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A Possible End To Pa. Court Split Over Economic Loss
Law360, New York (October 06, 2014, 10:18 AM ET) -Pennsylvania federal and state courts are split on whether the
economic loss and “gist of the action” doctrines apply in claims
brought under Pennsylvania’s Unfair Trade Practices and Consumer
Protection Law. Because the Third Circuit predicted that the
Pennsylvania Supreme Court would apply the economic loss doctrine
in UTPCPL cases, federal courts are bound to and do follow that Third
Circuit predictive ruling. By contrast, the Pennsylvania Superior Court
has ruled that the economic loss and “gist of the action” doctrines do
not apply to UTPCPL claims, so Pennsylvania state courts diverge
from the rule followed by their federal counterparts. A case currently
pending before the Pennsylvania Supreme Court, Grimes v.
Enterprise Leasing Inc., No. 488 MAL 2013, could provide the
platform for the court to resolve this split, although neither doctrine
was included in the issues to be addressed on appeal.
Charlotte E. Thomas
The 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.” See Excavation Technologies Inc. v. Columbia
Gas Co., 985 A.2d 840, 841 n.3 (Pa. 2009), quoting Adams v. Copper Beach Townhome Communities LP,
816 A.2d 301, 305 (Pa. Super. 2003). The “gist of the action” doctrine goes one step further and
“maintain[s] the conceptual distinction between breach of contract claims and tort claims[,]" and
precludes the recasting of ordinary breach of contract claims as tort claims. McShea v. City of
Philadelphia, 995 A.2d 334, 339 (Pa. 2010), quoting eToll Inc. v. Elias/Savion Advertising Inc., 811 A.2d
10, 14 (Pa. Super. 2002)
As noted, the Third Circuit predicted in Werwinski v. Ford Motor Co., 286 F.3d 661 (3d Cir. 2002) that the
Pennsylvania Supreme Court would apply the economic loss doctrine to claims brought under the
UTPCPL. In Werwinski, a proposed class of purchasers and lessees of Ford vehicles claimed breach of
warranty, fraudulent concealment and UTPCPL violations for allegedly defective transmissions — an
area governed by warranty. Notably, the only damages alleged were to the vehicles themselves, thus
directly implicating the economic loss doctrine.
The Third Circuit first decided that the economic loss doctrine applied to intentional fraud claims, except
where the alleged fraud was “‘extraneous to the contract,’ not ‘interwoven with the breach of
contract.’” Id. at 676. Having concluded that the economic loss doctrine would apply to the fraudulent
concealment claims, the Third Circuit then concluded that the economic loss doctrine should apply
equally to claims of both intentional fraud and statutory fraud claims, such as those brought under the
UTPCPL.
The Pennsylvania Superior Court reached a different result in Knight v. Springfield Hyundai, 81 A.3d 940
(Pa. Super. 2013). In Knight, the Pennsylvania Superior Court declined to apply the “gist of the action”
doctrine to UTPCPL claims that were in the nature of fraudulent inducement and extrinsic to the
contract of sale for a used automobile, including false dealer representations that the car had one
owner, had not been in an accident, and that the odometer reading was accurate. This portion of the
decision is in accord with the Third Circuit’s reasoning in Werwinski. However, the Knight court took an
additional step. In contrast to Werwinski, Knight ruled that the plaintiff’s UTPCPL claims were not barred
because the economic loss doctrine precluded recovery in tort, and plaintiff’s claims were statutory in
nature. 81 A.3d at 951-952 (ruling that “the economic loss doctrine is inapplicable” because UTPCPL
claims are statutory claims that “do not sound in negligence”).
However, federal district courts remain bound to follow the Werwinski decision. This leaves the
unwieldy result that UTPCPL claims brought in federal district courts may be subject to the economic
loss and “gist of the action” doctrines under Werwinski while UTPCPL claims brought in Pennsylvania
Courts of Common Pleas are not. See, e.g., Gadley v. Ellis, No. 3:13-CV-00017, 2014 U.S. Dist. LEXIS
99992 (W.D. Pa. July 23, 2014); Zeglen v. Northwestern Mutual Life Ins. Co., No. 3:14-CV-00173, 2014
U.S. Dist. LEXIS 118147 (M.D. Pa. Aug. 25, 2014); Tubman v. USAA Casualty Ins. Co., 943 F. Supp. 2d 525,
530-31 (E.D. Pa. 2013); see also Pesotine v. Liberty Mutual Group Inc., No. 3:14-CV-00784, 2014 U.S.
Dist. LEXIS 118178 (M.D. Pa. Aug. 25, 2014).
Much has been written recently about the Grimes dispute currently pending before the Pennsylvania
Supreme Court. Grimes involved a short-term automobile lessee who declined an optional damage
waiver provision in a rental agreement, agreeing to pay for repairs to the vehicle but also for
administrative, loss of use and diminution in value fees in the event of damage to the vehicle. When
plaintiff returned the car scratched, she was charged a total of $840.42 for these categories. Although
she did not actually pay the invoiced charges, she filed suit under the UTPCPL alleging deception by
Enterprise. Plaintiff alleged that the deceptive conduct under the UTPCPL was the invoice issued for the
damage and various fees, even though the invoice was authorized by the rental agreement.
The claims in Grimes are analogous to those alleged in Werwinski. The alleged deception in Grimes was
the $840.42 invoice, while the fraud in Werwinski was the concealment of the defective transmission —
both matters that were addressed by the applicable contract or warranty. In Werwinski, the Third Circuit
acknowledged the range of warranty options offered to consumers by car manufacturers. Similarly,
rental agencies offer different options to consumers regarding insurance coverage and waivers for
damage to a rental vehicle. In Grimes, as in Werwinski, the factual premise of the UTPCPL claims was
interwoven with — and not independent of — the underlying car rental agreement which specifically
authorized the allegedly deceptive charges. Unlike Knight, in which the plaintiff challenged precontract
representations, Grimes did not involve fraud in the inducement. Indeed, at the Grimes oral argument,
the Pennsylvania Supreme Court voiced concern about the UTPCPL claim proceeding when the plaintiff
had voluntarily entered into a contract allowing the invoice that she claimed was deceptive.
Because the alleged deception in Grimes arises out of a written agreement, Grimes presents an
opportunity for the Pennsylvania Supreme Court to provide guidance on the economic loss and “gist of
the action” doctrines in UTPCPL litigation and to resolve the split between federal and Pennsylvania
courts. However, the court did not grant allowance of the appeal in Grimes on the application of the
economic loss or “gist of the action” doctrines. Rather, the court limited its review to the requirements
of justifiable reliance and ascertainable loss under the UTPCPL. It could be unfair to the litigants to rule
on the application of these doctrines without including them in the questions presented and without
briefing on the issue. See Comcast Corp. v. Behrend, 133 S. Ct. 1426, 1436 (2013) (Justices Ruth Bader
Ginsberg and Stephen Breyer dissenting).
On the other hand, some guidance on the application of the doctrines even in dicta might shed light on
the manner in which the UTPCPL should be analyzed in future cases. At a minimum, the court could
address whether the UTPCPL claims for “deceptive” conduct may proceed when a contract specifically
authorizes the conduct resulting in the ascertainable loss alleged, thereby at least giving some guidance
on whether the economic loss and “gist of the action” doctrines apply in cases brought under consumer
protection statutes.
—By Charlotte E. Thomas, Duane Morris LLP
Charlotte Thomas is a partner in Duane Morris' Philadelphia office.
The opinions expressed are those of the author and do not necessarily reflect the views of the firm, its
clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general
information purposes and is not intended to be and should not be taken as legal advice.
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