Gist of the Action Doctrine in Pennsylvania
Every party filing a lawsuit for money wants to maximize the value of his claim, naturally. It’s tempting to throw various theories (of recovery) at the jury, to see which one “sticks.” Only, Pennsylvania has adopted something called the Gist of the Action Doctrine. See Bruno v. Erie Insurance Company. This forces a plaintiff to proceed on one theory of recovery (also called cause of action), even though another might yield a higher recovery.
Different Theories of Recovery
So what, then, are the different theories of recovery (for money), in Pennsylvania? There are three (3) main types of claims:
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- Breach of contract – including loan agreements, credit card debt, the purchase of goods, or construction or home improvement contracts,
- Tort theory – which are common law claims, often for negligence (slip and fall, collisions between bicycles and cars, e-bikes or e-scooters, or purely motor vehicle accidents, involving limited tort or full tort), recklessness, fraud, or defamation, or
- Violation of a statute – such claims for violation of the unfair trade practices and consumer protection law, home improvement and consumer protection law, or or violation of the Uniform Trade Secrets Act.
Different Types of Damages Can be Recoverable
In the end, like so many things, it comes down to money. The main reason to select one theory over another is to obtain the highest possible financial recovery. Each theory provides a different type of damages recoverable, some more significant than others. Here are the key differences:
1. Breach of contract
The court will seek to make the non-breaching party “whole” as though the contract had been performed as agreed. Our laws give you the “benefit of your bargain.” That said, in Pennsylvania, with a claim for breach of contract, there can be no recovery for “pain and suffering,” or “punitive damages” or time lost from work to address the other party’s breach. You can, however, have a stipulated damages (or liquidated damages) clause. This sets the value of certain items that are otherwise difficult to quantify, so long as the estimate is reasonable. For example, the parties can agreed to stipulated damages of $10 per day, for each day the other is late in terms of performing on the contract.
2. Tort
Here, the plaintiff is not seeking the benefit of any “bargain” or seeking to enforce an agreement. The duty to act (or refrain from acting) comes from the common law (case law), which allows for a wide variety of damages for which a person can be compensated. This can include a recovery for “pain and suffering” (negligently caused physical injuries), damage to reputation (defamation), punitive damages and attorney fees, for intentional or reckless behavior.
3. Statutory Violation
The damages recoverable will be set forth in the statute (or legislative rule) itself. So, for example a violation of consumer protection law in Pennsylvania can warrant a recovery of treble damages and for one’s attorney fees. These are otherwise not recoverable for breach of contract or tort involving mere “negligence.” That said, no claim can exist for “pain and suffering” for the violation of consumer protection law.
Choosing Which Causes of Action To Pursue
When deciding how to characterize one’s claims, a lawyer will typically look for the theory of recovery that will net the highest recovery of money. Thus, for example, if the strongest part of a person’s claim is for pain and suffering, the party bringing said claim should attempt to characterize it as a “tort,” of some sort. Try to show how a negligent or reckless act caused physical harm and pain and suffering. If punitive damages or an award for attorney fees — not otherwise recoverable under the “American Rule” — the claim must involve fraud or recklessness, and not merely sound in “contract.”
The Facts May Limit One’s Claims
Even without resort to the Gist of the Action, each theory involves its own proof. For example, to prove a claim for breach of contract, one must show that there was an offer, which the other party accepted, with consideration (something exchanged). Also needed are damages caused by the breach; however, no “fraudulent intent” need be shown. This is unlike a common law tort action for fraud. Likewise, a claim for violation of the unfair trade practice and consumer protection law is now “strict liability,” meaning the plaintiff need not show intent.
Where This Gets Tricky
All this gets tricky when the facts suggest more than one cause of action. For example, a general contractor (GC) on a construction site might have a contractual duty to obey regulations (such as OSHA) to keep subcontractors safe. It’s often stated in the contract. Hence, the “gist” of such a claim (for such injuries by the sub vs. the GC) breach of contract, right? And, there can be no claim for “pain and suffering,” or punitive damages for reckless behavior, right?
Not so fast.
In the above scenario, the GC also has a tort-related duties to the sub — apart from any contract, namely, every person has a duty to avoid causing foreseeable harm to others. This is from tort law, specifically, the common law pertaining to negligence. There is also negligence per se, when the duty (for this tort) comes from a statute designed to promote safety, such as an OSHA regulation. Thus, the duty in the above scenario comes from both contract and tort.
So now what?
Courts Struggle
Courts in Pennsylvania — both state and federal — have struggled in terms of how to uniformly apply the Gist of the Action Doctrine. This was the issue in the recent holding up Humphries v Pennsylvania State University, No. 4:20–CV –00064 (M.D. Pa. Sept. 24, 2021). There, the court applied a “duty” standard — i.e., to ascertain the true “gist” of the action, look at which theory provides the duty to act (or refrain from acting).
The origin of the duty is slightly different for each cause of action, as well. In a breach of contract action, the party’s duty to act comes from the agreement. By contrast, in a tort action, the duty can came from a statute or from the common law, such as the duty to avoid causing “foreseeable” harm (negligence). In a claim for violating a statute, the duty comes purely from the statute itself.
However, as we can see from the above GC – sub scenario, the “source of duty” analysis provides not clear answer. There are many examples, where a person’s conduct triggers both tort and contract law. Consider, for example, the contractor going door-to-door to solicit home improvement. There, the solicitation might be fraudulent (tort) and result in a home improvement agreement for roofing or otherwise (contract).
State And Federal Courts Disagree as to the Gist of the Action Doctrine
Federal and state courts in Pennsylvania come to different conclusions about how to apply the gist of the action doctrine. For example, a defense to a claim for breach of contract is fraudulent inducement, meaning, a person made a knowingly false statement to induce another to enter into a contract. The victim of fraud in this instances would have a claim for both breach of contract and fraud (tort). This state court judge decided that the fraud claim is “unaffected” by the contract. There, the plaintiff could proceed to recover damages that sound in tort (punitive damages, an award for attorney fees, etc). See KMB Shamrock v. LNR Transportation, 50 PA. D&C5th 259 (Lackawanna County Ct. Comm. Pl.) In federal court, on the other hand, a different conclusion was reached, as to the state of Pennsylvania law. Downs v. Andrews, 639 Fed. Appx. 816, 820 (3rd. Cir. 2016).
Conclusion
Lawyers prefer the option to select the causation of action that will be most lucrative for the client (and lawyer charging a contingency fee), but the courts in PA now limit the options via the “Gist of the Action Doctrine.” Further clarity is needed from the courts as to how this doctrine will apply in the future, however. For now, a party is allowed to plead alternate causes of action in lawsuit (alleging both tort, and contract theories), but at trial the party must proceed on one theory or another, not both, based on the true “gist of the action,” and not based on the lawyer’s preference.
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