New York Central Mutual Insura v. Margolis Edelstein

NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
_____________
No. 15-1541
_____________
NEW YORK CENTRAL MUTUAL INSURANCE COMPANY;
ST. PAUL MERCURY INSURANCE COMPANY,
Appellants
v.
MARGOLIS EDELSTEIN; MICHAEL T. SAVITSKY, Esquire
______________
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF PENNSYLVANIA
(D.C.# 3:14-cv-00829)
District Judge: Honorable Malachy E. Mannion
______________
Submitted Under Third Circuit L.A.R. 34.1(a)
January 21, 2016
______________
Before: JORDAN, HARDIMAN, and GREENAWAY, JR., Circuit Judges.
(Opinion Filed: February 1, 2016)
______________
OPINION*
______________
*
This disposition is not an opinion of the full Court and pursuant to I.O.P. 5.7
does not constitute binding precedent.
GREENAWAY, JR., Circuit Judge.
Appellants, New York Central Mutual Insurance Company (“NYCM”) and St.
Paul Mercury Insurance Company (“St. Paul”), appeal the District Court’s order
dismissing their Second Amended Complaint with prejudice. Appellants alleged one
count of breach of contract against Appellees Michael T. Savitsky, Esquire, and the law
firm Margolis Edelstein. For the following reasons, we will affirm the District Court’s
dismissal.
I. BACKGROUND
In 2003, Cheryl Shannon was injured in an accident involving an automobile
driven by Marcial Gonzalez and insured by NYCM. Following negotiations in which
NYCM refused to pay the full insurance policy limit of $25,000 for Shannon’s injuries,
Shannon sued Gonzalez in 2004. By 2009, Shannon’s settlement demand had risen to
$200,000. NYCM then retained Appellees to assess its exposure to a bad faith insurance
claim under Pennsylvania law based on its handling of Shannon’s claim.
In a letter dated November 16, 2009 from Savitsky to NYCM, he indicated that,
prior to providing a legal opinion on NYCM’s exposure, he would review NYCM’s file,
conduct the necessary legal research, and to be “completely thorough,” meet with other
firm counsel. App. 79.1 In a letter dated January 29, 2010, Savitsky advised NYCM that
he did not believe that there was a potential bad faith claim against NYCM based on its
1
As the District Court observed, Appellants’ Second Amended Complaint erroneously
states the date of the letter using the phrase “completely thorough” as “November 19,
2003.” App. 79 § 101; see App. 23. The correct date is November 16, 2009. App. 23;
see App. 115.
2
conduct regarding Shannon’s claim. See id. ¶ 102. In the same letter, Savitsky indicated
that another legal opinion letter would be forthcoming after he reviewed additional
materials. See id. ¶ 103. In a letter dated April 30, 2010, Savitsky confirmed his opinion
that NYCM had no exposure to a bad faith claim and advised NYCM that it should not
settle Shannon’s claim for more than $25,000. See App. 79–80 ¶¶ 104–05.
Ultimately, after a jury trial, Shannon secured a judgment against Gonzalez for
$906,000 and, having acquired Gonzalez’s rights against NYCM, sued NYCM for breach
of contract and insurance bad faith. NYCM in turn filed a claim with St. Paul, its insurer.
In March 2014, Shannon negotiated a total settlement with Appellants for $2 million.
On April 29, 2014, Appellants commenced the present action alleging one count
of breach of contract by Appellees. The District Court twice ordered Appellants to
amend their complaint to properly allege diversity jurisdiction. Appellees then filed a
motion to dismiss the Second Amended Complaint pursuant to Federal Rule of Civil
Procedure 12(b)(6), arguing that Appellants’ claim sounded in negligence, and therefore
was time-barred by Pennsylvania’s two-year statute of limitations for tort claims.2
Applying the gist of the action doctrine, the District Court concluded that
Appellants’ claim must be construed as a legal malpractice tort and dismissed it as time-
barred by the applicable statute of limitations. The District Court also concluded that
amendment to the Second Amended Complaint would be futile. Appellants timely
appealed.
2
The parties agree that the latest occurrence of the alleged malpractice—and, therefore,
the date when the statute of limitations began to run—is April 30, 2010, the date of
3
II. JURISDICTION AND STANDARD OF REVIEW
The District Court had jurisdiction pursuant 28 U.S.C. § 1332. We have
jurisdiction pursuant 28 U.S.C. § 1291.
We exercise plenary review over a dismissal under Rule 12(b)(6). Bohus v.
Restaurant.com, Inc., 784 F.3d 918, 923 n.2 (3d Cir. 2015). A court may “grant a motion
under Rule 12(b)(6) raising a limitations defense if ‘the face of the complaint’
demonstrates that the plaintiff’s claims are untimely.” Stephens v. Clash, 796 F.3d 281,
288 (3d Cir. 2015) (quoting Schmidt v. Skolas, 770 F.3d 241, 249 (3d Cir. 2014)).
III. ANALYSIS
State tolling principles “‘are generally to be used by a federal court when it is
applying a state limitations period;’ therefore, we look to Pennsylvania law, predicting
how the Pennsylvania Supreme Court would resolve the statute of limitations issue.”
Knopick v. Connelly, 639 F.3d 600, 606 (3d Cir. 2011) (quoting Debiec v. Cabot Corp.,
352 F.3d 117, 128 (3d Cir. 2003)). “‘When ascertaining Pennsylvania law, the decisions
of the Pennsylvania Supreme Court are the authoritative source.’” Id. (quoting Spence v.
ESAB Grp., Inc., 623 F.3d 212, 216 (3d Cir. 2010)). We also look to decisions of state
intermediate appellate courts and of federal courts interpreting that state’s law. Id.Pennsylvania imposes a two-year statute of limitations on tort claims, including a
claim of legal malpractice. 42 Pa. Cons. Stat. § 5524. A four-year statute of limitations
applies to breach of contract claims. Id. § 5525. “‘Whether the statute [of limitations]
has run on a claim is usually a question of law for the trial judge,’” unless the issue
Savitsky’s last opinion letter. See App. 9–10.
4
involves a factual determination. Hayward v. Med. Ctr. of Beaver Cty., 608 A.2d 1040,
1043 (Pa. 1992). Generally, “Pennsylvania favors strict application of statutes of
limitations.” Knopick, 639 F.3d at 606.
The Pennsylvania Supreme Court has recently reiterated how the gist of the action
doctrine determines whether a cause of action, although arising from a contractual
relationship, sounds in contract or in tort. The Court, in Bruno v. Erie Insurance
Company, 106 A.3d 48 (Pa. 2014), explained that, if “the facts of a particular claim
establish that the duty breached is one created by the parties by the terms of the
contract—i.e., a specific promise to do something that a party would not ordinarily have
been obligated to do but for the existence of the contract,” then the claim should be
treated as one for breach of contract. Id. at 68 (emphasis added). “If, however, the facts
establish that the claim involves the defendant’s violation of a broader social duty owed
to all individuals, which is imposed by the law of torts and, hence, exists regardless of the
contract, then it must be regarded as a tort.” Id. In sum, a claim sounds in negligence
unless it is alleged that the party breached one of the “specific executory promises which
comprise the contract.” Id. at 70.3
3
In a footnote of their brief, Appellants argue that the gist of the action doctrine should
have no application in this case because the doctrine only precludes tort claims where the
true gravamen of the claim sounds in contract and, here, Plaintiffs do not allege a tort
claim. Appellants’ Br. at 13 n.4. However, as the Pennsylvania Supreme Court
explained in Bruno, it has applied the gist of the action analysis to determine, inter alia,
whether the Court had jurisdiction over a matter and whether a particular jury instruction
was proper. See 106 A.3d at 62–64 (discussing cases). Generally, the gist of the action
doctrine applies “to resolve [] legal questions in which the distinction between the
underlying action being a tort or a contract claim [is] dispositive.” Id. at 60. In any
event, “the mere labeling by the plaintiff of a claim . . . is not controlling.” Id. at 68.
5
Here, Appellants’ Second Amended Complaint alleges that Appellees: “provid[ed]
NYCM with incorrect and erroneous legal advice”; provided “misleading” legal advice;
failed “to conduct thorough legal research”; failed “to provide NYCM with a complete
and correct analysis” of the applicable law; and exposed NYCM to damages in excess of
Shannon’s settlement demand of $200,000. App. 84–85 ¶¶ 135–40. Appellants
repeatedly allege that, by each of these actions or failures, Appellees “breached their duty
to exercise the degree of skill and knowledge that is ordinarily expected of a reasonable
attorney” or “deviated from the standard of care of a reasonable attorney.” Id.
The gravamen of Appellants’ allegations is that Savitsky negligently performed
his undertaking as a retained lawyer and thus failed to exercise the appropriate standard
of professional care. Although the Second Amended Complaint references the November
16, 2009 letter from Savitsky stating that he would perform legal research and, to be
“completely thorough,” confer with additional counsel, App. at 83 ¶ 128, Appellants do
not identify a specific contractual obligation that Appellees failed to perform or point to
an explicit agreement or instruction that Appellees breached. Appellants do not allege,
for example, that Savitsky failed to provide any legal opinion or advice—nor can they, as
their Second Amended Complaint cites legal advice provided by Savitsky in the January
29 and April 30, 2010 letters. See Bruno, 106 A.3d at 70 (plaintiffs’ claim sounded in
negligence where plaintiffs “d[id] not allege that [defendant] failed to pay the $5,000 it
was obliged to pay by the policy” but rather that the defendant’s agents took “negligent
actions” while performing on defendant’s contractual obligations.”).
6
Based on the allegations in their Second Amended Complaint, Appellants’
malpractice claim arises from Savitsky’s negligent performance of his contractual
obligations and, therefore, sounds in tort. Thus, we conclude that this is a case in which
the contract between Appellants and Appellees is best “regarded merely as the vehicle, or
mechanism, which established the relationship between the parties, during which the tort
of negligence was committed.” Id.
Appellants argue that their Second Amended Complaint alleges a “breach of the
implied contractual term to perform [Appellees’] services in a manner consistent with the
profession at large.” Appellants’ Br. at 21. Appellants primarily rely on Bailey v.
Tucker, 621 A.2d 108 (Pa. 1993), in which the Pennsylvania Supreme Court, during a
discussion of breach of contract claims, observed that “an attorney who agrees for a fee to
represent a client is by implication agreeing to provide that client with professional
services consistent with those expected of the profession at large.” Id. at 115; see
Appellants’ Br. at 23–27. However, given the Pennsylvania Supreme Court’s delineation
of contractual and tort claims in Bruno—according to which a claim sounding in contract
is founded on the breach of “specific executory promises”—we decline to read the
Court’s dicta in Bailey as establishing a distinct contractual promise upon which a breach
of contract claim may be premised.4
4
As noted by the District Court, there is intermediate appellate court support for
Appellants’ argument. See App. 18–20. In Gorski v. Smith, the Pennsylvania Superior
Court stated:
[A] plaintiff’s successful establishment of a breach of contract claim
against an attorney . . . does not require proof by a preponderance of the
7
Having concluded that Appellants’ malpractice claim sounds in tort rather than
contract, we therefore agree with the District Court that Appellants’ tort claim is untimely
because the action was filed outside of the two-year time period. We further conclude
that the District Court properly found that further amendment to the Second Amended
Complaint would be futile and dismissed it without providing leave to amend.5
IV. CONCLUSION
For the foregoing reasons, we will affirm the District Court’s dismissal of
Appellants’ Second Amended Complaint.
evidence that an attorney failed to follow a specific instruction of the client.
. . . [I]f a plaintiff demonstrates by a preponderance of the evidence that an
attorney has breached his or her contractual duty to provide legal service in
a manner consistent with the profession at large, then the plaintiff has
successfully established a breach of contract claim against the attorney.
812 A.2d 683, 697 (Pa. Super. Ct. 2002). However, applying the gist of the action
doctrine as set forth in Bruno, we conclude that the District Court correctly found that
Appellants’ allegations sounded in tort rather than contract.
5
We review the District Court’s denial of leave to amend for abuse of discretion and its
determination that amendment would be futile de novo. U.S. ex rel. Schumann v.
Astrazeneca Pharm. L.P., 769 F.3d 837, 849 (3d Cir. 2014). Generally, before
dismissing a complaint, a district court should grant leave to amend unless it determines
that amendment would be futile. See id. In addition, “‘a District Court has discretion to
deny a plaintiff leave to amend where the plaintiff was put on notice as to the deficiencies
in his complaint, but chose not to resolve them.’” Id. (quoting Krantz v. Prudential Invs.
Fund Mgmt. L.L.C., 305 F.3d 140, 144 (3d Cir. 2002)). Here, Appellants were put on
notice by Appellees’ Motion to Dismiss based on the statute of limitations that their
Second Amended Complaint may fail to allege a breach of contract claim. However, at
no point did Appellants request leave to amend their Second Amended Complaint but,
rather, argued in their Opposition to Appellees’ Motion to Dismiss that their Second
Amended Complaint successfully alleged a failure to perform specific services for
NYCM. See 3:14-cv-00829, Dkt. No. 24 at 23–25. Based on the facts alleged in
Appellants’ Second Amended Complaint, we agree with the District Court that
amendment would have been futile and that dismissal with prejudice was appropriate.
8