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Red Wing Aeroplane Co. v. Fidelity Flight Simulation Inc.

United States District Court, W.D. Wisconsin

May 6, 2017

RED WING AEROPLANE COMPANY, Plaintiff,
v.
FIDELITY FLIGHT SIMULATION INC., Defendant.

          OPINION AND ORDER

          WILLIAM M. CONLEY District Judge.

         In this civil action, plaintiff Red Wing Aeroplane Company alleges claims against defendant Fidelity Flight Simulation, Inc., for breach of contract and fraud arising out of their failed equipment purchase agreement. Before this court is defendant's motion to dismiss plaintiff's fraud claim under Federal Rule of Civil Procedure 12(b)(6). (Dkt. #10.) Specifically, defendant contends that Pennsylvania law forecloses any tort remedy where, as here, the fraud allegations are intertwined with the performance of the agreement itself.[1] For the reasons that follow, the court agrees.

         BACKGROUND[2]

         On June 26, 2013, defendant Fidelity entered into an Equipment Purchase Agreement (“the Agreement”) with plaintiff Red Wing to design and fabricate a Level 6 flight simulator in compliance with Federal Aviation Administration regulations. On September 15, 2015, Red Wing and Fidelity executed an Addendum to the Agreement, which established criteria and adopted related Change Orders.

         As part of the Addendum, the parties stipulated to a new completion date “within 90 days of the Effective Date of this Addendum, ” including a Factory Acceptance Test (“FAT”). (Compl. (dkt. #1) ¶ 51.) Fidelity also agreed to deliver the completed Simulator to Red Wing “within 110 days from the Effective Date of this Addendum, ” which worked out to January 3, 2016. (Id. at ¶ 54.) Despite this, plaintiff alleges that by January 5, 2016, Fidelity still has not fulfilled either of those deadlines. (Id. at ¶¶ 53, 57.)[3]

         As for its fraud claim, Red Wing further alleges that during the course of the project, Fidelity fraudulently misrepresented (1) the “simulator was on schedule”, (2) “it would be timely completed, ” and (3) the actual “soundness, and quality of its work.” (Id. at ¶¶ 59, 62; see also Id. at ¶ 77 (describing misrepresentations made “[a]fter the parties entered into contract”).) Red Wing alleges that Fidelity made misrepresentations about its “knowledge, skill, and experience” in building Level 6 Simulators before entering into the Agreement. (Id. at ¶ 10; see also Id. at ¶ 72 (describing misrepresentations “[b]efore the parties entered into contract”).) Finally, Red Wing alleges that Fidelity made all of these pre- and post-contract misrepresentations with “malice, evil motive, oppression, and/or reckless indifference toward Red Wing.” (Id. at ¶ 83.)

         In reliance upon these misrepresentations, Red Wing now claims compensatory damages as follows: (1) $240, 669.70 paid to Fidelity; (2) $623, 487.00 in funds advanced to Fidelity; (3) $91, 530.67 in interest paid for the loan; (4) $26, 512.50 in bank guarantees fees; (5) $441, 473.17 in out-of-pocket costs; (6) lost bonus depreciation for tax credit purposes; (7) lost equipment depreciation; and (8) over $3, 750, 000.00 in lost revenue. (Id. at ¶ 84.) Red Wing also seeks an award of punitive damages. (Id.)

         OPINION[4]

         “A motion to dismiss under the Federal Rule of Civil Procedure 12(b)(6) challenges the sufficiency of the complaint for failure to state a claim upon which relief can be granted.” Diamond Center, Inc. v. Leslie's Jewelry Mfg. Corp., 562 F.Supp.2d 1009, 1013 (W.D. Wis. 2008). Taking the facts as alleged in the complaint as true, dismissal is proper when those facts fail to establish the essential elements of the claims pleaded. Riley v. Vilsack, 665 F.Supp.2d 994, 998 (W.D. Wis. 2009). A plaintiff can also plead itself out of court by alleging additional facts in its complaint that demonstrate he or she is not entitled to relief as a matter of law. Tamayo v. Blagojevich, 526 F.3d 1074, 1086 (7th Cir. 2008).

         Even though the Agreement states that Pennsylvania law applies, choice of law decisions are made on a claim-by-claim basis. Under Wisconsin choice-of-law rules, which control in diversity cases in this court, “[a] choice of law provision will not be construed to govern tort as well as contract disputes unless it is clear that this is what the parties intended.” Cerabio LLC v. Wright Med. Tech., Inc., 410 F.3d 981, 987 (7th Cir. 2005) (citing Kuehn v. Children's Hosp., 119 F.3d 1296, 1302 (7th Cir. 1997)). Here, the Purchase Agreement between Red Wing and Fidelity provides expansively that it is “governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania, but without regard to its conflict of laws principles which would make the laws of any other jurisdiction applicable to this agreement.” (Compl., Ex. C (dkt. #1-5) ¶ 13.) Given this language and the parties' agreement that Pennsylvania law applies, the court sees no reason to upset that choice as to all of the claims at issue, including fraud.

         As to the merits, Fidelity argues that Red Wing's claim of fraud must be dismissed under Pennsylvania's “gist of the action” doctrine. Although disagreeing on how the doctrine should be applied to the fraud claim here, Red Wing agrees the doctrine is designed to maintain a conceptual distinction between breach of contract and tort by barring a plaintiff from bringing a claim that merely replicates a claim for breach of the underlying contract. Jones v. ABN Amro Mortg. Grp., Inc., 606 F.3d 119, 123 (3d Cir. 2010) (“[T]he ‘gist of the action' doctrine precludes plaintiff's from recasting ordinary breach of contract claims into tort claims.” (internal quotation marks and citation excluded)). To bring an action in tort, a plaintiff must show that: (1) defendant breached a duty imposed by tort law, rather than contract law; and (2) the contract is collateral to the tort claim. See Pediatrix Screening, Inc. v. TeleChem Int'l, Inc., 602 F.3d 541, 548 (3rd Cir. 2010) (“[T]o be construed as a tort, however, the wrong ascribed to defendant must be the gist of the action, the contract being collateral.”), rev'd on other grounds by Frank C. Pollara Grp., LLC v. Ocean View Inv. Holding, LLC, 784 F.3d 177, 186 (3d Cir. 2015). The doctrine is similar to Wisconsin's economic loss doctrine (“ELD”). See Pediatrix Screening, 602 F.3d at 544.[5]

         If the suit's underlying complaint is that the defendant violated a duty created by mutual agreement in contract, the “gist of the action” doctrine states the claim must be brought under contract law. See Bohler-Uddeholm Am., Inc. v. Ellwood Grp., Inc., 247 F.3d 79, 104 (3rd Cir. 2001) (limiting a plaintiff to its contract claim when the defendant's obligations are defined by the “terms of the contract, and not by larger social policies embedded in the law of torts”). In applying this doctrine, a court looks to the claim as a whole, not to isolated details, to determine if the “essential grounds” lie within contract or tort. See Id. at 103 (noting that Pennsylvania courts use two methods to determine whether a tort claim that accompanies a contract claim should be allowed as a freestanding cause of action or rejected as “illegitimate attempts to procure additional damages for a breach of contract: the ‘gist of the action' test and the [ELD] test”).

         In reviewing Pennsylvania court cases, tort claims are barred by the gist of the action doctrine (1) where they “aris[e] solely from a contract between the parties; (2) where the duties allegedly breached were created and grounded in the contract itself; (3) where the liability stems from a contract; or (4) where the tort claim essentially duplicates a breach of contract claim or the success of which is wholly dependent on the terms of a contract.” eToll, Inc. v. Elias/Savion Advert., Inc., 811 A.2d 10, 19 (Pa. Super. Ct. 2002) (internal citations and quotation marks omitted). Importantly, the doctrine prevents plaintiffs from crafting pleadings to avoid the restrictions on contract claims. See Sunquest Info. Sys., Inc. v. Dean Witter Reynolds, Inc., 40 F.Supp.2d 644, 651 (W.D. Pa. 1999) (“[T]he gist of the action doctrine cannot be evaded by the mere expedient of pleading that the defendant acted negligently, recklessly, wantonly or intentionally, if the gravamen of the claim is that the plaintiff failed to fulfill a promise.”).

         In eToll, the Superior Court held for the first time that the gist of the action doctrine bars claims for fraud in the performance of a contract. eToll, 811 A.2d at 14.[6]That court explained that a “claim should be limited to a contract claim when the parties' obligations are defined by the terms of the contracts, and not by the larger social policies embodied by the law of torts.” Id. at 14 (citing Bohler-Uddeholm, 247 F.3d at 104). Among other allegations, Red Wing alleges here that after the parties entered into the Agreement, Fidelity misrepresented the “status, soundness, and quality of its work.” (Compl. (dkt. #1) ¶ 77.) Fidelity's obligation to deliver a Level 6 Simulator by a certain day without any defects, however, ...


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