NOVEMBER 2013 BAD FAITH CASES: DISTRICT COURT REAFFIRMS ITS REFUSAL TO FIND A FIDUCIARY DUTY BETWEEN SURETY AND POLICYHOLDER (Western District)

In Reginella
Constr. Co. v. Travelers Cas. & Sur. Co. of Am., the District Court refused to reopen its judgment dismissing plaintiff’s fiduciary-in-fact, tortious interference, and bad faith claims, previously discussed on this Blog.

Plaintiff argued the court committed legal error by applying the gist of the action doctrine to its bad faith claim because the applicability of the doctrine depends upon evidence adduced during discovery and that the court did not construe the facts of the complaint in plaintiff’s favor as required on a Rule 12(b)(6) review.

The court found it was appropriate to dismiss the claim with prejudice at the pleadings stage, despite some cases requiring evidence adduced during the discovery phase. The court found the indemnity agreement signed by plaintiff and its surety made clear the parties’ relationship was of a contractual nature; therefore, the fiduciary responsibilities at play were those that arise in a contractual setting. The face of the complaint made it apparent the tortious bad faith claim was merely a re-cast breach of contract claim, and therefore the court was obligated to apply the doctrine. Furthermore, the Third Circuit Court of Appeals allows district courts to apply the doctrine at the pleading stage to dismiss claims with prejudice. Therefore, it was not legal error to apply the gist of the action doctrine sua sponte at the pleading stage and dismiss the complaint with prejudice.

Furthermore, despite not construing all facts in favor of plaintiff, the court correctly applied the Rule 12(b)(6) standard of review because it is only required to draw inferences in the plaintiff’s favor to the extent the inferences are reasonable. To accept plaintiff’s alleged inferences would have contradicted the well-pleaded factual allegations, and therefore the court was not required to do so. Such an approach would force the court to accept legally insufficient statements as a plausible cause of action, eliminating meaningful review. Based on these requirements, the court determined it could not allow plaintiff to use its asserted facts to leverage a breach of contract lawsuit into a meritless tort suit and refused to vacate its dismissal with prejudice.

Since there was no change in controlling law or new facts presented to the court, it refused to open the judgment. The court reiterated plaintiff’s allegation that its insurer failed to make payments on its behalf under their indemnity agreement could only sound in contract, and therefore also denied plaintiff’s alternative request for leave to amend its complaint, as the complaint was legally, not factually, insufficient.

Date of Decision: September 5, 2013

Reginella Constr. Co. v. Travelers Cas. & Sur. Co. of Am., Civil Action No. 12-1047, 2013 U.S. Dist. LEXIS 76353 (W.D. Pa. Sept. 5, 2013) (Hornack, J.).