This cases comes before us on Defendant's Preliminary Objections to the Plaintiff's Complaint. For the reasons set forth below, Defendant's Preliminary Objectinos are SUSTAINED.
This dispute arises between (redacted) ("Plaintiff"), a buyer and (redacted) ("Defendant Corporation") and (redacted) (“Individual Defendant”), as co-defendants and sellers of a convenience store/gas station. On or about December 3, 2006, Plaintiff entered into a written contract with Defendant Corporation for the purchase of a convenience store/gas station located at ("redacted"). Plaintiff alleges that during negotiations, Individual Defendant, who is the corporate secretary for Defendant Corporation, represented to the plaintiff that the four underground storage tanks located under the property were fully operational and permitted for operation through October 4, 2007. (Complaint ¶ 5). On March 6, 2007, the transaction closed. The total consideration paid to Defendant Corporation in exchange for a deed to the convenience store/gas station was $180,000.
Shortly after closing, the plaintiff was informed by the Department of Environmental Protection (DEP) that the four storage tanks were required to be internally inspected or closed by February 2007. (Complaint ¶ 8). Plaintiff was issued a notice of violation by the DEP.
The plaintiff claims that the defendants failed to inform or disclose the obligation to either internally inspect the underground tanks or close them by February 2007. Plaintiff alleges that after being contacted by the DEP, plaintiff questioned the defendants about the violations and was informed by The Individual Defendant that she forgot to mention this to him. (Complaint ¶ 12).
Plaintiff has received two estimates to replace the four tanks with a 10,000 gallon and a 12,000 gallon tank, from two separate contractors for $165,278.00 and $131,700.00 respectively. (Complaint ¶ 13).
Based on the aforementioned facts, Plaintiff has brought the following causes of action against the defendants: (I) Fraud; (II) Negligent Misrepresentation; (III) Innocent Misrepresentation; and (IV) Breach of Contract. In response, the defendants have filed preliminary objections to the complaint, which we will now address.
We begin our analysis by stating the applicable standard of review. The Pennsylvania Rules of Civil Procedure provide that any party may file preliminary objections to any pleading, limited to the grounds enumerated in the Rule. Pa.R.C.P. 1028(a). “The court shall determine promptly all preliminary objections. If an issue of fact is raised, the court shall consider evidence by depositions or otherwise.” Pa.R.C.P. 1028(c)(2). “Preliminary objections should be sustained when the law will not permit a remedy, ‘and where any doubt exists, that doubt should be resolved by a refusal to sustain the preliminary objections.’” P.J.S. v. Pennsylvania State Ethics Commission, 669 A.2d 1105, 1008 (Pa. Commw. 1996), quoting J.B. Steven, Inc. v. Board of Commissioners of Wilkens Township, 643 A.2d 142, 144 (Pa. Commw. 1994). We now apply this standard of review to the Defendants’ Preliminary Objections.
I. Misrepresentation Claims
The defendants assert that the misrepresentation claims, which are set forth in Counts I, II and III, are barred by the gist of the action doctrine and the economic loss doctrine. We will first examine the defendants claim that the gist of the action doctrine bars Plaintiff’s claim of misrepresentation.
The gist of the action doctrine, although not specifically adopted by the Pennsylvania Supreme Court, has been recognized and examined by the Pennsylvania Superior Court and Federal Courts while applying Pennsylvania law. The doctrine "precludes plaintiffs from re-casting ordinary breach of contract claims into tort claims." Etoll, Inc. v. Elias/Savion Advertising, Inc., 811 A.2d 10 (Pa. Super. 2002). While the line is not always clear, the important difference between an action for breach of contract and tort "is that the latter lie for breach of duties imposed by law as a matter of social policy, while former lie only for breaches of duties imposed by mutual consensus agreements between particular individuals." Etoll, Inc. v. Elias/Savion Advertising, Inc., 811 A.2d 10, 14 (Pa. Super. 2002); citing Redevelopment Auth. v. International Ins. Co., 685 A.2d 581, 590 (Pa. Super 1996). However, in certain situations, “a breach of contract may give rise to an actionable tort where the wrong ascribed to the defendant is the gist of the action, the contract being collateral.” Hart v. Arnold, 884 A.2d 316, 339 (Pa. Super. 2005).
Persuasive authority interpreting Pennsylvania law has restated the gist of the action doctrine in a number of similar ways. These courts have held that 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. 2005); citing Etoll, Inc. v. Elias/Savion Advertising, Inc., 811 A.2d 10, 19 (Pa. Super. 2002) (internal quotation marks omitted).
The instant case involves a claim of fraud in the inducement of a contract. The plaintiff, in Counts I, II and III, asserts the same basic claim: that during the course of negotiations the defendants knowingly or willfully made false representations and failed to disclose the defects in the tanks with the intent to induce the plaintiff to purchase the property and that Plaintiff justifiably relied on this information in deciding to purchase.
Since Etoll, courts have held, “fraud in the inducement of a contract would not necessarily be covered by the gist of the action doctrine because fraud to induce a person to enter into a contract is generally collateral to (i.e., not ‘interwoven’ with) the terms of the contract itself.” Air Products and Chemicals, Inc., v. Eaton Metal Products Col., 256 F. Sup.2d 329, 341 (E.D. Pa. 2003); citing Etoll, 811 A.2d at 17.
As part of the instant contract, Defendant Corporation, the contracting party, warranted that it knew of no notices received from any government agency or any condition that violated any ordinance. Paragraph 18 of the contract is entitled Notices, Assessments & Certificates of Occupancy. Subparagraph 18(A) states impertinent part:
“seller represents, as of the date Seller signed this Agreement,… that no notice by any government or public authority has been served upon Seller or anyone on Seller’s behalf, including notices relating to violations of zoning, housing, building, safety or fire ordnances that remain uncorrected, and that Seller knows of no condition that would constitute a violation of any such ordinances that remain uncorrected, unless otherwise specified here:”
(Exhibit A of Complaint). The line following that subparagraph is left blank. Furthermore, a blank line follows subparagraph 18(B), which reads:
“seller knows of no other potential notices (including violations) and/or assessments except as follows:”
(Exhibit A of Complaint.) Based on the inclusion of those statements in the contract, the alleged misrepresentations are interwoven with the terms of the contract and thus the contract is not collateral. In this case, the duties allegedly breached were created and grounded in the contract itself.
The plaintiff also brings a claim for breach of contract, alleging, “the defendant’s failure to inform the plaintiff of the status of the underground tanks was a breach of the contractual representations that they had no knowledge of any notices pertaining to the status of the underground tanks.” (Complaint ¶ 36). This is apparently in reference to the defendant’s contractual obligation set forth under paragraph 18, as set forth above. Here, the plaintiff’s tort claims are essentially duplicates of the breach of contract claims.
Therefore, we find that the plaintiff’s tort claims are barred by the gist of the action doctrine, because the duties allegedly breached were created and grounded in the contract itself, and the present tort claims essentially duplicate the breach of contract claim. Defendants preliminary objections to Counts I, II and III are SUSTAINED.
Since we find that the plaintiff’s tort claims are barred by the gist of the action doctrine, there is no need to discuss the application of the economic loss doctrine to the current set of circumstances.
II. Personal Liability – Individual Defendant
The defendants next contend that The Individual Defendant cannot be held liable for an alleged breach of contract because she is not a party to the agreement as plead.
In Pennsylvania, “where a party enters into a contract with a corporation, no action will lie against the shareholder of that corporation individually for a breach of that contract.” First Realvest, Inc. v. Avery Builders, Inc., 600 A.2d 601, 603 (Pa. Super. 1991); citing Loeffler v. McShane, 539 A.2d 876 (Pa. Super. 1988). “The breach of the contract is the breach of a promise made by the corporation, and not by the breach of any promise extended by the corporate officer.” First Realvest, Inc., at 603. “Shareholders, officers, and directors are not held liable for the corporation’s breach of contract, absent an establishment of participation theory or the successful assertion of the equitable doctrine of piercing the corporate veil.” Id. at 603.
In the instant case, Plaintiff asserts the participation theory as a basis for The Individual Defendant’s liability. The participation theory of liability has been recognized in Pennsylvania. See Wicks v. Milzoco Builders, Inc., 470 A.2d 86 (1983); First Realvest, Inc., v. Avery Builders, Inc., 600 A.2d 601 (Pa. Super. 1991); and Brindley v. Woodland Village Restaurant, Inc., 652 A.2d 856 (Pa. Super 1995). Under the participation theory, “a corporate officer can be held liable for “misfeasance,” i.e., the improper performance of an act, but not for “mere nonfeasance,” i.e., the omission of an act which a person ought to do.” Brindley v. Woodland Village Restaurant, Inc., 652 A.2d 856 (Pa. Super. 1995); citing Wicks, 470 A.2d 86, 90; Village at Camelback, 538 A.2d 528, 533; Loeffler, 539 A.2d 876, 878.
Here, the plaintiff asserts under Count IV-Breach of Contract, that The Individual Defendant both “failed” to inform Plaintiff of the status of the underground tanks and “failed” to supply Plaintiff with a copy of the notice pertaining to the tanks; and, that this was a breach of the contractual obligations. According to the pleadings, The Individual Defendant admitted that she “forgot” to tell the plaintiff’s about the DEP violation. In the Brief in Opposition of Defendants’ Preliminary Objection, the plaintiff attempts to clarify, by stating, “The Individual Defendant, as an individual, chose not to disclose the information regarding the underground fuel tanks; therefore, The Individual Defendant individually participated in breaching the contract.” While the brief is an appropriate place to clarify a pleader’s meaning, the pleadings themselves require specificity. Defendant’s Preliminary Objections to Count IV (Breach of Contract) are SUSTAINED as to the imposition of liability against the Individual Defendant, as the Complaint is currently written.
The Pennsylvania Rules of Civil Procedure permit liberal amendment procedures where a better statement of facts could establish a cause of action. Maddux v. Com., Dept. of Agriculture, Bureau of Animal Industry, 386 A.2d 620 (Pa. Commw. 1978). Courts will deny preliminary objections and will permit amendment where complaint is not inherently unsound but only incomplete. Id. at 622. Here, based on the pleadings it is uncertain whether the law will provide a remedy against The Individual Defendant for breach of contract. As previously stated “where any doubt exists, that doubt should be resolved by a refusal to sustain the preliminary objections.’” P.J.S. v. Pennsylvania State Ethics Commission, 669 A.2d 1105, 1008 (Pa. Commw. 1996), quoting J.B. Steven, Inc. v. Board of Commissioners of Wilkens Township, 643 A.2d 142, 144 (Pa. Commw. 1994). However, because it is unclear whether the plaintiff is alleging that The Individual Defendant simply forgot to tell the plaintiff about the DEP violation or whether The Individual Defendant intentionally failed to do so, we grant to the plaintiff twenty (20) days in which to file an amended complaint, pursuant to Pa.R.C.P. § 1028(e), specifically addressing this issue.