text:
    First Republic Bank v. Brand

      C.P. of Philadelphia County,
    August Term 2000,
    no. 147.

      Suzanne I. Schiller, for plaintiff.

      Jamie Perrapato, for defendant.
    December 19, 2000
   HERRON, J.,

Defendants Steven D. Brand, James M. Dougherty, Arthur L. Powell, Richard S. Powell, Jon R. Powell, Carol P. Heller, Nancy E. Powell, Harold G. Schaeffer, James R. Schaeffer, Anthony L. Schaeffer and Robert D. Schaeffer (collectively, shareholders) have filed preliminary objections to the complaint of plaintiff First Republic Bank. For the reasons set forth in this opinion, the court is issuing a contemporaneous order sustaining the objections in part and overruling the objections in part.

BACKGROUND

On January 7,1998, First Republic and the shareholders agreed to the terms of a letter of intent. Under the letter of intent, the shareholders were to sell First Republic and Phoenix Mortgage Company an 80 percent interest in Fidelity Bond and Mortgage Co. The transaction was structured such that First Republic and Phoenix formed FBMC Acquisition Corp., with First Republic contributing cash in exchange for 51 percent of the common stock of FBMC and Phoenix purchasing the remaining 49 percent. FBMC, in turn, purchased all of the Fidelity common stock and issued the shareholders 20 percent of the FBMC stock. The end result was that FBMC owned all of the Fidelity shares, and that First Republic, Phoenix and the shareholders owned 41 percent, 39 percent and 20 percent, respectively, of the outstanding FBMC stock. The purchase price for the Fidelity shares was to be based on the net worth of Fidelity, among other things.

The letter of intent contemplated a Fidelity net worth of $4 million on the date the transaction closed, taking into account a loan of at least $7 million to be obtained from Summit Bank. At closing, Fidelity was also to have at least $1 million, consisting of $500,000 in cash, a $500,000 line of credit from Summit Bank and the cash needed to satisfy the next Fidelity payroll. In addition, at the time the letter of intent was executed, Fidelity had a mortgage loan servicing portfolio with a gross principal balance of approximately $600 million. It is alleged that the portfolio was a substantial Fidelity asset whose value was key to calculating the purchase price.

After the letter of intent’s execution but before the closing, the shareholders repeatedly assured First Republic that there was no material change in Fidelity’s financial condition, according to the complaint. In response to specific inquiries, Brand allegedly assured First Republic that the portfolio’s value was unchanged, as any mortgages removed from the portfolio had been replaced by new mortgages. This led First Republic to believe that the value of the portfolio was at least $600 million. The shareholders also are alleged to have made representations as to the net worth of Fidelity. The complaint asserts that all of these guarantees were false.

The parties entered into a “definitive agreement” at closing on May 1, 1998. The definitive agreement incorporated a series of representations and warranties, including a representation that there had been no material change in Fidelity’s business, assets, liabilities or condition since August 31,1997. In accordance with the definitive agreement’s terms, the shareholders transferred the Fidelity shares to FBMC.

At closing and without the knowledge of First Republic, the complaint alleges that the shareholders removed cash from Fidelity in excess of what was permitted, leaving cash levels below those guaranteed in the letter of intent. In addition, First Republic claims that certain specific Fidelity financial ratios had dropped below permitted levels and that, in the months preceding closing, the value of the portfolio had declined materially. Furthermore, the line of credit supposedly did not comply with the specifications outlined in the letter of intent. According to the complaint, the shareholders were aware of these facts but intentionally led First Republic to believe otherwise.

Several months after the closing and the completion of a post-closing audit, First Republic discovered the nature and extent of the alleged misrepresentations and omissions. The complaint alleges that the deficiencies obscured by the shareholders’ violations led to Fidelity’s insolvency and the loss of First Republic’s investment.

The complaint asserts two counts of breach of contract, as well as claims for fraudulent misrepresentation, negligent misrepresentation and punitive damages. In response, the objections assert lack of capacity to sue, legal insufficiency and invalidity of a punitive damages claim.

DISCUSSION

The objections asserting that Count V — punitive damages — is invalid and that the economic loss doctrine bars a claim for negligent misrepresentation are sustained. The remaining objections are without merit and are overruled.

I. Standing

Standing relates to who may make a legal challenge and “may be conferred by statute or by having an interest deserving of legal protection.” Pennsylvania National Mutual Casualty Insurance Co. v. Department of Labor and Industry, Prevailing Wage Appeals Board, 552 Pa. 385, 391, 715 A.2d 1068, 1071 (1998). To have standing, a party must satisfy the following test:

“[0]ne ... must show a direct and substantial interest and a sufficiently close causal connection between the challenged action and the asserted injury to qualify the interest as ‘immediate’ rather than ‘remote.’... [A] substantial interest requires ‘some discernible adverse effect to some interest other than the abstract interest of all citizens in having others comply with the law.... Direct simply means that the person claiming to be aggrieved must show causation of the harm to his interest . . .’ . The immediacy or remoteness of the injury is determined by the ‘nature’ of the causal connection between the action complained of and the injury to the person challenging it.” DeFazio v. Civil Service Commission, 562 Pa. 431, 756 A.2d 1103, 1105 (2000). (citations omitted) See also, J.A.L. v. E.P.H., 453 Pa. Super. 78, 86, 682 A.2d 1314, 1318 (1996) (“the proponent of the action must have a direct, substantial and immediate interest in the matter at hand”).

Here, the shareholders claim that First Republic itself made no direct investment in Fidelity, as FBMC, not First Republic, purchased the Fidelity shares. As a result, they assert, there is no causal connection between the allegations and any alleged injury to First Republic.

The shareholders’ argument has a number of flaws. First, while FBMC purchased the Fidelity shares, it is not a signatory to either the letter of intent or the definitive agreement. Rather, the shareholders made the representations to First Republic, and, as First Republic is a party to the letter of intent and the definitive agreement, there can be no doubt that it has standing to sue for breaches of these agreements.

Similarly, the shareholders allegedly made misrepresentations to First Republic, not FBMC, to induce action by First Republic. Complaint at ¶¶17, 21, 26. Furthermore, the complaint alleges that First Republic relied on the misrepresentations when it contributed cash to FBMC and otherwise proceeded with the transactions in question. Id. at ¶17. Ultimately, Fidelity’s financial difficulties, which the shareholders’ misrepresentations supposedly concealed, led to its insolvency and the loss of the investment First Republic made in Fidelity through FBMC. Id. at ¶32. As such, First Republic has the direct, substantial and immediate interest required for standing, and the objections challenging First Republic’s standing are overruled.

II. Legal Sufficiency

When a court is presented with preliminary objections based on legal insufficiency,

“[I]t is essential that the face of the complaint indicate that its claims may not be sustained and that the law will not permit recovery. If there is any doubt, it should be resolved by the overruling of the demurrer....

“Put simply, the question presented by demurrer is whether, on the facts averred, the law says with certainty that no recovery is possible.” Bailey v. Storlazzi, 729 A.2d 1206, 1211 (Pa. Super. 1999).

To support a claim for fraudulent misrepresentation, a complaint must allege “(1) a representation; (2) which is material to the transaction at hand; (3) made falsely, with knowledge of its falsity or recklessness as to whether it is true or false; (4) with the intent of misleading another into relying on it; (5) justifiable reliance on the misrepresentation; and (6) resulting injury proximately caused by the reliance.” Bortz v. Noon, 556 Pa. 489, 499, 729 A.2d 555, 560 (1999). Negligent misrepresentation, in turn, requires: (1) misrepresentation of a material fact; (2) circumstances where the misrepresenter ought to have known the misrepresentation’s falsity; (3) intent to induce another to act; and (4) resulting injury to a party acting in justifiable reliance on the misrepresentation. Id., 556 Pa. at 500, 729 A.2d at 561.

The shareholders assert that the complaint does not allege the misrepresentation of a past or present material fact and that the “gist of the action” and “economic loss” doctrines preclude First Republic from bringing an action in tort. As a result, they claim, First Republic’s claims for intentional and negligent misrepresentation are legally insufficient.

A. Misrepresentation of a Past or Present Material Fact

While the objections contend that the complaint does not “allege that the defendants ever, collectively or individually, misrepresented a past or present fact,” objections at^4, a cursory review of the complaint reveals that this is not the case. Rather, the complaint asserts a number of misrepresentations, including several regarding the value of the portfolio. Complaint atffl7,26,28, 30. Consequently, the shareholders’ claim is without merit, and the objections based on a failure to allege the misrepresentation of a past or present fact are overruled.

B. Gist of the Action

Until recently, it was unclear how Pennsylvania courts should determine whether an action sounded in contract or in tort. See Grode v. Mutual Fire, Marine and Inland Insurance Co., 154 Pa. Commw. 366, 369, 623 A.2d 933, 934 (1993) (noting the “somewhat confused state of Pennsylvania law on this question”). However, in 1995, the Pennsylvania Superior Court addressed this issue:

“[T]o be construed as a tort action, the wrong ascribed to the defendant must be the gist of the action with the contract being collateral. In addition, ... a contract action may not be converted into a tort action simply by alleging that the conduct in question was done wantonly. Finally, ... the important difference between contract and tort actions is that the latter lie from the breach of duties imposed as a matter of social policy while the former lie for the breach of duties imposed by mutual consensus.” Phico Insurance Co. v. Presbyterian Medical Services Corp., 444 Pa. Super. 221, 229, 663 A.2d 753, 756 (1995) (citing Bash v. Bell Telephone Co., 411 Pa. Super. 347, 601 A.2d 825 (1992)). See also, Snyder Heating Co. v. Pennsylvania Manufacturers Association Insurance Co., 715 A.2d 483, 487 (Pa. Super. 1998) (“[t]o be construed as a tort action, the wrong ascribed to the defendant must be the gist of the action with the contract being collateral”).

Recently, this court analyzed a number of cases discussing the gist of the action doctrine and drew the following conclusions:

“Courts have generally invoked the gist of the action doctrine to bar a tort claim where the defendant negligently or intentionally breached a contract. Courts have generally held that the gist of the action doctrine does not apply when the defendant not only breached the contract, but also made misrepresentations about the breach with the intent to deceive the plaintiff, such that the unsuspecting plaintiff continued the contractual relationship or failed to assert its contractual rights against the defendant.” Greater Phila. Health Servs. II Corp. v. Complete Care Servs. L.P., June 2000, no. 2387, slip op. at 3-5 (C.P. Phila. Nov. 20, 2000) (Herron, J.).

The allegations in the complaint are similar to those in the line of cases declining to apply the gist of the action doctrine. After the execution of the letter of intent, the complaint asserts, the shareholders represented that the value of the portfolio was higher than it in fact was. Complaint at ¶26. This misrepresentation, among others, supposedly induced First Republic to proceed with the transaction and was designed to perpetuate the contractual relationship created by the letter of intent. Id. at ¶¶17, 30. By inference, the shareholders’ actions also convinced First Republic not to exercise the rights available to it. These claims are separate and distinct from the allegations that the shareholders breached the representations, the letter of intent and the definitive agreement. As a result, the gist of the action doctrine does not apply to the matter at hand, and the objections based thereon are overruled.

C. Economic Loss Doctrine

The shareholders next claim that the economic loss doctrine bars First Republic’s tort claims. In sum, Pennsylvania’s economic loss doctrine precludes claims for negligent misrepresentation in the absence of physical harm or damage. However, the application of the doctrine to fraudulent misrepresentation claims is a matter not addressed by Pennsylvania courts and remains an issue of serious dispute in the federal courts covering the Commonwealth. After examining the cases that treat this issue, the court believes that the economic loss doctrine does not apply to claims for fraudulent misrepresentation and that the doctrine does not bar First Republic’s claim.

Like the gist of the action doctrine, the purpose of the economic loss doctrine, as adopted in Pennsylvania, is “maintaining the separate spheres of the law of contract and tort.” New York State Electric & Gas Corp. v. Westinghouse Electric Corp., 387 Pa. Super. 537, 550, 564 A.2d 919, 925 (1989). The Commonwealth’s version of the doctrine precludes recovery for economic losses in a negligence action where the plaintiff has suffered no physical or property damage. Spivack v. Berks Ridge Corp. Inc., 402 Pa. Super. 73, 78, 586 A.2d 402, 405 (1990) (“economic losses may not be recovered in tort (negligence) absent physical injury or property damage”); Aikens v. Baltimore & Ohio R.R. Co., 348 Pa. Super. 17, 22, 501 A.2d 277, 279 (1985) (“no cause of action exists for negligence that causes only economic loss”). This generally includes actions for negligent misrepresentation. Duquesne Light Co. v. Westinghouse Elec. Corp., 66 F.3d 604, 620 (3d Cir. 1995). See also, North Am. Roofing & Sheet Metal Co. v. Building & Constr. Trades Council, no. civ. a. 99-2050, 2000 WL 230214 at *7-8 (E.D. Pa. Feb. 29, 2000) (relying on the economic loss doctrine to dismiss a claim for negligent misrepresentation). Here, First Republic does not allege that it has suffered any physical damage or harm. As a result, it cannot sustain a claim for negligent misrepresentation, and Count IV must be stricken.

While the economic loss doctrine applies to claims based on a defendant’s negligence, it is far from clear that the doctrine applies to intentional torts. The most recent articulations of Pennsylvania’s economic loss doctrine appear to have broadened its scope to include tortious behavior other than negligence. See Ellenbogen v. PNC Bank, 731 A.2d 175, 188-89 n.26 (Pa. Super. 1999) (the economic loss doctrine “bar[s] a plaintiff from recovering purely economic losses suffered as a result of a defendant’s negligent or otherwise tortious behavior, absent proof that the defendant’s conduct caused actual physical harm to a plaintiff or his property”); KNK Medical-Dental Specialties Ltd. v. Tamex Corp., no. civ. a. 99-3409, 2000 WL 1470665 at *5 (E.D. Pa. Sept. 28, 2000) (the economic loss doctrine “prohibits plaintiffs from recovering in tort economic losses to which their entitlement flows only from a contract”); Werwinski v. Ford Motor Co., no. civ. a. 00-943, 2000 WL 1201576 at *4 (E.D. Pa. Aug. 15, 2000) (the economic loss doctrine “limit[s] tort actions when only economic loss, as opposed to personal injury damage, has occurred”). Although no Pennsylvania court has commented on it, this small but significant shift is reflected in federal courts’ confusion as to whether the doctrine applies to claims for intentional torts, including fraudulent misrepresentation claims.

Federal courts in Pennsylvania have come down on both sides of the issue. Compare KNK Medical-Dental Specialties Ltd., 2000 WL 1470665 at *5 (noting “a split of authority among Pennsylvania district courts as to whether the economic loss doctrine applies to intentional fraud claims” and refusing to apply the economic loss doctrine to an intentional fraud claim), and Sunquest Info. Sys. v. Dean Witter Reynolds, 40 F. Supp.2d 644, 658 (W.D. Pa. 1999) (concluding that the economic loss doctrine does not apply to intentional misrepresentation claims), with Werwinski, 2000 WL 1201576 at *5 (noting the same split of authority but dismissing an intentional fraud claim on economic loss doctrine grounds), and Sneberger v. BTI Amers. Inc., no. civ. a. 98-932, 1998 WL 826992 at *7 (E.D. Pa. Nov. 30, 1998) (the economic loss doctrine “applies to negligent misrepresentation as well as other types of tort claims"). Those cases refusing to apply the doctrine have held that the economic loss doctrine does not apply “if the representation at issue is intentionally false.” North Amer. Roofing & Sheet Metal Co., 2000 WL 230214 at *7 (citing Palco Linings Inc. v. Pavex Inc., 755 F. Supp. 1269, 1274 (M.D. Pa. 1990)).

The logic supporting the decisions that decline to apply the economic loss doctrine to fraudulent misrepresentation claims is convincing and is summarized best in Stoughton Trailers Inc. v. Henkel Corp., 965 F. Supp. 1227 (W.D. Wis. 1997):

“Although it makes sense to allow parties to allocate the risk of mistakes or accidents that lead to economic losses, it does not make sense to extend the doctrine to intentional acts taken by one party to subvert the purposes of a contract. Although theoretically parties could include contractual provisions discussing the allocation of responsibility when one party intentionally lies or misleads the other, it would not be conducive to amicable commercial relations to require parties to include such clauses in contracts. Expressing such a basic lack of trust in the other party would be likely to sour a deal from the start.

“A party to a contract cannot rationally calculate the possibility that the other party will deliberately misrepresent terms critical to that contract. Public policy is better served by leaving the possibility of an intentional tort suit hanging over the head of a party considering outright fraud . . . .” 965 F. Supp. at 1236. For these reasons, the court holds that an action for fraudulent misrepresentation is not barred solely because a plaintiff has suffered only economic harm.

In the complaint, First Republic alleges that the shareholders knew that their representations regarding the portfolio were false and that they intentionally misrepresented the portfolio’s value. Complaint atf][27,28. As such, First Republic’s failure to allege physical damage does not bar its claim for fraudulent misrepresentation, and the objections to Count III based on the economic loss doctrine are overruled.

III. Punitive Damages

Under Pennsylvania law, “[a] request for punitive damages does not constitute a cause of action in an[d] of itself.” Nix v. Temple University of the Commonwealth System of Higher Education, 408 Pa. Super. 369, 380, 596 A.2d 1132, 1138 (1991). See also, Holl & Assocs. v. 1515 Market St. Assocs., May 2000, no. 1964, slip op. at 5-6 (C.P. Phila. August 10, 2000) (Herron, J.) (“[a] request for punitive damages cannot stand as an independent cause of action”). Rather, such a request should be made in a clause requesting relief for a viable cause of action that permits the recovery of punitive damages. As a result, the objections to First Republic’s cause of action for punitive damages are sustained, and Count V is stricken.

CONCLUSION

The objections to Counts I, II and III are overruled, while the objections challenging First Republic’s claims for negligent misrepresentation and punitive damages are sustained.

ORDER

And now, December 19, 2000, upon consideration of the preliminary objections of defendants Steven D. Brand, James M. Dougherty, Arthur L. Powell, Richard S. Powell, Jon R. Powell, Carol P. Heller, Nancy E. Powell, Harold G. Schaeffer, James R. Schaeffer, Anthony L. Schaeffer and Robert D. Schaeffer to the complaint of plaintiff First Republic Bank and the plaintiff’s response thereto, and in accordance with the memorandum opinion being filed contemporaneously with this order, it is hereby ordered and decreed as follows:

(1) The preliminary objections to Count IV — negligent misrepresentation — asserting legal insufficiency based on the economic loss doctrine are sustained and Count IV is stricken;

(2) The preliminary objections to Count V — punitive damages — are sustained and Count V is stricken;

(3) The remaining preliminary objections are overruled; and

(4) The defendants are directed to file an answer to the complaint within 20 days of this order.

      . Steven D. Brand is alleged to have been the representative of the shareholders.

      . The title of this objection asserts that First Republic lacks the capacity to sue. However, the body of the objection focuses instead on the plaintiffs lack of standing. As a result, the court will address only First Republic’s standing to bring its claims.

      . Under Pennsylvania Rule of Civil Procedure 1028(a)(5), a party may raise a preliminary objection based on “a lack of capacity to sue.” It is unclear if Pennsylvania law distinguishes between capacity to sue and standing. Compare Witt v. Commonwealth, Department of Banking, 493 Pa. 77, 83 n.7, 425 A.2d 374, 377 n.7 (1981) (quoting 67A C.J.S. Parties §10 distinction between “capacity to sue” and “standing” but not resolving “this somewhat metaphysical question”), with In re Estate of Alexander, 758 A.2d 182, 189 (Pa. Super. 2000) (using the terms “capacity to sue” and “standing” interchangeably). Regardless, courts of the Commonwealth permit parties to challenge standing in their preliminary objections. See e.g., Kee v. Pennsylvania Turnpike Commission, 685 A.2d 1054, 1056 n.4 (Pa. Commw. 1996), aff’d, 548 Pa. 550, 699 A.2d 721 (1997) (noting the Commonwealth Court’s history of addressing preliminary objections raising questions of standing).

      . It is beyond question that “one party to a contract has standing to sue the other for breach.” Svarzbein v. Saidel, no. civ. a. 97-3894, 1999 WL 729260 at *5 (E.D. Pa. Sept. 10, 1999). (citation omitted)

      . In raising the objections asserting legal insufficiency, the shareholders do not argue that the parol evidence rule bars consideration of the misrepresentations alleged in the complaint. As a result, the court must examine the alleged misrepresentations and cannot regard them as being integrated into the definitive agreement. See LeDonne v. Kessler, 256 Pa. Super. 280, 296 n.11, 389 A.2d 1123, 1132 n.11 (1978) (refusing to address issue of parol evidence sua sponte).

      . Supporting this conclusion are Quorum Health Resources Inc. v. Carbon-Schuylkill Community Hospital, 49 F. Supp.2d 430 (E.D. Pa. 1999) (doctrine barred claim of negligent performance of contractual duties); Sunquest Info. Sys. v. Dean Witter Reynolds Inc., 40 F. Supp.2d 644 (W.D. Pa. 1999) (doctrine barred claim of fraudulent inducement to form a contract); Factory Mktg. Inc. v. Schuller Int’l Inc., 987 F. Supp. 387 (E.D. Pa. 1998) (doctrine barred claim of fraud based on a failure to honor guarantees contained in a contract); Peoples Mortgage Co. v. Federal Nat’l Mortgage Ass’n, 856 F. Supp. 910 (E.D. Pa. 1994) (doctrine barred conversion claim based on false billing under a contract); Redevelopment Auth. of Cambria County v. International Insurance Co., 454 Pa. Super. 374, 685 A.2d 581 (1996) (doctrine barred claim of negligent performance of contractual duties); Phico Insurance, 444 Pa. Super. 221, 663 A.2d 753 (same); and Bash v. Bell Telephone Co., 411 Pa. Super. 347, 601 A.2d 825 (1992) (same).

      . Supporting this conclusion are American Guarantee & Liability Insurance Co. v. Fojiani, 90 F. Supp.2d 615 (E.D. Pa. 2000) (doctrine did not bar fraud claim where the defendant’s false representations about its financial health caused the plaintiff to continue investing time and energy in its venture with the defendant); Polymer Dynamics Inc. v. Bayer, no. civ. a. 99-4040, 2000 WL 1146622 (E.D. Pa. Aug. 14, 2000) (doctrine did not bar fraud claim where the defendant made false representations about its performance under a contract to induce plaintiff to continue its relationship with the defendant and to reveal confidential information to the defendant); Northeastern Power Co. v. Backe-Durr Inc., no. 97-CV-4836, 1999 WL 674332 (E.D. Pa. Aug. 23,1999) (doctrine did not bar a fraud claim where the defendant made specific misrepresentations about its performance under the contract with the intent to deceive the plaintiff); Fox’s Foods Inc. v. Kmart Corp., 870 F. Supp. 599 (M.D. Pa. 1994) (denying summary judgment motion on fraud claim because, among other reasons, the complaint alleged that the defendant intentionally made false assurances about its performance under a contract to keep the plaintiff from asserting its contractual rights against the defendant).

      . Opinion available at http://courts.phila.gov/cptcvcomp.htm.

      . While much of the letter of intent is not binding, eight specific provisions are “intended to be legally binding on the parties hereto.” Letter of intent at ¶10. As a result, the letter of intent established a contractual relationship between First Republic and the shareholders.

      . The court notes once more that the shareholders do not argue that the alleged misrepresentations should be excluded under the parol evidence rule or that they were superseded by the definitive agreement.

      . Indeed, courts often have difficulty distinguishing between the gist of the action and economic loss doctrines. See e.g., Constar Inc. v. NationalDistrib. Centers Inc., 101 F. Supp.2d 319, 322 (E.D. Pa. 2000) (the economic loss doctrine “prohibits recovery in tort for economic losses to which the party’s entitlement flows only from a contract”); Sunquest Info. Sys. v. Dean Witter Reynolds, 40 F. Supp.2d 644, 659 n.13 (W.D. Pa. 1999) (“the economic loss analysis appears similar, if not identical to, the application of the ‘gist of the action’ doctrine”).

      . When the economic loss doctrine was first articulated in Seely v. White Motor Co., 403 P.2d 145 (Cal. 1965), it applied solely to strict liability torts. Gradually, however, it has been extended to negligence claims and, by some courts, to intentional torts as well. See Steven C. Tourek, Thomas H. Boyd & Charles J. Schoenwetter, Bucking the “Trend”: The Uniform Commercial Code, The Economic Loss Doctrine and Common Law Causes of Action for Fraud and Misrepresentation, 84 Iowa L. Rev. 875, 885-91 (1999) (tracing the history of the economic loss doctrine). j

      . Other jurisdictions have not found this to be the case. See Reeder R. Fox & Patrick J. Loftus, Riding the Choppy Waters of East River: Economic Loss Doctrine Ten Years Later, 64 Def. Couns. J. 260, 268-70 (1997) (discussing conflict between jurisdictions over application of the economic loss doctrine to negligent misrepresentation claims). In addition, a negligent misrepresentation claim is permitted “where one in the business of supplying information for the guidance of others makes negligent representations.” Palco Linings Inc. v. Pavex Inc., 755 F. Supp. 1269, 1273 (M.D. Pa. 1990) (citing Moorman Mfg. Co. v. National Tank Co., 435 N.E.2d 443, 452 (Ill. 1982)).

      . This broad language should be compared with the narrow approach taken by both Pennsylvania and federal courts just a few years earlier. See 2-J Corp. v. Tice, 126 F.3d 539, 541 (3d Cir. 1997) (the original economic loss doctrine “provided that no cause of action could 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”); Getty Refining and Mktg. Co. v. M/T FADI B, 766 F.2d 829, 833 (3d Cir. 1985) (“where the negligence does not result in physical harm, thereby providing no basis for an independent tort, and the plaintiff suffers only pecuniary loss, he may not recover for the loss of the financial benefits of a contract or prospective trade”); Constar Inc., 101 F. Supp.2d at 322 (“the economic loss doctrine permits recovery in negligence only for damage to property or injury to person”); Margolis v. Jackson, 375 Pa. Super. 182, 185, 543 A.2d 1238, 1240 (1988) (“[pjurely economical loss, when not accompanied with or occasioned by injury, is considered beyond the scope of recovery even if a direct result of the negligent act”).

       Although Stoughton Trailers’ subsequent history has been turbulent, its principles are cited and echoed elsewhere. See e.g., All-Tech Telecom Inc. v. Amway Corp., 174 F.3d 862, 867 (7th Cir. 1999) (if the economic loss doctrine is applied to intentional misrepresentation claims, “prospective parties to contracts will be able to obtain legal protection against fraud only by insisting that the other party to the contract reduce all representations to writing, and so there will be additional contractual negotiations, contracts will be longer, and, in short, transaction costs will be higher”); Budgetel Inns Inc. v. Micros Sys. Inc., 34 F. Supp.2d 720,725 (E.D. Wis. 1999) (“[w]hen a seller is lying about the subject matter of a contract, the party best suited to assess the risk of economic loss switches from being the purchaser, who cannot possibly know which of several statements may be a lie, to the seller, who clearly knows”); Comptech Int’l. Inc. v. Milam Commerce Park Ltd., 735 So.2d 1219, 1225 (Fla. 2000) (recognizing “the danger in an unprincipled extension” of the economic loss doctrine); R. Joseph Barton, Drowning in a Sea of Contract: Application of the Economic Loss Rule to Fraud and Negligent Misrepresentation Claims, 41 Wm. & Mary L. Rev. 1789,1843 (2000) (warning that “overapplication of the economic loss rule [will] drown misrepresentation claims in a sea of contract”); Tourek, Boyd & Schoenwetter, 84 Iowa L. Rev. 875 (discussing how cases applying the economic loss doctrine to intentional fraud claims “ignore the important and distinct policy objectives and concerns that are associated with claims for common-law fraud and misrepresentation”).

      . Opinion available at http://courts.phila.gov/cptcvcomp.htm.

      . The request for relief following the count for fraudulent misrepresentation includes a demand for punitive damages. While Counts I and II do not include such a request, punitive damages are not permitted in a breach of contract action. Johnson v. Hyundai Motor America, 698 A.2d 631, 639 (Pa. Super. 1997). Consequently, there is no need to allow First Republic to amend the complaint to insert a request for punitive damages.


source: Caselaw Access Project

author: HERRON, J.,

license: Public Domain

text:
    Green v. Saturn Corp.

      C.P. of Philadelphia County,
    January Term 2000,
    no. 685.

      Sherrie R. Savett, for plaintiff.

      Joseph E. O ’Neil, for defendant.
    June 2, 2000
   HERRON, J.,

Plaintiff Debra Green has filed a class action suit in which she alleges that defendant Saturn Corp. misrepresented that its 1996 Satums had been treated with Scotchgard to bolster the durability of the interior of the vehicle. In response, the defendant has filed preliminary objections, each of which is addressed in a contemporaneously issued order. For clarity, the reasons for these rulings will be set forth separately below.

The court has overruled the preliminary objection as to the failure of the complaint to allege a legally cognizable class. A court should not concern itself with preliminary objections relating to the class until the certification hearing stage of the proceedings. Sherrer v. Lamb, 319 Pa. Super. 290, 294, 466 A.2d 163, 165 (1983). See also, Pa.R.C.P, 1705 (issues of fact with respect to the class action allegations are not to be raised in preliminary objections). Because no certification hearings may be held “until the pleading stage is concluded, [and] attacks on the form of the complaint or demurrers to attack the substance” have already been disposed of, Niemiec v. Allstate Insurance Co., 721 A.2d 807, 810 (Pa. Super. 1998), this objection, which relates to the class, is properly raised after the pleadings have been closed and not at the preliminary objection stage.

The court has overruled the preliminary objections as to the defendant’s contention that the complaint fails to allege facts necessary to support a claim of false advertising under section 201-2(4)(v) of the Unfair Trade Practices Consumer Protection Law, 73 Pa.C.S. 201-1 etseq. To sustain a claim under section 201-2(4)(v), a plaintiff must show “(1) that defendants’ advertisement is a false representation of a fact, (2) that it actually deceives or has a tendency to deceive a substantial segment of its audience, and (3) that the false representation is likely to make a difference in a purchasing decision.” Weinberg v. Sun Co. Inc., 740 A.2d 1152, 1167 (Pa. Super. 1999) (citing Commonwealth v. Hush-Tone Indus., 4 Pa. Commw. 1, 21 (1971)). The complaint alleges facts to support each of these elements and is therefore sufficient to sustain a claim for false advertising. See complaint, ¶¶2, 17, 18, 19, 22, 27.

The court has sustained the preliminary objections as to the defendant’s contention that the complaint fails to allege facts necessary to support a claim for breach of written warranty under section 201-2(4)(xiv) of the Unfair Trade Practices Consumer Protection Law. Section 201-2(4)(xiv) states that “failing to comply with the terms of any written guarantee or warranty given to the buyer at, prior to, or after a contract for the purchase of goods or services is made” is unlawful. Accordingly, a plaintiff cannot sustain a cause of action for a breach of a written warranty in the absence of such a written warranty. Kaplan v. Cablevision of Pa. Inc., 448 Pa. Super. 306, 671 A.2d 716 (1996), Moreover, Rule 1019(h) of the Pennsylvania Rules of Civil Procedure requires that a writing relied upon be attached or that an explanation for its absence be given. The plaintiff has neither attached a writing nor given any explanation for its absence as required by Rule 1019(h).

The court has sustained the preliminary objections as to the defendant’s contention that the complaint fails to allege facts necessary to support a claim for fraud under section 201-2(4)(xxi) of the Unfair Trade Practices Consumer Protection Law. Two essential elements of common-law fraud are knowledge and scienter. See Prime Meats Inc. v. Yochim, 422 Pa. Super. 460, 469, 619 A.2d 769, 773 (1993). The complaint alleges neither and thus does not support a common-law fraud claim.

The court has sustained the preliminary objections as to the defendant’s contention that the complaint fails to allege facts necessary to support a claim for breech of contract. In Electron Energy Corp. v. Short, 408 Pa. Super. 563, 597 A.2d 175 (1991), the Superior Court stated that “it is fundamental contract law that one cannot be liable for a breach of contract unless one is a party to that contract.” 408 Pa. Super. at 567, 597 A.2d at 177. In addition, if a pleading is based on a writing, the material portion of the writing is to be attached or, if it is not accessible to the pleader, the substance of the writing is to be set forth along with the reason that the writing is not available. Rule 1019(h). While the Uniform Commercial Code does not pre-empt a breech of contract claim, see Moscatiello v. Pittsburgh Contractors Equipment Co., 407 Pa. Super. 378, 386, 595 A.2d 1198, 1201-1202 (1991), the plaintiff’s complaint does not meet the particularity or writing requirements of Rule 1019 of the Pennsylvania Rules of Civil Procedure.

The court has overruled the preliminary objections as to the defendant’s contention that the complaint fails to allege facts necessary to support a claim for breach of express warranty. Under the Uniform Commerical Code, a seller’s description of the goods that becomes part of the basis of the bargain creates an express warranty that the goods will conform to that description. 13 Pa.C.S. §2313. In general, all of the statements of the seller become part of the basis of the bargain “unless good reason is shown to the contrary.” Section 2313, comment 8. Here, the defendant has not provided any indication that the Scotchgard representations are not part of the basis of the bargain, and thus, the representations are deemed to have created an express warranty. Consequently, the plaintiff alleges the notice and warranty required to sustain her claim for breach of express warranty.

The court has overruled the preliminary objections without prejudice as to the defendant’s contention that the plaintiff does not have standing to claim violations of other states’ laws. Pennsylvania permits a plaintiff to bring a class action lawsuit on behalf of a national class. Weinberg, 740 A.2d at 1164. The plaintiff’s ability to proceed in representing a national class will be severely impaired if the defendant’s objection on this count is sustained. If a national class is not certified, the defendant may raise this objection again at a later point in time.

The plaintiff has been permitted to file an amended complaint to address those objections that the court has sustained. In the event a preliminary objection based on legal insufficiency in the nature of a demurrer is granted, the pleader has a right to file an amended pleading if she has not done so already. 5A Standard Pa. Practice 2d §25:66. See also, Otto v. American Mutual Insurance Co., 482 Pa. 202, 205, 393 A.2d 450, 451 (1978) (stating the “[t]he right to amend should not be withheld where there is some reasonable possibility that amendment can be accomplished successfully”). Consequently, the court has permitted the plaintiff to file an amended complaint to address those objections sustained in the court’s order.

      . One case appears to be an isolated exception to this rale. In Adamson v. Commonwealth, 49 Pa. Commw. 54, 410 A.2d 392 (1980), the Superior Court thoroughly measured the proposed class against the class requirements and, based on the defendant’s preliminary objections, concluded that the plaintiff’s action would not benefit -the class. However, this case, decided less than three years after the class action rales were adopted, is the only one in which a Pennsylvania court has examined the class itself when reviewing preliminary objections and appears to violate the prinicple set forth in later cases.


author: WETTICK, J.,

text:
    Appeal From the Decision of the Board of Property Assessment, Appeals Review and Registry Regarding Pittsburgh International Airport Tax Exemptions

      C.P. of Allegheny County,
    no. 99-500.

      Stanley J. Parker, for appellant.

      Craig C. Stephens, for appellee.

      Ira Weiss, for interested party West Allegheny School District.

      Terrence F. McVern, for interested party Allegheny County.

      E.J. Strassburger, for interested party Township of Findlay.
    January 19, 2001
   WETTICK, J.,

This opinion and order of court addresses the question of whether a retail facility (It’s a Burgh Thing) at the Midfield Terminal Complex of the Pittsburgh International Airport which sold Pittsburgh-related souvenirs and novelty items is exempt from real property taxation. The municipality (Township of Findlay) and the school district (West Allegheny School District) in which the facility is located, contend that the facility can be taxed. Allegheny County supports the position of the operators of the facility that the property is tax-exempt.

Even though it is also a taxing body, Allegheny County takes the position that the food and retail concessions at the airport are tax-exempt for obvious reasons. Allegheny County is the owner of the airport. Allegheny County leases the areas of the airport that were constructed for food and retail concessions to BAA-Pittsburgh which, in turn, subleases these areas to entities that operate food and retail businesses at the airport.

The current lease between Allegheny County and BAA-Pittsburgh requires BAA-Pittsburgh to assume responsibility for real estate taxes that may be imposed. Most current leases between BAA-Pittsburgh and the operators of the retail businesses shift this responsibility to the subtenant. However, when these leases expire, the amount of rent that Allegheny County can charge under the new leases will depend on whether or not the locations are exempt from real estate taxation. If a facility is not exempt from real property taxation, the amount of rent that Allegheny County would otherwise receive (either from the operator of each facility or through a payment from the tenant of the entire area used for food and retail concessions) will be reduced because of the taxes paid to the three taxing bodies. Consequently, to the extent that property of the airport is taxable, the taxpayers of Allegheny County will be indirectly paying these municipal and school district taxes.

In a November 22, 2000 opinion and order of court, I addressed the question of whether the food and beverage facilities of the airport are exempt from real property taxation. In the present case, the parties have submitted the same types of evidence that I considered in addressing the question of whether these food and beverage facilities are tax-exempt. The same legal standards apply. Consequently, much of this opinion uses identical language from my prior opinion.

The General County Assessment Law (72 P. S. §5020-204(a)(7)) exempts public property used for public purposes from real property taxation. It is the position of Findlay/West Allegheny that the commercial property which they seek to tax is not public property used for public purposes.

With the agreement of all parties, the evidence presented at the de novo hearing consisted of depositions filed with this court, including exhibits introduced through the depositions.

There does not seem to be any significant dispute over the controlling legal standard. The key to an exemption is evidence establishing that the lessee’s use of public property is furthering the purpose of the governmental agency from which the lessee rents the property. Pier 30 Associates v. School District of Philadelphia, 89 Pa. Commw. 505, 493 A.2d 126 (1985). Public property that is used for public purposes is exempt from real property taxation even though it is leased to private operators who derive a profit from using the public property for public purposes. May Department Stores Co. v. City of Pittsburgh, 31 Pa. Commw. 398, 401, 376 A.2d 309, 311 (1977). However, public property that is leased to a private party is not exempt where the lessee’s use is not for a public purpose. Appeal of H.K. Porter Company, 421 Pa. 438, 219 A.2d 653 (1966). Furthermore, public property leased to a private party is not exempt simply because the rentals are used by the governmental body for a public purpose; the use by the private party must be for a public purpose. Pittsburgh Public Parking Authority v. Board of Property Assessment, Appeals and Review, 377 Pa. 274, 105 A.2d 165, 168 (1954).

In Wesleyville Borough v. Erie County Board of Assessment Appeals, 676 A.2d 298 (Pa. Commw. 1996), the court summarized the law as follows:

“Our Supreme Court has further stated that the fact that property of a public body is leased to another entity, even a private party deriving profit therefrom, will not defeat the tax exemption if the property is being used for the specifically authorized public purpose for which it was acquired. Pittsburgh Public Parking Authority v. Board of Property Assessment, 377 Pa. 274, 105 A.2d 165 (1954). The controlling test for tax exemption is not whether the property or part of it has been leased out, but whether the use of the property so leased is for a public purpose. . . . This court has also stated that the crucial point is not whether the public body is benefitted by the use of the leased property but whether the use is, in fact, public....

“Where the primary and principal use to which property is put is public, the mere fact that income is incidentally derived from the use of the property does not affect its character as property devoted to a public use.... On the other hand, property that is owned by a tax-exempt entity is taxable if the property is used for commercial purposes or is rented to a lessee for a purely business enterprise and not a public use.” 676 A.2d at 302. (citations omitted)

The taxing bodies and the operators of the food and beverage facilities rely on the following two cases which considered the taxability of certain portions of the prior Pittsburgh Airport: Moon Township Appeal, 387 Pa. 144, 127 A.2d 361 (1956) (Moon I); Moon Township Appeal, 425 Pa. 578, 229 A.2d 890 (1967) (Moon II).

In Moon I, the taxing bodies sought to tax most of the concession areas. The county, as owner of the airport, had rented concession areas to private individuals and corporations. The Supreme Court’s opinion stated that the trial court considered the following business activities: “jewelry store, display windows and display areas, drugstore, newsstand, 60-room hotel, nightclub, banquet rooms, coffee shop, cafeteria, cocktail lounge, tavern, service bar and roof patio, sandwich shop, bakery, check rooms, roof garden restaurant and cafe, amusement arcade, barber shop, confectionery, parking garage (indoor), women’s apparel shop, garbage and rubbish collection service, dairy bar, toy shop, car rental service, fruit store, wholesale lumber sales office, catering service, insurance agency, taxi service, limousine service, gift shop, motion picture theater, linen supply service, coin-operated binoculars, parcel lockers, toy sales stand, steel company sales office, private lounge and bar, bank, and real estate office. The outside areas leased to concessionaires are the parking lots, the refreshment stand, comfort station and automobile service station, while the two dwelling houses are rented to private individuals.” 387 Pa. at 147-48 127 A.2d at 363-64.

The trial court ruled that only the following activities were exempt: the coffee shop, cafeteria, sandwich shop, check rooms, barber shop, parking garage, garbage and rubbish collection service, catering service, taxi service, limousine service, and parking lots. The county appealed. The Pennsylvania Supreme Court affirmed.

The court stated that commercial activities at the airport are not tax-exempt if they only serve the convenience of the traveling public. Instead, it must be shown that they were needed for the efficient operation of the airport as a public instrumentality and thereby partook of the character of its own public use. Id. at 150, 127 A.2d at 364.

The court ruled that the trial court had properly applied this standard:

“Based on that criterion it would seem clear that the court properly held taxable those areas occupied by concessionaires which could not, by any proper interpretation of ‘reasonable necessity,’ be held to enjoy a tax-exempt status, even though their activities may have been similar to those frequently associated with large airports. The court pointed out that while the service of food and refreshment was no doubt an essential activity for the benefit of the patrons of the airport, it would not include as a reasonable necessity, nightclubs, cocktail lounges, and the like, and therefore the nightclub, cocktail lounge, service bars, tavern, roof garden restaurant and cafe, banquet rooms, private lounge and bar, were taxable. Further, that the jewelry store, display windows and areas, drugstore, newsstand, bakery, amusement arcade, confectionery, women’s apparel shop, dairy bar, toy shop, car rental service, fruit store, gift shop, motion picture theatre, linen supply service, coin-operated binoculars, and toy helicopter sales stand, were nothing more than attractions for the patrons; therefore they also were taxable. That, as there was no reasonable necessity at the airport for the bank, the lumber sales office, the insurance agency, the steel company sales office, or the real estate office, all these were likewise taxable. That the hotel was taxable in view of the proximity of other suitable accommodations for travelers who, because of delay in making connections, might be required to stay overnight or for an extended period during the day. That while the parking areas were reasonably required for passengers going to and from the airport in cabs and automobiles, no such necessity was shown for the refreshment stand, comfort station, or automobile service station within that area, nor for the dwelling houses, all of which were therefore taxable.” Id. at 150-51,127 A.2d at 365.

In a dissenting opinion, Mr. Justice Jones accused the majority of deeming “the answers to the issues involved as being conclusively determined by the lower court’s factual findings to which finality is accorded on the ground that there is evidence to support them [when] [a]ctually, the material facts are not in dispute.” Id. at 152, 127 A.2d at 365 (dissenting opinion). He opined that what is called for is a conclusion of law as to whether under the established facts the contested uses of the airport property either serve a public purpose or are reasonably essential to a public service. He was particularly critical of the ruling as to the hotel; in his opinion, hotel facilities for airport passengers at the airport are a necessity. He concluded his dissenting opinion by stating that the order affirming the trial court does not preclude a re-examination of the subject matter upon a subsequent triennial assessment where “[a]dditional proofs can then, and no doubt will, be adduced to demonstrate beyond reasonable dispute that many of the presently assessed uses of the terminal property are in furtherance of the authorized public use of the airport.” Id. at 154-55, 127 A.2d at 366 (dissenting opinion).

Moon II considered four properties that had been denied tax-exempt status in the previous litigation: the hotel, a restaurant known as “The Fountain Room,” a newsstand and a drugstore. The county had appealed from the assessment board’s ruling in subsequent triennial assessments that these facilities were subject to assessment and taxation. The trial court, on the basis of extensive findings of fact, concluded that the hotel, the restaurant, the newsstand, and the portion of the drug- store used for the sale of food were tax-exempt. In re Appeal of County of Allegheny, 114 P.L.J. 463 (1966). The township and school district appealed as did the drugstore with respect to the portion of the facility that was utilized for the sale of drugs, gifts, novelties, and other miscellaneous items. The Pennsylvania Supreme Court affirmed. The Supreme Court used the same standard that it used in Moon I:

“ ‘There is likewise no question but that property the use of which is reasonably necessary for the efficient operation of the airport, even though not indispensable or essential thereto, is also entitled to exemption. Nor can such property be denied exemption merely because it is rented out by the airport and thereby yields a return which serves to reduce expenses, because, where the primary and principal use to which property is put is public, the mere fact that an income is incidentally derived from it does not affect its character as property devoted to a public use. [citations] On the other hand, however, there is equally no doubt that property, even though owned by a body ordinarily tax-exempt, is taxable if used by it for commercial purposes, or if rented to a lessee for a purely business enterprise and not a public use; this is true even though the rentals or other proceeds from the property are devoted to the tax-exempt activities of the lessor, [citations]’ (original emphasis)

“While the law is clear, its application to the facts is difficult. The line of demarcation between what is ‘reasonably necessary for the efficient operation of the airport’ and that which serves only the convenience of the traveling public is not easily fixed.” 425 Pa. at 581, 229 A.2d at 891, quoting from Moon I, 387 Pa. at 148-49 127 A.2d at 364.

The court concluded that it could not say as a matter of law that the trial court erred in its conclusion that the hotel, restaurant, newsstand, and drugstore food bar are reasonably necessary for the efficient operation of the airport because the “facilities required to meet the needs of today’s traveling public are a far cry from early days of commercial air transportation, and the Greater Pittsburgh Airport has undoubtedly tried to keep up with the demands of the times. It has provided everything necessary to make it an efficient operation and this has contributed to its expansion and improved service.” 425 Pa. at 582, 229 A.2d at 892.

The Supreme Court opinion focused on the hotel. The opinion referred to the evidence showing that it is needed (its occupancy rate has never gone below 90 percent), that it serves the traveling public rather than local residents (99 percent of its guests are from out of town), and that the county exercises substantial control over its operation through an agreement which controls the prices charged, the hours of operation, and the conduct and service of the employed personnel towards the traveling public. The Supreme Court found that the hotel provides “a much needed, if not an absolutely required, service.” Id.

It is questionable that the different outcomes in Moon I and Moon II turned on whether or not the trial judge attached a label of “reasonably necessary” to the services offered by the lessee in the situation in which the basic facts were not in dispute. It is very possible the different outcomes were the result of a decision to apply to municipal airports the same standards that had been applied to other public properties in prior cases.

In New Castle v. Lawrence County, 353 Pa. 175, 44 A.2d 589 (1945), the trial court found to be taxable certain portions of a municipal park, namely a funny-house, a pavilion, a merry-go-round, a restaurant, and an amusement building.

The Pennsylvania Supreme Court reversed, stating:

“These buildings are part of the park equipment available for the entertainment and refreshment of the public visiting the park, and promote and facilitate the enjoyment of the park for park purposes. The Department of Parks and Public Property of the City of New Castle has control over the portions of the park in which these licensees or lessees operate. No reason has been suggested why park visitors who desire refreshment or special entertainment should not pay reasonable charges for such additional park privileges. If the city directly, instead of by licensees, furnished these benefits, it could make a reasonable charge therefor. As it acts in a proprietary capacity, it is immaterial that it finds it more convenient to supply refreshment and entertainment by its licensees.” Id. at 182, 44 A.2d at 593. (citation omitted)

In this same case, the trial court ruled that a municipal golf course which included buildings used for the sale of sandwiches, soft drinks, golf balls, golf clubs, cigarettes and cigars, a restaurant, a club room, space for golf racks for customers, and a repair shop was not tax-exempt because fees are charged just as in the use of any ordinary privately owned golf course. The Pennsylvania Supreme Court reversed, holding that the entire facility was tax-exempt because it is “common knowledge that municipalities maintain public golf courses in their parks just as they maintain baseball diamonds, tennis courts, and playgrounds equipped with appropriate devices [and] it is also common knowledge that, frequently, reasonable charges are imposed toward the reduction of the general maintenance cost. The city has shown its right to immunity from taxation complained of on the ground the property sought to be taxed is public property for public purposes within the statute.” Id. at 181, 44 A.2d at 592.

Under the case law, I begin my analysis by considering the public purpose that the governmental body seeks to achieve. I then consider whether or not the uses of the facility that the taxing bodies seek to tax are reasonably necessary to accomplish the public purpose that the governmental body seeks to achieve.

The new airport was intended to be the “catalyst for the revitalization of the local economy.” Request for Proposals, Master Lessee-Developer of Retail Concessions. See exhibit 3, July 27, 1999 deposition of Mark Knight, p. 4. Testimony that I will discuss establishes that the airport was designed to function as a hub where a majority of the passengers using the airport would be transferring from one aircraft to another. The airport is designed, constructed and operated for the hub passengers. Retail facilities are an integral part of the operations of the airport as a hub. Because of the retail facilities, airlines are more likely to utilize the airport as a hub. Thus, the design of the airport included areas throughout the airport for food, beverage and retail facilities.

The majority of the customers of the retail facilities are hub passengers and airline crew. Less than 1 percent of the customers of the retail facilities were at the airport for reasons that had no relationship to air travel.

Kent George, the executive director of the Allegheny County Department of Aviation, testified that the modem day trend in airport design and operation involves retail, food, beverage and the like. (T. 10-11.) Airports must be self-sufficient; they must provide services such as magazines, food, refreshments, and retail facilities in order to encourage the use of the airport. (T. 11.) The concept of an airport that incorporates retail, food, and beverage facilities was pioneered in Allegheny County; it is now recognized and utilized throughout the world in modem airport development. (T. 12.) He knows of no airport development in the United States since Pittsburgh International was opened in 1992 that has not incorporated retail space. (T. 13.) The airport cannot maintain itself as a quality, international airport without a significant passenger base. Retail and food services are necessary in order for airlines to use Pittsburgh as a hub. (T. 29-33.)

He testified that the Pittsburgh International Airport is essentially a small city, containing a little more than 10,000 acres. The county is responsible for the entire operation, maintenance, development, day-to-day functioning, and future planning of the facility. The facility includes its own police department, fire department, and emergency management. (T. 14.) While the airport is located within Findlay and Moon Townships, it does not look to these municipalities for any support. It pays for any services that they provide, such as water and sewage. (T. 15.) •

Mr. George testified that approximately 15 million of the roughly 21 million passengers coming through the Pittsburgh Airport are making connections. (T. 21.) He testified that the retail space is necessary for the airport’s operation because the opportunity to shop while waiting for a connection makes it more likely that a passenger will select flights that go through Pittsburgh. (T. 21.)

Mark Knight is the president of BAA-Pittsburgh. He testified that BAA has the responsibility to lease, develop, and manage all of the retail services based within the airport. (T. 11.) BAA-Pittsburgh obtained its lease with the county by responding to an August 1990 request for proposals for a lessee-developer of retail concessions. (Exhibit 3, Knight deposition.) The airport project included a concession program for accomplishing the county’s goal of creating a world-class facility that would attract airlines through increased passenger services. (T. 9.) The county constructed the Midfield Terminal Complex to include in excess of 121,000 leas-able square feet of food/beverage, retail and service space. (P. 18, exhibit 3.) The purpose of the concession program was to provide airport patrons with first-class quality stores and service. (P. 18.) The county was seeking a concession program “comparable to the highest quality mixed use retail developments in the country.” (P. 19.) The master lessee-developer was required to develop a comprehensive retail development plan that would “describe with particularity the strategies for accomplishing the county’s goal of creating a world-class retail component to the Midfield Terminal Complex.” (Exhibit 3.)

The concession program has always been an important component of an airport that was developed to serve hub passengers. The prior airport terminal was constructed primarily to serve air travelers who began or ended their flights in Pittsburgh. Neither the facility nor the location of the retail space was appropriate for hubbing passengers. Once the airport became a hub for US Air, there needed to be a whole different type of structure. (T. 39.)

The construction of the new airport included space for food, beverage and retail concessions throughout the airport. These concessions are vital in Pittsburgh because 70 percent of the people that pass through are transfer passengers. (T. 50.)

The leases between BAA-Pittsburgh and each of the food, beverage and retail concessions place numerous restrictions and conditions on the manner of operation. The two most significant involve store hours and pricing. Each establishment must be open every day of the year. Most must be open from 6 a.m. until 10 p.m. (T. 63-68, Knight deposition.) As part of the mall concept, there is street pricing at the airport. None of these businesses may charge more for their food, beverages, and retail goods than the going rate at non-airport locations within Allegheny County. (T. 75-76, Knight deposition.)

If I viewed the claim for a tax exemption raised by It’s a Burgh Thing as the same claim for a tax exemption that was raised by the food and beverage subtenants, I would have simply issued a one-page memorandum which referred to my November 22, 2000 opinion and order of court holding that the portions of the Midfield Terminal Complex occupied by food and beverage subtenants are exempt from real estate taxes imposed by the County of Allegheny, the Township of Findlay, and West Allegheny School District, However, the issues are not the same.

The Moon I and Moon II standard is whether the use made of the property is reasonably necessary for the efficient operation of the airport. Airlines do not assume responsibility for feeding their passengers. Food and beverage concessions are vital because 70 percent of the people who pass through the airport are transfer passengers. The airlines now look to the airport facility to meet the needs of travelers who require food and beverage services. In my November 22,2000 opinion, I stated that the food and beverage facilities were tax-exempt because

“Each facility is furnishing food and beverage items that are consumed by the traveling public during the period in which they are traveling to their final point of destination. Consequently, they are necessary for the efficient operation of the airport.” (Pp. 22-23.) (footnote omitted)

The claim of It’s a Burgh Thing for a tax exemption is not the same because the items purchased from It’s a Burgh Thing are not consumed or otherwise utilized by the traveling public during the period in which they are traveling to their final point of destination. In addition, they are not items that passengers may require while they are traveling.

Nevertheless, W.H. Smith Inc. would prevail if its fact situation is similar to the fact situation in City of New Castle v. Lawrence County, supra, in which the municipal golf course included a building used for the sale of golf balls, golf clubs, etc. However, the relevant facts are not the same because, in City of New Castle the items that are purchased are used by the public in connection with their use of the public facility.

The Township of Findlay and the West Allegheny School District would clearly prevail if the W.H. Smith Inc. fact situation is identical to the fact situation in Public Parking Authority Pittsburgh v. Board Property Assessment, Appeals and Review, supra, in which the public authority leased the first floor of a parking garage for commercial uses (rentals for a restaurant, tailoring establishment, sale of flowers and an electric protective agency). However, the relevant facts are not the same because these commercial spaces were not intended primarily to serve persons using the parking garage or to attract parkers to the garage. The rentals provided a revenue stream to defray expenses of the authority (i.e., the space was more valuable as retail space rather than for parking).

In the present case, in all likelihood, retail space was not included as part of the airport because of the revenue that it would produce. In all likelihood, the rentals will never cover the increased construction and maintenance costs. The purpose of the retail space is to encourage a greater use of the airport as a hub.

A convincing argument can be made that retail space that represents a capital expenditure on the part of Allegheny County to further the purpose of the airport as a catalyst for the revitalization of the local economy should be tax-exempt. This capital expenditure is reasonably necessary to further the public purpose for the airport. Since the airport is tax-exempt because it furthers a public purpose, any essential component should be tax-exempt.

However, the two Pennsylvania Supreme Court cases that addressed the tax-exempt status of facilities at the airport (Moon I and Moon II) do not appear to address tax-exempt applications in this fashion. Instead, the focus appears to be on the needs of the passengers.

In Moon II, the appeals included the taxability of a drug store.- The trial court had found to be tax-exempt only the portion of the drugstore utilized for the sale of food. This portion of the ruling that denied a tax exemption for the remainder of the drug store was also a part of the appeal. The Pennsylvania Supreme Court affirmed the entire ruling of the trial court. With respect to the appeal involving the remainder of the drugstore, the court stated, without explanation, that it found no error in the lower court’s “conclusion that the drugstore area utilized for the sale of drugs, gifts, novelties and other miscellaneous items was not tax-exempt.” 425 Pa. at 583, 229 A.2d at 892.

The present case does not involve the sale of items that are likely to be used by travelers while waiting at the airport or while flying to their final destination. Neither does this appeal involve items that a traveler may need while he or she is away from home. The only relationship between the retail items sold by the It’s a Burgh Thing and airline travel is that the purchasers of these items are using the airport in the manner in which it was intended to be used. This does not appear to be a sufficient nexus.

For these reasons, I enter the following order of court:

ORDER

On January 19, 2001, it is hereby ordered that:

(1) the portion of the Midfield Terminal Complex occupied W.H. Smith Inc. for its operation of the retail store, It’s a Burgh Thing, is subject to real estate taxes imposed by the County of Allegheny, the Township of Findlay and West Allegheny School District;

(2) the application of W.H. Smith Inc., d/b/a It’s a Burgh Thing for tax-exempt status is denied; and

(3) the decision of the Allegheny County Board of Property Assessment, Appeals, Review and Registry placing this property in the taxable category for 1998 and thereafter is affirmed.

      . Article VIII, Section 2(a)(iii) of the Pennsylvania Constitution provides that the General Assembly may by law exempt from taxation that “portion of public property which is actually and regularly used for public purposes.”

      . The trial court opinion focused on both the hotel and the Fountain Room. The trial court ruled that the Fountain Room was tax-exempt because approximately 90 percent of its patrons are airline passengers or airline personnel and any concession which is providing food and refreshments to the public in transit is providing an essential service. The court stated that it is “essential” that food services be provided at the airport because airlines do not provide food to all passengers and any food that is provided by the airlines does not meet the needs of passengers whose flights are delayed. 114 RL.J. at 470.

      . The airport was constructed to include 90 concession areas scattered throughout the airport that occupy approximately 121,000 square feet of concession space. See exhibit 3, July 27, 1999 deposition of Mark Knight, p. 10.

      . Mr. George is responsible for the operation, maintenance, development and planning of the Allegheny County airport system which includes the Pittsburgh International Airport.


author: LOUGHRAN, P.J.,

text:
    Richter v. Jaco Inc.

      C.P. of Westmoreland County,
    no. 943 of 1999.

      Peter D. Friday, for plaintiffs.

      Pamela V. Collis, for defendant Jaco.

      A. Bradley Cramer Jr., for defendant Curtis.

      Ronald J. Bergman, for defendant F.S. Concepts.
    December 11, 2000
   LOUGHRAN, P.J.,

This action was commenced by plaintiffs filing a complaint against Charles A. Ruggeri t/d/b/a Fantastic Sam’s, F.S. Concepts Inc., t/d/b/a Fantastic Sam’s and Helene Curtis Inc. as a result of injuries the wife/plaintiff allegedly incurred as a result of receiving a hair permanent treatment at the Ruggeri’s salon in Mount Pleasant, Pennsylvania. The action was originally filed in Fayette County, however, by stipulation of the parties, the case was transferred to Westmoreland County, because it was originally erroneously believed that the salon was located in Fayette County.

Also by stipulation of the parties, the caption was amended to substitute Jaco Inc., t/d/b/a Fantastic Sam’s for the defendant Ruggeri because although the business was originally owned by the Ruggeri family, they later incorporated. Jaco is a family owned corporation whose shareholders and officers consisted of the Ruggeri family.

In their complaint, plaintiffs alleged that on August 1, 1996, the wife/plaintiff, Bertha P. Richter, visited Jaco’s Fantastic Sam’s salon in Mount Pleasant, Pennsylvania for the purpose of having a hair permanent treatment, which she received from the hairdresser, Ann Catalina.

During the permanent treatment, Ann Catalina applied a solution known as Botanical no. 4 for the purpose of curling the wife/plaintiff’s hair. The solution, Botanical no. 4 was manufactured by Helene Curtis and distributed by F.S. Concepts. The product was eventually sold to the wife/plaintiff during its application in the permanent treatment the wife/plaintiff received on August 1, 1996.

Plaintiffs allege in their complaint that the solution, Botanical no. 4 was a defective product which caused the wife/plaintiff later to develop blisters, swelling, and irritation about her skin and scalp as a result of an allergic reaction to the chemical, and further caused a chemical reaction creating a condition known as allergic conjunctivitis of her eyes.

Plaintiffs’ product liability claim against all of the defendants was stated in their complaint under three theories consisting of negligence in the manufacturing of the product, 402a of the Restatement (Second) of Torts, and breach of the implied warranty of merchantability.

In addition to the counts of product liability, plaintiffs have further included a count of ordinary negligence against the Ruggeris, now Jaco and F.S. Concepts only, alleging that the hairdresser negligently applied the solution causing it, in turn, to create the allergic reactions described above. Plaintiffs specifically allege that the hairdresser was negligent in applying too much of the solution, applying too strong of a concentration and failing to use adequate absorbent materials. Plaintiffs further allege in this count that the hairdresser was the servant of both Jaco and F.S. Concepts and, therefore, both are vicariously liable for wife/plaintiff’s injuries.

There is also a loss of consortium claim stated on behalf of husband/plaintiff, Clarence L. Richter.

All of the defendants have denied liability as to all of plaintiffs’ claims in their answers to the complaint. In addition, each defendant has filed new matter under Pa.R.C.P. 2252(d) asserting claims for contribution and indemnity against each other.

All defendants have moved for summary judgment. F.S. Concepts’ motion pertains to the products liability claim and that plaintiffs cannot establish as a matter of law, that the hairdresser, Ann Catalina, who was alleged to have been negligent in applying the permanent solution, was a servant, or under the control of F.S. Concepts.

The motion of Jaco Inc. contends that the plaintiffs are without evidentiary proof whatsoever to establish that this defendant was negligent in the design, manufacture, warning or testing of the said product. Likewise, Jaco contends the plaintiffs have not provided evidence sufficient to show that this defendant was negligent by breaching an established standard of care in the profession. Lastly, Jaco asserts the plaintiffs have failed to demonstrate conduct on the part of this defendant sufficient to recoup punitive damages.

Defendant, Helene Curtis Inc.’s, motion for summary judgment contends that (1) plaintiff, Bertha Richter, has presented no evidence to support her claim for negligence, strict liability, breach of implied warranty and punitive damages; (2) plaintiff’s reaction to the hair product was an idiosyncratic or allergic reaction for which defendant is not liable under Pennsylvania law; and (3) plaintiff, Clarence Richter’s, loss of consortium claim fails as a result of the lack of evidence for wife, Bertha Richter’s, claims.

As to F.S. Concepts’ motion that the hairdresser, Ann Catalina, was not an employee of F.S. Concepts and therefore F.S. Concepts cannot be liable under a theory of vicarious liability stemming from an employment relationship, the plaintiff has conceded this issue. Therefore, partial summary judgment will be granted upon this matter.

Summary judgment should not be entered unless a case is free from doubt; the moving party must prove that there is no genuine issue of material fact to be tried and that it is entitled to judgment as a matter of law, and moreover, the record must be viewed in light most favorable to non-moving party, and all doubts as to the existence of a genuine issue of material fact must be resolved against the moving party. Richland Mall Corp. v. Kasco Construction Co., 337 Pa. Super. 204, 486 A.2d 978 (1984).

The remaining reasons of F.S. Concepts pertain to the products liability claim. There is no question that F.S. Concepts’ name appears upon the box of perm solution at issue. Accordingly, F.S. Concepts is in the chain, placing the solution in the chain of commerce, as such, if an issue of fact exists as to plaintiffs’ claim, then the remaining portion of F.S. Concepts’ motion for summary judgment must be denied. It is the same issues that have been raised by motions of the other defendants, Jaco and Helene Curtis.

All the defendants contend plaintiffs’ product liability claim fails as a matter of law as (1) there is no evidence of the failure to properly design or test the product; and (2) there is no evidence of failure to warn of a reasonably foreseeable risk.

In a products liability action premised on negligence, a plaintiff must prove: (1) the manufacturer owed a duty to the plaintiff; (2) the manufacturer breached that duty; and (3) such breach was the proximate cause of the plaintiff’s injuries. Dauphin Deposit Bank & Trust Co. v. Toyota Motor Corp., 408 Pa. Super. 256, 596 A.2d 845 (1991). Further, liability is only imposed where the harmful consequences of the defendant’s conduct were reasonably foreseeable and could have been prevented with the exercise of reasonable care. Mohler v. Jeke, 407 Pa. Super. 478, 595 A.2d 1247 (1991); Maxwell v. Keas, 433 Pa. Super. 70, 639 A.2d 1215 (1994); Althaus by Althaus v. Cohen, 710 A.2d 1147 (Pa. Super. 1998); Morris v. Pathmark Corp., 405 Pa. Super. 274, 592 A.2d 331 (1991).

In failure to warn cases, Pennsylvania courts have adopted sections 388 and 395 of the Restatement (Second) of Torts. Lambert v. PBI Industries, 244 Pa. Super. 118, 366 A.2d 944 (1976); Hartford Mutual Insurance Co. v. Moorhead, 396 Pa. Super. 234, 578 A.2d 492 (1990).

Section 395 of the Restatement (Second) of Torts provides:

“A manufacturer who fails to exercise reasonable care in the manufacture of a chattel which, unless carefully made, he should recognize as involving an unreasonable risk of causing physical harm to those who use it for a purpose for which the manufacturer should expect it to be used and to be those whom he should expect to be endangered by its probable use, is subject to liability for physical harm caused to them by its lawful use in a manner and for a purpose for which it is supplied.” Restatement (Second) of Torts §395.

Section 388 provides: “one who supplied... a chattel for another to use is subject to liability ... for physical harm caused by the use of the chattel in the manner for which and by a person for whose use it is supplied, if the supplier:

“(a) knows or has reason to know that the chattel is or is likely to be dangerous for the use for which it is supplied; and

“(b) has no reason to believe that those for whose use the chattel is supplied will realize its dangerous condition, and

“(c) fails to exercise reasonable care to inform them of its dangerous condition or of the facts which make it likely to be dangerous.” Restatement (Second) of Torts §388.

Comment k to section 388 interprets the requirement of subsection (b) as follows:

“One who supplies a chattel to others to use for any purpose is under a duty to exercise reasonable care to inform them of its dangerous character in so far as it is known to him, or of facts which to his knowledge make it likely to be dangerous, if, but only if, he has no reason to expect that those for whose use the chattel is supplied will discover its condition and realize the danger involved.” Restatement (Second) of Torts §388.

Both sections 388 and 395 of the Restatement follow general negligence principles that liability is not imposed on a manufacturer or seller unless the risk is reasonably foreseeable. In particular, the Restatement sections specifically provide that a manufacturer or seller is liable if they were aware that a product is dangerous or presents the particular risk involved.

There is no question that those in the chain of commerce owe a duty to the plaintiff to supply a product that will not cause injury. There is no question here that the wife/plaintiff was using the product for its intended and lawful use. There is also no question that she suffered an injury while using the product. The question therefore turns upon whether the injury caused by the product was foreseeable. The defendants claim it was not foreseeable and assert that wife/plaintiff’s reaction to the perm solution was an idiosyncratic allergic reaction and not a chemical burn. In the opinion of this court, this is an issue of material fact at this point in time, which prevents the granting of summary judgment.

Next, the defendants contend that summary judgment should be granted upon plaintiffs’ strict liability claims under Pennsylvania state law and the Restatement (Second) of Torts §402A.

It is not the purpose of strict liability to impose absolute liability on the product’s manufacturer or supplier since those entities are guarantors, not insurers, of the product’s safety. Weiner v. American Honda Motor Co., 718 A.2d 305 (Pa. Super. 1998). Rather, in order to sustain a strict liability action, a plaintiff must prove: (1) that the product was in a defective condition upon delivery; (2) that the product was unreasonably dangerous to the consumer; and (3) that the product was the cause of the injury sustained. Morris v. Pathmark Corp., 405 Pa. Super. 274, 592 A.2d 331 (1991); Weiner v. American Honda Motor Co., 718 A.2d 305 (Pa. Super. 1998). The threshold inquiry is whether there is a defect, which rendered the product unreasonably dangerous. Id. at 308.

Further, in cases involving complex subject matter, a plaintiff must provide expert testimony that a product is defective in order to prove a prima facie case of liability. Dion v. Graduate Hospital of University of Pennsylva nia, 360 Pa. Super. 316, 520 A.2d 876 (1987). The requirement for expert testimony “rises from necessity, a necessity bom of the fact that the subject matter of the inquiry is one involving special skills and training beyond the ken of the ordinary layman.” Reardon v. Meehan, 424 Pa. 460, 465, 227 A.2d 667 (1967).

At this point in time, as all doubt must be resolved against the moving parties, summary judgment will be denied as there is a genuine issue of fact created by plaintiffs’ evidence at this time, even though the same may be slight, that prevents this court from granting summary judgment.

All the defendants have also requested summary judgment in their favor as to plaintiffs’ breach of warranty claim. The defendants contend that as the wife/plaintiff suffered an idiosyncratic reaction they cannot be liable.

Again, whether the wife/plaintiff suffered a chemical bum or had an idiosyncratic reaction, is a question that, at this time, must be resolved in favor of the plaintiffs and against the defendants as moving parties as all doubt must be given to the non-moving party. Accordingly, summary judgment upon this issue will be denied.

The next issue raised by the defendants is the request for summary judgment as to plaintiffs’ claims for punitive damages in every count of plaintiffs’ complaint.

Pennsylvania has adopted section 908(2) of the Restatement (Second) of Torts regarding the imposition of punitive damages. This section provides that punitive damages may be awarded “for conduct that is outrageous because of a defendant’s evil motive or reckless indifference to the rights of others.” Rizzo v. Haines, 520 Pa. 484, 507, 555 A.2d 58, 69 (1989).

The Supreme Court in Martin v. Johns-Mansville Corp., 508 Pa. 154, 170, 494 A.2d 1088, 1096-97 (1985), commented on the standard for punitive damages set forth in the Restatement:

“Under these principals, the imposition of damages to punish a civil defendant is appropriate only where the conduct complained of is especially egregious----Punitive damages may not be awarded for misconduct which constitutes ordinary negligence, such as inadvertence, mistake and error of judgment.”

Punitive damages must be based upon conduct, which is malicious, wanton, reckless, willful or oppresive. Chambers v. Montgomery, 411 Pa. 339, 192 A.2d 355 (1963). The proper focus is on the act itself, together with all circumstances including the motive of the wrongdoer and the relationship between the wrongdoer and the injured party. Rizzo, supra at 507, 555 A.2d at 69. The state of mind of the actor is also vital to the determination. Feld v. Merriam, 506 Pa. 383, 485 A.2d 742 (1984). It is essential that there be some indication that the actor had an “evil motive” in acting or failing to act. Id.

In the present case, plaintiffs have failed to show any facts which support claims that any defendant acted maliciously, wantonly, recklessly, or willfully. The record is devoid of any evidence that indicates an evil motive on behalf of the defendants. Accordingly, summary judgment as to plaintiffs’ claim for punitive damages will be granted.

The last remaining issue is defendants’ request for summary judgment as to the plaintiff/husband’s claim for loss of consortium. This motion was predicated upon defendants’ motions as to the claims of the wife/plaintiff as a loss of consortium claim is derivative of the spouse’s underlying action and not viable when the underlying claim fails. Boarts v. McCord, 354 Pa. Super. 96, 511 A.2d 204 (1986). As this court denied the underlying motions, this motion for summary judgment must be denied.

ORDER

And now, to wit December 11,2000, after review and careful consideration of the within matter, it is hereby ordered, adjudged and decreed that partial summary judgment is granted in favor of F.S. Concepts and against the plaintiffs as to plaintiffs’ claim of vicarious liability stemming from an employment relationship as the hairdresser, Ann Catalina, was not an employee of F.S. Concepts and in favor of all defendants against the plaintiffs upon plaintiffs ’ claim for punitive damages, which is hereby stricken. All other summary judgment motions of the defendants are denied.


author: TURGEON, J.,

text:
    Goss v. Allstate Insurance Co.

      C.P. of Dauphin County,
    no. 5444-S-1998.

      Timothy Shollenberger, for plaintiffs.

      Harvey Freedenberg, for defendants.
    November 2, 2000
   TURGEON, J.,

Allstate Insurance Company seeks to compel plaintiff Norine Goss to answer deposition questions regarding a conversation she had with a prior attorney, Peter Munsing. Plaintiff, through her current attorney, objects to answering the questions, asserting her attorney-client privilege. Allstate argues she has waived the privilege.

FACTS

On September 15, 1995, plaintiff was injured in an automobile accident with an Allstate-insured driver. Plaintiff alleges that just four days following the accident, Allstate sent her a “Customer service pledge,” which stated it would keep her informed, conduct a fair investigation and determine if she should receive any compensation from Allstate for injuries suffered. On September 18,1997, plaintiff executed a release of all claims in favor of Allstate’s insured in exchange for a $9,600 settlement. Plaintiff subsequently filed the current action against Allstate and its employee Dorothy Carson alleging that the “Customer service pledge” contained misrepresentations upon which she justifiably relied in settling below the value of her claim. She asserts that, based upon her reliance that Allstate would treat her fairly, she did not hire an attorney or file any claim against Allstate’s insured and instead executed the release.

Allstate has attached to its motion to compel, deposition testimony plaintiff provided on February 28, 2000, in a separate action involving Allstate. Commonwealth v. Allstate Insurance Company, docket no. 1009 MD 1998. During that deposition, plaintiff stated that prior to executing her release with Allstate, she had spoken with Attorney Munsing and followed some of his advice. However, she stated that she did not hire him because “she was not pleased with his actions.”

On May 19, 2000, Allstate deposed plaintiff with regards to the allegations at hand. At the deposition, plaintiff again testified that approximately six months prior to executing the release, she had spoken with Attorney Munsing on the telephone. She stated that she called him for the purpose of discussing her automobile accident and the possibility of retaining him. Allstate’s attorney asked plaintiff subsequent questions regarding this information and plaintiff’s current attorney objected and instructed her not to answer the following:

“(1) Did Attorney Munsing give you any advice?

“(2) What did you tell him?

“(3) What did Attorney Munsing tell you?

“(4) Did you follow any of his advice?

“(5) Why did you decide not to retain him?”

Plaintiff asserted her attorney-client privilege with attorney Munsing as the basis for refusal to answer these questions.

LEGAL DISCUSSION

The issue before the court is whether plaintiff waived her attorney-client privilege when she filed her complaint in the current action and/or offered testimony in a related action, which placed at issue whether or not she relied on the advice of anyone other than Allstate or its employee in deciding to execute a release without benefit of legal counsel.

The attorney-client privilege is codified as follows:

“In a civil matter counsel shall not be competent or permitted to testify to confidential communications made to him by his client, nor shall the client be compelled to disclose the same, unless in either case this privilege is waived upon trial by the client.” 42 Pa.C.S. §5928.

The purpose behind the attorney-client privilege is to foster a confidence between a client and his or her attorney that will lead to a “trusting and open attorney-client dialogue.” Joyner v. SEPTA, 736 A.2d 35, 39 (Pa. Commw. 1999) (citing Estate of Kofsky, 487 Pa. 473, 409 A.2d 1358 (1979)). That plaintiff had an attorney-client relationship with Mr. Munsing is not at issue. The burden is on Allstate as the party seeking disclosure to prove that the information it seeks does not violate this privilege. Id.

The attorney-client privilege may be waived “when the communication is made in the presence of or communicated to a third party or to the court, when the client relies on the attorney’s advice as an affirmative defense, or when the confidential information is placed at issue.” Bonds v. Bonds, 455 Pa. Super. 610, 615, 689 A.2d 275, 277 (1997). We agree with Allstate that plaintiff waived the privilege by placing the confidential information at issue by alleging fraud in this action. To prevail on a fraud cause of action, the plaintiff must prove the following: “(1) the defendant made a misrepresentation that is material to the transaction at hand; (2) the misrepresentation was made with knowledge of the statement’s falsity or with reckless disregard as to whether it was true or false; (3) the defendant made the misrepresentation with the intent of inducing reliance; (4) the plaintiff justifiably relied upon the misrepresen tation; and (5) the resulting injury was proximately caused by the reliance.” Shoemaker v. Commonwealth Bank, 700 A.2d 1003, 1005 (Pa. Super. 1997). (emphasis added)

In her complaint, plaintiff alleged that she justifiably relied on misrepresentations contained in the Allstate “Customer service pledge” and did not hire an attorney because she thought that Allstate would treat her fairly, as if she were its own policyholder. (Complaint ¶32.) However, the record before us indicates that prior to settling, plaintiff telephoned Attorney Munsing, sought his advice regarding the automobile accident and relied upon some of his advice. This conversation is directly relevant to determining whether or not plaintiff’s reliance on Allstate’s alleged misrepresentations was justified. See Naglak v. Pennsylvania State University, 133 F.R.D. 18, 23 (M.D. Pa. 1990) (the court held that to the extent a plaintiff relies on statements made by her attorney to prove her claim, she waived her attorney-client privilege under Pennsylvania law) See also, Sarko v. Penn-Del Directory Company, 170 FRD 127, 130 (E.D. Pa. 1997) (under Pennsylvania law, the attorney-client privilege is waived when advice of counsel is placed at issue in litigation).

Accordingly, we enter the following:

ORDER

And now, November 2, 2000, Allstate Insurance Company’s motion to compel answers to deposition questions is hereby granted.