuant to Federal Rule of Civil Procedure 12(b) (6). UHS Delaware seeks dismissal of Counts I, II, and III of United Health Services' counterclaim, or alternatively, a more definite statement. The motion is fully briefed and ripe for disposition. II. Standard of Review Rule 12(b)(6) of the Federal Rules of Civil Procedure provides for the dismissal of complaints that fail to state a claim upon which relief may be granted. FED. R. CIV. P. 12(b)(6). When ruling on a motion to dismiss under Rule 12(b)(6), the court must “accept all factual allegations as true, construe the complaint in the light most favorable to the plaintiff, and determine whether, under any reasonable reading of the complaint, the plaintiff may be entitled to relief.” Phillips v. Cty. of Allegheny, 515 F.3d 224, 233 (3d Cir. 2008). Federal notice and pleading rules require the complaint to provide “the defendant fair notice of what the...claim is and the grounds upon which it rests.” Phillips, 515 F.3d at 232 (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). To test the sufficiency of the complaint, the court must conduct a three-step inquiry. See Santiago v. Warminster Twp., 629 F.3d 121, 130-31 (3d Cir. 2010). In the first step, “the court must 'tak[e] note of the elements a plaintiff must plead to state a claim.' ” Id. at 130 (quoting Ashcroft v. Iqbal, 556 U.S. 662, 675 (2009)). Next, the factual and legal elements of a claim should be separated; well-pleaded facts must be accepted as true, while mere legal conclusions may be disregarded. Id. at 131; see also Fowler v. UPMC Shadyside, 578 F.3d 203, 210-11 (3d Cir. 2009). Once the court isolates the well- pleaded factual allegations, it must determine whether they are sufficient to show a “plausible claim for relief.” Iqbal, 556 U.S. at 679 (citing Twombly, 550 U.S. at 556); Twombly, 550 U.S. at 555 (requiring plaintiffs to allege facts sufficient to “raise a right to relief above the speculative level”). A claim “has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678. Courts should grant leave to amend before dismissing a curable pleading in civil rights actions. See Fletcher- Harlee Corp. v. Pote Concrete Contractors, Inc., 482 F.3d 247, 251 (3d Cir. 2007); Grayson v. Mayview State Hosp., 293 F.3d 103, 108 (3d Cir. 2002). Courts need not grant leave to amend sua sponte in dismissing non-civil rights claims pursuant to Rule 12(b)(6), Fletcher-Harlee Corp., 482 F.3d at 251, but leave is broadly encouraged “when justice so requires.” FED. R. CIV. P. 15(a)(2). III. Discussion United Health Services seeks cancellation of both the '433 word mark and the '663 stylized mark. In Count I, United Health Services asserts that the '433 word mark is void ab initio because it was not used in commerce by UHS Delaware before its application or registration date. In Counts II and III, United Health Services asserts that the '433 word mark and the '663 stylized mark are cancellable because UHS Delaware did not disclose known users with superior rights to the subject marks to the United States Patent and Trademark Office. UHS Delaware responds that neither failure to use nor failure to disclose is a cognizable ground for cancellation of an incontestable mark. UHS Delaware further contends that, to the extent United Health Services attempts to assert a cancellation claim for fraud in procurement of the marks, it fails to satisfy the heightened pleading standard for fraud claims set forth in Federal Rule of Criminal Procedure 9(b). *3 The Lanham Act authorizes federal courts to “determine the right to registration, order the cancellation of registrations,...and otherwise rectify the register with respect to the registrations of any party to the action.” 15 U.S.C. § 1119. Once a mark becomes incontestable, however, the registration becomes “conclusive evidence of the registrant's exclusive right to use the mark, subject to the conditions of” § 1065, regarding incontestability, and § 1115(b)(1), enumerating nine grounds for cancellation of an incontestable mark. Park 'N Fly, Inc. v. Dollar Park and Fly, Inc., 469 U.S. 189, 196 (1985); see also 15 U.S.C. §§ 1065, 1115(b); 3 J. THOMAS MCCARTHY, TRADEMARKS AND UNFAIR COMPETITION § 20:55 (4th ed. 2015) (herein “MCCARTHY”). The instant motion raises two issues derivative of these general principles: first, whether the registrations have become incontestable and, second, whether United Health Services has sufficiently pled a claim of fraud in the procurement of either or both of the registrations. The court will address these inquiries seriatim. A. Incontestability Case 3:15-cv-01987-ARC Document 70-1 Filed 02/09/17 Page 39 of 44 UHS of Delaware, Inc. v. United Health Services, Inc., Not Reported in F.Supp.3d (2015) 2015 WL 7294454 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 3 A registered trademark becomes incontestable when its owner files an affidavit with the Director of the United States Patent and Trademark Office attesting “that the mark has been registered, that it has been in continuous use for five consecutive years, and that there is no pending proceeding and there has been no adverse decision concerning the registrant's ownership or right to registration.” Fisons Horticulture, Inc. v. Vigoro Indus., Inc., 30 F.3d 466, 472 n.7 (3d Cir. 1994) (citing 15 U.S.C. §§ 1058, 1065). Incontestability is not automatic; the protective status is contingent upon the registrant's filing of an affidavit of incontestability. See 15 U.S.C. § 1065(c); see also United States Soo Bahk Do Moo Duk Kwan Fed'n, Inc. v. Tang Soo Karate School, No. 3:12-CV-669, 2015 WL 4920306, at *20 (M.D. Pa. Aug. 17, 2015) (Mariani, J.). In other words, five years' of consecutive use and “compliance with statutory formalities” will render a registration incontestable. 2 MCCARTHY § 15:35; see also 15 U.S.C. § 1065. In Count I of its counterclaim, United Health Services asserts a claim for cancellation of the '433 mark on the ground that the mark is void ab initio for UHS Delaware's failure to use it in commerce prior to registration. (Doc. 114 ¶¶ 174-80). UHS Delaware answers that the '433 mark is federally registered, that its compliance with the requirements of 15 U.S.C. § 1065 renders the mark incontestable, and that “failure to use” is not a defense against an incontestable mark. (See Doc. 126 at 7-10; see also Doc. 14-3 ¶¶ 21-22, 48, 72). United Health Services does not challenge UHS Delaware's compliance with the requirements of § 1065. (See Doc. 130 at 9-15). Rather, United Health Services appears to argue that a mark cannot become incontestable in the first instance when its registrant failed to use the mark in commerce prior to registration. (See id. at 7-15). United Health Services relies on NetJets, Inc. v. Intellijet Group, LLC, No. 2:12-CV-69, 2013 WL 5675464 (S.D. Ohio Oct. 17, 2013) as support for its position. (See id. at 7-15). In NetJets, infringement defendant Intellijet sought to amend its pleading to include a claim for cancellation mirroring Count I of United Health Services' counterclaim sub judice, to wit: that a registration was void ab initio for failure to use the mark prior to registration. A magistrate judge denied Intellijet's motion, concluding that the subject mark was incontestable and that “failure to use” and “void ab initio” are not enumerated bases for cancelling incontestable marks. See id. at *2. Intellijet objected to the magistrate judge's order and filed a motion for reconsideration with the district court judge. See id. On appeal, the district court agreed with Intellijet and allowed amendment. Id. *4 Regarding incontestability, the district court grounded its ruling in a literal reading of the Supreme Court's decision in Park 'N Fly. The Court in Park 'N Fly observed that incontestable status is “conclusive evidence of the registrant's right to use the mark, subject to the conditions of [§ 1065] and the...defenses enumerated in [§ 1115(b)] itself.” Park 'N Fly, 469 U.S. at 196 (emphasis added). The district court in NetJets construed this conjunctive language to mandate a threshold judicial assessment of a registrant's compliance with § 1065 before designating a mark incontestable. See NetJets, 2013 WL 5675464, at *3. Intellijet's proposed amended counterclaim alleged that NetJets had not satisfied the continuous use requirement of § 1065; consequently, the court held that Intellijet had stated a viable claim challenging incontestability status. See id. The court further opined that even if the mark was incontestable, Intellijet had sufficiently pled fraud in the procurement on the basis of fraudulent representations of use in the initial registration application. See id. at *3-6. The NetJets court did not hold, as United Health Services suggests, that an incontestable mark may be cancelled on the basis of a defense not enumerated in § 1115(b), or that “failure to use” a mark is a defense contemplated by the statute. Rather, the court held that a defendant charged with infringement may assert in a counterclaim that the mark never attained incontestable status in the first instance, by virtue of noncompliance with the requirements of § 1065. See NetJets, 2013 WL 5675464, at *3. The NetJets court characterized Intellijet's proposed claim as alleging “that NetJets failed to obtain incontestability status in the first place,” casting its primary inquiry as whether NetJets satisfied “an element of § 1065 itself.” Id. Hence, to the extent that United Health Services cites NetJets for the proposition that failure to use a mark is a basis for cancellation under § 1115(b)(1), the court must disagree. This construction conflates NetJets' two holdings: first, that a reviewing court must independently assess a plaintiff's allegation that a mark is incontestable, and separately, that a mark which is incontestable may be subject to cancellation if the registrant fraudulently misrepresents its use of the mark in its registration application. See id. at *3-7. Case 3:15-cv-01987-ARC Document 70-1 Filed 02/09/17 Page 40 of 44 UHS of Delaware, Inc. v. United Health Services, Inc., Not Reported in F.Supp.3d (2015) 2015 WL 7294454 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 4 An important component of the NetJets analysis was Intellijet's express allegation that NetJets had failed to comply with the requirements of § 1065. See NetJets, 2013 WL 5675464, at *3. The court permitted Intellijet to amend its counterclaim because Intellijet had pled facts establishing NetJets' failure to satisfy the continuous use requirement of § 1065. See id. United Health Services does not plead any such deficiency in UHS Delaware's asserted incontestability status. United Health Services instead moors its claim in UHS Delaware's purported failure to use the mark in commerce prior to its registration application, (see Doc. 114 ¶¶ 176-80; see also Doc. 130 at 11), which is appropriately construed as a fraud in the procurement claim pursuant to 15 U.S.C. § 1115(b)(1). See NetJets, 2013 WL 5676465, at *3-7. The court will dismiss Count I of United Health Services' counterclaim to the extent that count attempts to state a void ab initio challenge to the incontestable '433 registration. B. Fraud in Procurement of Registration Section 1115(b) enumerates nine “defenses or defects” to which an incontestable registration is subject. 15 U.S.C. § 1115(b). The first, that “the registration or the incontestable right to use the mark was obtained fraudulently,” 15 U.S.C. § 1115(b)(1), is the only basis for cancellation ostensibly applicable. United Health Services does not label its counterclaims as fraudulent procurement claims pursuant to § 1115(b)(1). Nonetheless, United Health Services claims that UHS Delaware misrepresented and did not disclose material facts in its applications to register the '433 and '633 marks. Its allegations are consistent with a legal theory of fraud. The court construes Counts I, II, and III as claims for fraud in the procurement and will analyze them through the prism of § 1115(b)(1). *5 A finding of fraud in procuring a registration requires proof of the following elements: (1) the challenged representation was a false statement of material fact; (2) the person making the representation knew of its falsity; (3) the person making the representation did so with an intent to deceive; (4) the patent and trademark office relied on the representation; and (5) damage resulted from such reliance. See Primepoint LLC v. PrimePay, Inc., 545 F. Supp. 2d 426, 446-47 (D.N.J. 2008) (quoting Le Cena Fine Foods, Ltd. v. Jennifer Fine Foods, No. 01-CV-5746, 2006 WL 2014503, at *4 (D.N.J. July 18, 2006)); see also 6 MCCARTHY § 31:61. UHS Delaware contends that United Health Services' pleading fails to allege each of these elements “with particularity” as required by Federal Rule of Civil Procedure 9(b). See FED. R. CIV. P. 9(b). UHS Delaware also asserts that failure to use does not constitute fraudulent procurement and that a registration applicant has no duty to disclose known inferior uses of its mark. (See Doc. 126 at 5-14). The court first addresses UHS Delaware's use and disclosure arguments before turning to the sufficiency of the counterclaims measured against Rule 9(b). 1. Failure to Use UHS Delaware contends that “failure to use” is not an authorized basis for cancellation of an incontestable trademark. (Doc. 126 at 5-7; Doc. 131 at 3-5). As noted, § 1115(b)(1) does not list “failure to use” as a statutory basis for challenging an incontestable mark. See 15 U.S.C. § 1115(b)(1). At least two courts have rejected stand-alone cancellation claims premised on an alleged failure to use the mark. See, e.g., Ferring B.V. v. Fera Pharm., LLC, No. 13-4640, 2014 WL 4829053 (E.D.N.Y. Aug. 13, 2014), report and recommendation adopted by 2014 WL 4829458 (E.D.N.Y. Sept. 29, 2014); Collectable Promotional Prods., Inc. v. Disney Enters., Inc., No. CIV-06-1187, 2009 WL 1543449, at *7-8 (W.D. Okla. 2009). The court's research reveals no judicial decision authorizing an independent cause of action on a failure to use theory. Hence, the court agrees with UHS Delaware that a registration's incontestable status “forecloses a challenge to the registration as void ab initio because there was no use prior to registration.” 3 MCCARTHY § 32:148. The court rejects, however, any contention that alleged failure to use cannot inform a fraudulent procurement analysis. Several courts have held that misrepresentations regarding use of a mark may undergird a fraudulent procurement claim. In Collectable Promotional Products, for example, the District Court for the Western District of Oklahoma observed that “cancellation could arguably be sought on the grounds that [a registrant] fraudulently misrepresented the date of use...in its trademark application.” Collectable Promotional Prods., 2009 WL 1543449, at *8. Similarly, the NetJets court construed a proposed void ab initio claim as one for fraudulent procurement, noting that “[i]n essence, Intellijet is arguing that NetJets registration was obtained Case 3:15-cv-01987-ARC Document 70-1 Filed 02/09/17 Page 41 of 44 UHS of Delaware, Inc. v. United Health Services, Inc., Not Reported in F.Supp.3d (2015) 2015 WL 7294454 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 5 fraudulently” because NetJets allegedly “made a false statement in its registration application when it stated that the mark was used in interstate commerce.” NetJets, 2013 WL 5675464, at *5-6. The court holds that, subject to satisfaction of the prima facie elements of a fraud claim, an applicant's misrepresentations concerning the use of a mark may provide the basis of a § 1115(b)(1) claim. 2. Failure to Disclose UHS Delaware also contends that a registrant's failure to disclose prior uses of a similar mark is not a basis for cancellation if the subject mark has become incontestable. (See Doc. 126 at 11-14; Doc. 131 at 8-9). UHS Delaware cites McCarthy on Trademarks for its proposition that “such charges...have uniformly been rejected.” 6 MCCARTHY § 31:75. A number of district courts have reached the same conclusion: that unwitting failure to disclose use of a similar mark will not suffice to state a fraudulent procurement claim. See, e.g., Pandora Jewelers 1995, Inc. v. Pandora Jewelry, LLC, No. 09- CV-61490, 2011 WL 2174012, at *13-14 (S.D. Fla. June 2, 2011); Whirlpool Props., Inc. v. LG Electronics U.S.A., Inc., No. 1:03-CV-414, 2005 WL 3088339, at *25 (W.D. Mich. Nov. 17, 2005); ISP.Net, LLC v. Qwest Commc'ns Int'l, Inc., No. 01-0480, 2003 WL 21254430, at *4-5 (S.D. Ind. May 27, 2003). As one court observed, such claims “presuppose a duty that the law does not recognize” because the “registration applicant has no duty to investigate and report to the PTO all other possible users of the same or similar mark.” Whirlpool Props., 2005 WL 3088339, at *25. *6 It is true that an applicant has no duty to disclose every known use of its mark. See 6 MCCARTHY § 31:75. However, as McCarthy notes, a § 1115(b)(1) cause of action does exist for intentional failure to disclose superior uses of a mark. See 6 MCCARTHY § 31:75. Several district courts and the United States Trademark Board have held that the Lanham Act contemplates such a claim. See, e.g., Scooter Store, Inc. v. SpinLife.com, LLC, 777 F. Supp. 2d 1102, 1110-12 (S.D. Oh. Apr. 18, 2011); Whirlpool Props., 2005 WL 3088339, at *25; Ohio State Univ. v. Ohio Univ., 51 U.S.P.Q.2d 1289, 1293 (T.T.A.B. 1999); Intellimedia Sports, Inc. v. Intellimedia Corp., 43 U.S.P.Q.2d 1203, 1206 (T.T.A.B. 1997). To prevail, the party claiming that the applicant's oath or declaration was fraudulent must allege with particularity that: (1) there was in fact another use of the same or a confusingly similar mark at the time the oath was signed; (2) the other user had legal rights superior to applicant's rights; (3) applicant knew that the other user had rights in the mark superior to applicant's, and either believed that a likelihood of confusion would result from applicant's use of its mark or had no reasonable basis for believing otherwise; and (4) applicant, in failing to disclose these facts to the Patent and Trademark Office, intended to procure a registration to which applicant was not entitled. 6 MCCARTHY § 31:75 (quoting Qualcomm Inc. v. FLO Corp., 93 U.S.P.Q.2d 1768, 1768 (T.T.A.B. 2010); Ohio State Univ., 51 U.S.P.Q.2d at 1293; Intellimedia Sports, 43 U.S.P.Q.2d at 1206). An applicant cannot be liable for fraudulent procurement if, at the time of the oath, the applicant “ha[d] a good-faith belief that it is the senior user” of the mark. Whirlpool, 2005 WL 3088339, at *25 (quoting 6 MCCARTHY § 31:77). In other words, to support such a fraud claim, “a challenging party must adduce evidence that the registrant actually knew or believed that someone else had a right to the mark.” Marshak v. Treadwell, 240 F.3d 184, 196-97 & n.8 (3d Cir. 2001) (emphasis added). UHS Delaware acknowledges that intentional failure to disclose superior rights to a mark is a valid basis for cancellation but maintains that only a “rare circumstance” will satisfy the stringent pleading and proof standards. (Doc. 126 at 12 (quoting Whirlpool, 2005 WL 3088339, at *25)). Hence, the court's central inquiry is not whether the Lanham Act contemplates liability for failure to disclose known and superior rights, but whether United Health Services pleads sufficient facts to substantiate that claim. 3. Sufficiency of the Pleadings UHS Delaware's final salvo tests the sufficiency of United Health Services' allegations against the governing standards identified supra and the particularity in pleading requirement of Federal Rule of Civil Procedure Rule 9(b). Rule 9(b) mandates that a party alleging fraud or mistake Case 3:15-cv-01987-ARC Document 70-1 Filed 02/09/17 Page 42 of 44 UHS of Delaware, Inc. v. United Health Services, Inc., Not Reported in F.Supp.3d (2015) 2015 WL 7294454 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 6 “state with particularity the circumstances constituting fraud or mistake.” FED. R. CIV. P. 9(b). UHS Delaware maintains that United Health Services fails to satisfy this heightened standard, attacking both the sufficiency of United Health Services' factual allegations and its use of “upon information and belief” pleading. (Doc. 126 at 9-14; Doc. 131 at 5-8). The challenging party in fraudulent procurement actions “bears a heavy burden of proof.” In re Bose Corp., 580 F.3d 1240, 1243 (Fed. Cir. 2009); Tang Soo Karate School, 2015 WL 4920306, at *29; Muhlenberg Coll. v. Sportswear, Inc., No. 13-7197, 2015 WL 713842, at *2 (E.D. Pa. Feb. 19, 2015). A fraudulent procurement charge must “be proven 'to the hilt' with clear and convincing evidence.” In re Bose, 580 F.3d at 1243 (quoting Smith Int'l, Inc. v. Olin Corp., 209 U.S.P.Q. 1033, 1044 (T.T.A.B. 1981)). At the motion to dismiss stage, the heightened Rule 9(b) standard requires a challenging party to allege particular facts establishing “the 'who, what, when, where [,] and how' of the events” constituting the fraud. In re Rockefeller Ctr. Props., Inc. Sec. Litig., 311 F.3d 198, 217 (3d Cir. 2002) (quoting In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1422 (3d Cir. 1997)). *7 United Health Services' counterclaims fall well short of Rule 9(b)'s pleading requirement. Count I asserts only that the '433 word mark “had not been used” by UHS Delaware prior to its application in May of 1991 or its registration in June of 1992. (Doc. 114 ¶¶ 176-77). United Health Services' pleading does not delineate any false statement made by UHS Delaware, nor does it establish requisite subjective intent to deceive. (See id. ¶¶ 176-79). Counts II and III allege only that UHS Delaware was aware of simultaneous and similar uses of the word mark and one prior use of a similar stylized mark. (See id. ¶¶ 183-91; 196-98). United Health Services asserts in conclusory fashion that each prior user had “legal rights superior to” UHS Delaware's rights, without establishing bases for the asserted superiority or UHS Delaware's knowledge of the allegedly superior rights. (See id. ¶¶ 192(a), 199(a)). At their core, United Health Services' challenged counts are little more than formulaic recitations. (See id. ¶¶ 192, 199). This factual deficiency is compounded by the counterclaim's reliance on the catch phrase “upon information and belief.” (Doc. 114 ¶¶ 168-72, 176-79, 185-86, 189-92, 196-99). Courts within this circuit consistently hold that pleadings based on “information and belief” are insufficient to satisfy the Rule 9(b) particularity requirement. See, e.g., Zavala v. Wal-Mart Stores, Inc., 393 F. Supp. 2d 295, 313-14 (D.N.J. 2005); Toner v. Allstate Ins. Co., 821 F. Supp. 276, 285 (D. Del. 1993); Kimmel v. Peterson, 565 F. Supp. 475, 482 (E.D. Pa. 1983); see also 2A JAMES WM. MOORE ET AL., MOORE'S FEDERAL PRACTICE § 9.03[g] (3d ed. 2015). UHS Delaware correctly observes that such allegations satisfy Rule 9(b) “only if the pleading sets forth specific facts upon which the belief is reasonably based.” Rapid Models & Prototypes, Inc. v. Innovated Solutions, 71 F. Supp. 3d 492, 504 n.7 (D.N.J. 2014); see also Kimmel, 565 F. Supp. at 482. United Health Services offers no such foundation for its allegations made upon information and belief. The Third Circuit Court of Appeals recognizes that strict application of Rule 9(b)'s particularity requirement may allow “sophisticated defrauders to successfully conceal the details of their fraud.” Craftmatic Sec. Litig. v. Kraftsow, 890 F.2d 628, 645 (3d Cir. 1989); see also In re Burlington, 114 F.3d at 1418 (quoting Shapiro v. UJB Fin. Corp., 964 F.2d 272, 284-85 (3d Cir. 1992)). In Craftmatic, the Third Circuit panel adopted a “relaxed” Rule 9(b) pleading standard when a plaintiff asserts that information necessary to particularize its pleading is exclusively within the control and knowledge of the alleged defrauder. Craftmatic, 890 F.2d at 645. However, even under this “relaxed” standard, conclusory assertions will not suffice. See In re Burlington, 114 F.3d at 1418 (citing Shapiro, 964 F.2d at 285); Zavala, 393 F. Supp. 2d at 314. A party must still identify facts supporting its belief and “set forth 'the nature and scope of [its] efforts to obtain, before filing [its pleading], the information needed to plead with particularity.” Zavala, 393 F. Supp. 2d at 314 (quoting In re Am. Travellers Corp. Sec. Litig., 806 F. Supp. 547, 554 (E.D. Pa. 1992)). Although Craftmatic and its progeny are securities fraud cases and their holdings have since been codified in the Private Securities Litigation Reform Act, see 15 U.S.C. § 78u-4(b) (1)(B), courts routinely apply their standards to other fraud claims. See, e.g., Rapid Models & Prototypes, 71 F. Supp. 3d at 504 n.7; Zavala, 393 F. Supp. 2d at 314. IV. Conclusion *8 The court concludes that United Health Services' counterclaims fail to survive Rule 9(b) scrutiny. The court Case 3:15-cv-01987-ARC Document 70-1 Filed 02/09/17 Page 43 of 44 UHS of Delaware, Inc. v. United Health Services, Inc., Not Reported in F.Supp.3d (2015) 2015 WL 7294454 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 7 will grant UHS Delaware's motion to dismiss Counts I, II, and III of United Health Services' counterclaim. Dismissal will be without prejudice to the right of United Health Services to amend its pleading to attempt to cure the deficiencies identified herein. An appropriate order shall issue. All Citations Not Reported in F.Supp.3d, 2015 WL 7294454 End of Document © 2017 Thomson Reuters. No claim to original U.S. Government Works. Case 3:15-cv-01987-ARC Document 70-1 Filed 02/09/17 Page 44 of 44
