Gist of the Action/ Parol Evidence—Cottman Transmission Sys. v. McEneany, 2007 WL 210094 (E.D. Pa. Jan. 19, 2007)

A federal court has applied the gist of the action doctrine and the parol evidence rule to grant summary judgment on counterclaims asserted by a defendant/franchisee against a plaintiff/franchisor.

The gist of the evidence doctrine precludes tort claims that arise from a contract between parties where the duties that allegedly were breached stem from the contract and liability is based on the contract, or where the tort claim is duplicative of the contract claim. Although the Pennsylvania Supreme Court has not adopted the doctrine, many courts have predicted that it would. Only claims based on fraud in the performance—as opposed to fraud in the inducement—fall under the gist of the action doctrine. In Cottman, the defendant/franchisee asserted counterclaims for breach of contract, breach of the covenant of good faith and fair dealing, breach of the implied duty to cooperate, fraudulent and negligent misrepresentation, and fraud as to financing, equipment and lease against the plaintiff/franchisor.

The magistrate granted the plaintiff’s motion for summary judgment based on the gist of the action doctrine or the parol evidence rule with respect to all claims, except for breach of contract and breach of covenant of good faith and fair dealing. The court held that counterclaims based on allegations that the plaintiff failed to perform obligations under the contract, obstructed the defendant’s performance, and misrepresented certain terms of the agreement, all were inextricably intertwined with the contract and thus were barred by gist of the action.

The court further held that the defendant’s counterclaims based on fraud in the inducement—i.e., misrepresentations about the franchise’s profitability and obtaining financing—were barred by the parol evidence rule. First, the contract contained provisions concerning profitability and financing. The court held that, given the inclusion of those provisions, had defendant relied on prior representations concerning those subjects, they should have “insist[ed] [such representations] be included in the final written contract.” Second, the contract contained an integration clause. Accordingly, the court granted summary judgment on these two claims based on the parol evidence rule.

With respect to the contract claims, the court denied plaintiff’s motion for summary judgment.