Rearick, M. v. Elderton State

J-A27024-15

NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37

MARK A. REARICK, IN THE SUPERIOR COURT OF
PENNSYLVANIA
Appellant

v.

ELDERTON STATE BANK,

Appellee No. 1769 WDA 2014

Appeal from the Order Entered October 24, 2014
In the Court of Common Pleas of Armstrong County
Civil Division at No(s): 1615-2012

MARK A. REARICK, IN THE SUPERIOR COURT OF
PENNSYLVANIA
Appellant

v.

ELDERTON STATE BANK,

Appellee No. 1770 WDA 2014

Appeal from the Order Entered September 24, 2014
In the Court of Common Pleas of Armstrong County
Civil Division at No(s): 1615-2012

BEFORE: BOWES, OLSON & STABILE, JJ.

MEMORANDUM BY OLSON, J.: FILED NOVEMBER 19, 2015

Appellant, Mark A. Rearick, appeals from the orders entered on

September 24, 2014 and October 24, 2014, sustaining preliminary

objections complaint filed by Elderton State Bank (ESB) and dismissing

Appellant’s complaint. Upon review, we affirm.
J-A27024-15

We briefly set forth the facts and procedural history of this case as

follows.1 This case concerns the development of a commercial real estate

venture, generally referred to as the Saltwork Project, in Elderton,

Pennsylvania. In 2006, Appellant secured a $205,000.00 loan from ESB,

secured by the property and guaranteed by Appellant. In July 2007, ESB

loaned Appellant an additional $443,000.00 to begin construction. Appellant

and ESB agreed to expand the Saltwork Project from approximately 11,000

square feet of rental space to just under 16,000 square feet. In January

2008, ESB agreed to lend Appellant a total of $1,200,000.00 and Appellant

secured the loan with several unrelated residential properties. Appellant

transferred these properties to ESB via deeds in lieu of foreclosure.2 By the

end of 2008, the Saltwork Project was two-thirds completed when Appellant

requested another $1,000,000.00 to finish construction. ESB would not lend

additional funds because Appellant had received the bank’s maximum credit

limit. In October 2008, ESB recommended an investor, Tom Smith, to

Appellant. Smith loaned Appellant $875,000.00 and the Saltwork Project

was completed.

____________________________________________

1
A more detailed account of this case may be found in this Court’s prior
memorandum filed on July 23, 2014. See Rearick v. Elderton State
Bank, 2014 Pa. Super. 157.
2
Appellant owned another residential property that he also used to secure
the loans for the Saltwork Project. However, this property was not
transferred through deeds in lieu of foreclosure. As discussed infra, ESB
later filed a complaint against Appellant to foreclosure on this property.

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J-A27024-15

In September 2009, Appellant defaulted on his loans citing poor

economic conditions and low rental rates. Prior to default, however, on June

1, 2009, ESB executed the deeds in lieu of foreclosure on the residential

properties used by Appellant to secure the Saltwork Project loan. In

October 2010, Smith purchased the Saltwork Project at auction for

$450,000.00; the Saltwork Project was appraised at approximately

$1,450,000.00. Thereafter, in January 2011, ESB filed an action in

mortgage foreclosure on the residential property owned by Appellant, used

to secure the ESB loan, which was not one of the properties transferred

through deeds in lieu of foreclosure. In June 2012, the trial court granted

summary judgment for ESB in the mortgage foreclosure action. Appellant

did not appeal that decision.

On October 24, 2012, Appellant filed a complaint against ESB, alleging

claims for breach of the implied covenant of good faith and fair dealing,

breach of fiduciary duty, alter ego, and negligence. On December 13, 2012,

ESB filed preliminary objections to the complaint. In particular, ESB

demurred based on res judicata on the theory that Appellant should have

raised his claims in the earlier foreclosure action. The trial court agreed and

sustained ESB’s preliminary objection on res judicata grounds, concluding

that the substance of Appellant’s claims could, and therefore should, have

been raised in the earlier foreclosure action. The trial court dismissed ESB’s

remaining preliminary objections as moot. On appeal, after a lengthy

discussion regarding permissive counterclaims in a mortgage foreclosure

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J-A27024-15

action, we remanded the matter for the trial court to rule on Appellant’s

remaining preliminary objections or to allow Appellant to amend his

complaint.

On September 24, 2014, by order and accompanying opinion, the trial

court sustained ESB’s remaining preliminary objections and dismissed

Appellant’s complaint. On October 14, 2014, without leave of court,

Appellant filed an amended complaint. He then filed a motion for leave of

court and an amended complaint on October 24, 2014. The trial court

entered an order on October 24, 2014 denying Appellant’s request for leave

to file an amended complaint. This timely appeal followed.3

On appeal, Appellant presents the following issues for our review:

1. Whether the trial court erred when it, after sustaining
ESB’s preliminary objections and dismissing [Appellant’s]

____________________________________________

3
On October 24, 2014, Appellant filed a notice of appeal from the order
entered on September 24, 2014 granting ESB’s preliminary objections and
dismissing Appellant’s complaint. On that same date, Appellant also filed a
notice of appeal from the order entered on October 24, 2014, denying
Appellant’s motion to amend his complaint. On October 27, 2014, the trial
court ordered Appellant to file a concise statement of errors complained of
on appeal pursuant to Pa.R.A.P. 1925(b) for both matters. On November
14, 2014, Appellant filed separate Rule 1925(b) statements. The trial court
issued an opinion pursuant to Pa.R.A.P. 1925(a) on December 11, 2014. In
that opinion, the trial court addressed the issues pertaining to Appellant’s
request to amend his complaint and relied upon its earlier decision, issued
on September 24, 2014, for its rationale in sustaining preliminary objections
and dismissing Appellant’s complaint. Appellant terms the instant
proceedings as “consolidated appeals.” In fact, Appellant simply challenges
two separate orders in the same case. Accordingly, we refer to these
proceedings as a single appeal.

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J-A27024-15

[c]omplaint, did not allow [Appellant] to amend the
[c]omplaint.

2. Whether the trial court erred when it denied [Appellant’s]
request to file an amended complaint.

3. Whether in the course of disposing of ESB’s preliminary
objections to count I of [Appellant’s] [c]omplaint, the
trial court erred when it determined that [Appellant]
failed to plead facts sufficient to establish that ESB owed
[Appellant] a duty of good faith and fair dealing.

4. Whether in the course of disposing of ESB’s preliminary
objections to count I of [Appellant’s] [c]omplaint, the
trial court erred when it determined that [Appellant]
failed to plead facts sufficient to establish that ESB could
have breached a duty of good faith and fair dealing that
it owed to [Appellant].

5. Whether in the course of disposing of ESB’s preliminary
objections to count II of [Appellant’s] [c]omplaint, the
trial court erred when it determined that [Appellant]
failed to plead facts sufficient to establish that ESB owed
[Appellant] a fiduciary duty.

6. Whether in the course of disposing of ESB’s preliminary
objections to count II of [Appellant’s] [c]omplaint, the
trial court erred when it determined that for [Appellant]
to advance a cause of action for breach of fiduciary duty,
[Appellant] must plead facts sufficient to prove that
Thomas Smith was ESB’s agent, expressly or implicitly
authorized to make decisions and take actions binding on
ESB.

7. Whether in the course of disposing of ESB’s preliminary
objections to count II of [Appellant’s] [c]omplaint, the
trial court erred when it determined that [Appellant]
failed to plead facts sufficient to establish that Thomas
Smith was ESB’s agent, expressly or implicitly authorized
to make decisions and take actions binding on ESB.

8. Whether in the course of disposing of ESB’s preliminary
objections to count III of [Appellant’s] [c]omplaint, the

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J-A27024-15

trial court erred in determining that the alter ego theory
of liability is inapplicable to this case.

9. Whether in the course of disposing of ESB’s preliminary
objection to count III of [Appellant’s] [c]omplaint, the
trial court erred in determining that [Appellant] did not
plead facts sufficient to establish a prima facie case for
alter ego liability.

10. Whether in the course of disposing of ESB’s preliminary
objections to count IV of [Appellant’s] [c]omplaint, the
trial court erred in determining that [Appellant’s] claim
for negligence is barred by the economic loss doctrine.

11. Whether in the course of disposing of ESB’s preliminary
objections to count IV of [Appellant’s] [c]omplaint, the
trial court erred in determining that [Appellant] did not
plead facts sufficient to establish a prima facie case for
negligence.

Appellant’s Brief at 4-5.

Our review of a challenge to a trial court's decision to sustain

preliminary objections is guided by the following standard:

Our standard of review of an order of the trial court
overruling or [sustaining] preliminary objections is to
determine whether the trial court committed an error of
law. When considering the appropriateness of a ruling on
preliminary objections, the appellate court must apply the
same standard as the trial court.

Preliminary objections in the nature of a demurrer test the
legal sufficiency of the complaint. When considering
preliminary objections, all material facts set forth in the
challenged pleadings are admitted as true, as well as all
inferences reasonably deducible therefrom. Preliminary
objections which seek the dismissal of a cause of action
should be sustained only in cases in which it is clear and
free from doubt that the pleader will be unable to prove
facts legally sufficient to establish the right to relief. If any
doubt exists as to whether a demurrer should be sustained,

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J-A27024-15

it should be resolved in favor of overruling the preliminary
objections.

Feingold v. Hendrzak, 15 A.3d 937, 941 (Pa. Super. 2011) (citation

omitted).

We have reviewed the certified record, the parties’ briefs, the relevant

law, and the trial court’s opinion entered on September 24, 2014. That

opinion thoroughly and accurately disposes of Appellant’s issues regarding

ESB’s preliminary objections. Thus, we adopt that decision as our own. We

briefly recount the trial court’s determinations here.

First, the trial court determined Appellant failed to present sufficient

allegations of fact to establish a claim for breach of the contractual duty of

good faith and fair dealing, relying upon this Court’s decisions in Creeger

Brick & Bldg. Supply Inc. v. Mid-State Bank & Trust Co., 560 A.2d 151,

153 (Pa. Super. 1989) and Cable & Associates Ins. Agency, Inc. v.

Commercial Nat. Bank of Pennsylvania, 875 A.2d 361, 362 (Pa. Super.

2005). The trial court noted that Appellant did not aver ESB violated the

terms of any executed loan documents, made specific misrepresentations, or

committed fraud. Moreover, the trial court determined that Appellant, not

ESB, decided to expand the Saltwork Project and requested additional

funding. Additionally, the trial court opined Appellant failed to set forth facts

that gave rise to ESB’s independent duty of good faith, based solely upon

Appellant’s unsubstantiated allegation that his family had done business with

ESB for more than 50 years. Thus, the trial court determined Appellant had

not set forth a viable claim for breach of the contractual duty of good faith

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J-A27024-15

and fair dealing as a matter of law and sustained ESB’s demurrer on this

count of Appellant’s complaint. We discern no legal error or abuse of

discretion.

Next, the trial court examined ESB’s preliminary objection to

Appellant’s breach of fiduciary claim. The trial court determined Appellant

failed to present facts showing that ESB directly controlled Appellant’s

business decisions or managed the funds used to finance the construction of

the Saltwork Project. It further concluded Appellant failed to plead facts

sufficient to establish an agency relationship between ESB and Smith.

Instead, Appellant only alleged that Smith acted as an independent investor

who rendered opinions regarding construction and possible tenants. The

trial court found there was no indication that ESB or Smith managed the

daily operations of the Saltwork Project. Thus, the trial court sustained

ESB’s demurrer to Appellant’s breach of fiduciary claim. Again, we discern

no error of law or abuse of discretion.

Regarding negligence, the trial court concluded Appellant’s claim was

barred by the economic loss doctrine, because no cause of action exists for

negligence that results solely in economic damages unaccompanied by

physical injury or property damage. Here, Appellant’s alleged damages

included only the loss of his economic investment in property. Moreover,

citing our decision on remand, the trial court held that Appellant’s claim that

ESB frivolously sold off Appellant’s properties, or that Smith subsequently

acquired properties improperly, should have been raised during the

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J-A27024-15

mortgage foreclosure action. Thus, the trial court determined Appellant’s

negligence claim was barred by the economic loss doctrine. We agree.

Finally, with regard to Appellant’s alter ego claim, the trial court found

that the claim was largely duplicative of Appellant’s fiduciary duty claim.

Moreover, it noted the alter ego theory is a means of piercing the corporate

veil and assessing liability for the acts of a corporation against an equity

holder in the corporation. The trial court opined that there were no

allegations that Appellant or the Saltwork Project were themselves corporate

entities or that Appellant claimed that ESB shareholders were responsible for

his damages. Thus, the trial court sustained ESB’s preliminary objection in

the nature of a demurrer to Appellant’s claim under the alter ego theory of

liability. Again, we discern no abuse of discretion or error of law.

We turn, now, to Appellant’s claims regarding the trial court’s denial of

his request to file an amended complaint. Recently, our Court has stated:

Even where a trial court sustains preliminary objections on
their merits, it is generally an abuse of discretion to dismiss
a complaint without leave to amend. There may, of course,
be cases where it is clear that amendment is impossible and
where to extend leave to amend would be futile....
However, the right to amend should not be withheld where
there is some reasonable possibility that amendment can be
accomplished successfully. In the event a demurrer is
sustained because a complaint is defective in stating a
cause of action, if it is evident that the pleading can be
cured by amendment, a court may not enter a final
judgment, but must give the pleader an opportunity to file
an amended pleading....

Nevertheless, a defective pleading that cannot be cured by
amendment is appropriately dismissed upon a demurrer.

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J-A27024-15

Juszczyszyn v. Taiwo, 113 A.3d 853, 856 (Pa. Super. 2015) (internal

citations omitted).

Here, in its December 11, 2014 opinion, the trial court determined

Appellant was not entitled to amend his complaint. First, the trial court

deduced that Appellant did not request leave of court prior to filing his first

amended complaint. Pursuant to Pa.R.Civ.P. 1028(e), the trial court

concluded that Appellant failed to file a motion for leave within 20 days of

the order dismissing his complaint and, thus, his request to amend was

untimely. The trial court further declared Appellant never presented a

proper and timely filed motion for leave. Instead, without advance notice,

Appellant presented a single motion to file the prior amended complaint at

the same time he filed a second amended complaint. Finally, and most

importantly, the trial court stated that on October 24, 2014, at motions

court, Appellant’s counsel specifically requested, with Appellant’s express

written consent, that the trial court deny the motion to amend. Thus, the

trial court concluded that Appellant could hardly complain about the entry of

an order that was requested and to which he consented. In sum, the trial

court concluded Appellant’s motion to amend his complaint was untimely,

procedurally defective, and denied at Appellant’s request with his express

consent. Upon review, we agree.

Therefore, we conclude there has been no error or abuse of discretion

in this case and that the trial court’s September 24, 2014 and December 11,

2014 opinions meticulously, thoroughly, and accurately dispose of

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J-A27024-15

Appellant’s issues on appeal. Therefore, we affirm on the basis of the trial

court’s opinions and adopt them as our own. Because we have adopted the

trial court’s opinions, we direct the parties to include the trial court’s

opinions in all future filings relating to our examination of the merits of this

appeal, as expressed herein.

Orders affirmed.

Judgment Entered.

Joseph D. Seletyn, Esq.
Prothonotary

Date: 11/19/2015

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 Circulated 10/29/2015 01:27 PM

IN THE COURT OF COMMON PLEAS OF ARMSTRONG COUNTY, PENNSYLVANIA

MARK A. REARICK,
Plaintiff,

vs.
No. 2012-1615-CIVIL
ELDERTON STATE BANK,
Defendant.

MEMORANDUM
Panchik, J.

Before the Court for disposition are the Preliminary

Objections filed by Defendant Elderton State Bank ("Defendantn

or "ESB") to the Complaint filed by Plaintiff Mark A. Rearick

{"Plaintiff" or "Rearick"). The Court originally held argument

on the preliminary objections on February 28, 2013. We then

entered a Memorandum and Order on May 9, 2013, sustaining ESB's

preliminary objection based on the doctrine of res judicata and

dismissing the remaining objections as moot. Rearick appealed

the Court's decision to the Superior Court, which reversed the

Court's decision on the res judicata issue. The Superior Court

directed that on remand this Court could either rule on ESB's

remaining preliminary objections or permit Rearick to amend his

complaint. Pursuant to the Superior Court's directives, we

herein rule on ESB's remaining objections.
 Circulated 10/29/2015 01:27 PM

Rearick v. Elderton State Bank
No. 2012-1615-Civil

I. STANDARD OF REVIEW

In deciding preliminary objections in the nature of a

demurrer, we determine the legal sufficiency of the complaint.

Feingold v. Hendrzak, 15 A.3d 937, 941 (Pa. super. Ct. 2011}.

We accept as true all well-pleaded material facts set forth in

the complaint as well as all inferences reasonably induced

therefrom. However, we need not accept as true conclusions of

law, unwarranted inferences, allegations, or expressions of

opinion. Bayada Nurses, Inc. v. Comm., Dep't of Labor and

Industry, 8 A.3d 866, 884 (Pa. 2010}. Preliminary objections

should be sustained "only in cases in which it is clear and free

from doubt that the pleader will be unable to prove facts

legally sufficient to establish the right to relief." Feingold,

15 A.3d at 941. We consider the preliminary objections mindful

of a complaint's purpose: to "apprise the defendant of the

nature and extent of the plaintiff's claim so that the defendant

has notice of what the plaintiff intends to prove at trial and

may prepare to meet such proof with his own evidence." Weiss v.

Equibank, 460 A.2d 271, 274-75 (Pa. Super. Ct. 1983). Any

doubts regarding whether a demurrer should be sustained should

be resolved in favor of overruling it. Employers Ins. of Wausau

v. PennDOT, 865 A.2d 825, 830 n. 5 (Pa. 2005}.

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 Circulated 10/29/2015 01:27 PM

Rearick v. Elderton State Bank
No. 2012-1615-Civil

II. RELEVANT FACTUAL ALLEGATIONS

We accept as true the following material allegations of

fact pled in Rearick's complaint. We do not accept as true any

legal conclusions, unwarranted inferences, or expressions of

opinion.

In 2006, Rearick developed a plan to purchase an abandoned

commercial building in Elderton, Pennsylvania, and renovate it

to house retail and office space. In the Fall of 2006, Rearick

approached ESB, with whom his family had a long-standing

relationship of more than fifty years, to secure funding for

what came to be known as the "Saltwork Project.n On July 25,

2006, Rearick requested a $205,000,000 loan from ESB to purchase

the Saltwork Project property and to begin preparation work for

the development of the site. Rearick asked ESB whether it was

interested in participating in the United States Department of

Agriculture's Business and Industry Guaranteed Loan Program

("Loan Program"), pursuant to which the Department of

Agriculture would guarantee 80 percent of a bank's investment in

an approved development project. Rearick believed that ESB's

participation in the program would benefit all parties involved.

ESB was not interested in the Loan Program. Instead, ESB made a

loan to Rearick in the amount of $205,000.00, secured by the

Saltwork Project property and by a guaranty from Rearick.

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Rearick v. Elderton State Bank
No. 2012-1615-civil

On July 17, 2007, ESB loaned Rearick an additional

$443,000.00 to begin construction at the Saltwork Project, which

at that point totaled 10,927 square feet. ESB previously had

approved the construction plans. Rearick then, with ESB's

approval, expanded the Saltwork Project from 10,927 square feet

first to 15,383 square feet and ultimately to 15,973 square

feet. To cover the construction costs for the increased space,

in January 2008, ESB increased the loan toiRearick to a total of

$1.2 million. Rearick secured the additional debt using several

of residential properties that were not part of the Saltwork

Project. By late 2008, the Saltwork Project was only 66 percent

completed, and Rearick needed another $1 million to complete

construction. However, ESB informed Rearick that it could not

increase the loan any further because it had reached its

internal limit for credit that could be extended to any single

borrower. ESB informed Rearick that he would have to secure

funding from another source.

On October 16, 2008, at ESB's request, an individual named

Tom Smith became an investor in the Saltwork Project. At the

time, Smith was an ESB shareholder. ESB had approached him

earlier about investing in the Project, but he had not been

interested. This time, however, he agreed. Smith loaned

Rearick a total of $875,000.00 that ESB agreed would be paid

back in full. Using these funds, the Saltwork Project was

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Rearick v. Blderton State Bank
No. 2012-1615-Civil

completed. During the final planning and construction of the

Project, Smith controlled the Project in that he made decisions

relating to construction, build-out, and tenant selection. ESB

secured a guaranty from the Department of Agriculture's Loan

Program to ensure that Smith's investment would be repaid. The

guarantee amounted to 90 percent (90%) of the total debt used to

fund the Saltwork Project.

On May 8, 2009, Rearick and his real estate company, MKR

Rentals, Inc., executed loan documents pursuant to which they

agreed to pay ESB the principal sum of $3,415,000.00, secured by

the Saltwork Project and the additional properties owned by

Rearick. Because of its guaranty from the Loan Program, ESB's

outstanding risk exposure regarding the debt was approximately

$340,000.00, or about 10 percent of Rearick's total debt. In

September 2009, amid slow economic conditions and lower-than-

expected rental rates, Rearick defaulted on the loan.

Rearick initially approached ESB about utilizing $800,000

in tax credits to ease some of his debt burden, but ESB instead

directed Rearick to sell his rental properties. One month

later, ESB accelerated the loan, making the entire balance due

and payable immediately. On June 1, 2009, apparently prior to

Rearick's default, ESB executed deeds in lieu of foreclosure for

the ten parcels of property that had secured the Saltwork

Project loan, not including the saltwork Project property

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Rearick v. Elderton State Bank
No. 2012-1615-Civil

itself, which was appraised at approximately $1.45 million. ESB

did not list the properties with a real estate broker. Instead,

it advertised the properties in the local Horse Trader, which is

a weekly advertisement publication. The properties were not

able to be sold at their appraised values. One property, valued

at $450,000.00, ultimately was sold for $46,000.00, despite ESB

having previously received an offer of $360,000.00. The

Saltwork Project property was advertised by an auctioneer hired

by ESB. On October 29, 2010, Smith purchased the Saltwork

Project property for $450,000.

III. PROCEDUREAL HISTORY

ESB ultimately foreclosed on the properties that had

secured the Saltwork Project. This Court entered summary

judgment in ESB's favor on June 11, 2008, at Civil No. 2011-

0984. Rearick subsequently filed the instant action on October

24, 2012. He brings claims for Breach of Contract (Implied

Covenant of Good Faith and Fair Dealing) (Count I), Breach of

Fiduciary Duty (Count II), Alter Ego (Count III), and Negligence

(Count IV). ESB filed preliminary objections challenging all

counts of Rearick's complaint. With the exception of ESB's

first preliminary objection based on res judicata, we rule on

each of the objections as follows.1

1
Because the issue regarding whether ESB used commercially reasonable
practices in its attempt to liquidate the properties that secured the
Saltwork Project was raised and litigated in the prior mortgage foreclosure

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Rearick v. Elderton State Bank
No. 2012·1615-Civil

IV. DISCUSSION

1. Preliminary Objection 2 - Demurrer (Count I)

ESB first demurs to Court I of Rearick's complaint for

breach of the contractual duty of good faith and fair dealing.

ESB contends that it did not owe Rearick a duty of good faith

and fair dealing merely because of the parties' lender-borrower

relationship. ESB further argues that even if such a duty did

exist, Rearick has not pled sufficient facts to establish that

it breached such a duty. Rearick counters that a contractual

duty of good faith was implied in the loan documents executed by

the parties and that he has pled facts showing that ESB breached

its duty by maneuvering to protect itself against the

increasingly debt-laden Saltwork Project.

In Creeger Brick and Building Supply, Inc. v. Mid-State

Bank and Trust Co., 560 A.2d 151 (Pa. Super. Ct. 1989), the

Superior Court confronted facts remarkably similar to those in

this case, addressing the issue of "whether a borrower has

stated a legally cognizable cause of action against a lending

institution which, although it has not violated the terms of its

loan agreement, has allegedly failed to deal with its borrower

in good faith." Id. at 152. Because the facts in Creeger are

action, Rearick is precluded in this case from seeking any damages allegedly
arising from ESB's conduct in this regard. See Superior Ct. Op. at 21.

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Rearick v. Elderton State Bank
No. 2012-1615-Civil

so analogous to those alleged in this case, we will discuss

Creeger in some detail.

In Creeger, the plaintiff/appellant borrowers had purchased

a closed, apparently dilapidated factory property with the

intention of rehabilitating it and reopening a brick

manufacturing plant. Id. The project was financed principally

by a loan from the defendant/appellant bank in the amount of

$250,000.00. Id. The Small Business Administration guaranteed

ninety percent (90%} of this loan, which was further secured by

the factory property and additional residential properties owned

by the plaintiff borrowers. The plaintiff borrowers contributed

a substantial sum of their own money to the project, together

with funds that they borrowed from other entities. Id.

The plant initially did not become operational for several

months and was closed for several additional months in the

winter season. Id. at 153. This caused the plaintiffs to

suffer a cash shortage, and so they requested an additional line

of credit from the defendant bank. The bank denied their

request. Id. The plaintiffs then requested that the bank

release one of their residential properties so that it could be

sold for additional funds. The bank ultimately agreed to do so,

but on terms that plaintiffs could not meet. The plaintiffs

ultimately found another lender who was willing to purchase 90%

of the defendant bank's loan and make additional funds available

B
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Rearick v. Elderton State Bank
No. 2012-1615-Civil

to the plaintiffs. The bank refused to assign the loan and

demanded payment under its guarantee from the Small Business

Administration. The plaintiffs thereafter suffered financial

collapse. Id.

The plaintiff borrowers filed suit against the bank,

alleging that, although it had not breached any specific terms

of the loan agreement with the plaintiffs, it failed to act in

good faith in the following respects: 1) failing to provide a

line of credit to plaintiffs; 2) unreasonably requiring the

plaintiffs to use borrowed funds to buy equipment and make

repairs; 3) failing to release a property from the loan so that

plaintiffs could secure additional capital; 4) failing to

cooperate with the plaintiffs to obtain supplemental financing;

5) over-collateralizing the loan; 6) failing to notify

plaintiffs of its demand for payment on the guarantee from the

Small Business Administration; and 7) taking the position that

the plaintiffs were not able to produce marketable product at

the plant and notifying the plaintiffs' other lenders of that

fact. Id. at 153. The defendant bank filed preliminary

objections to the complaint, demurring to the claim for breach

of the duty of good faith ·on the ground that such an action did

not exist in Pennsylvania. The trial court sustained the

preliminary objections and dismissed the claim. Id. at 152.

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Rearick v. Elderton State Bank
No. 2012-1615-Civil

On appeal, the Superior Court summarized as follows the law

of good faith as it applies to lender-borrower relationships:

Section 205 of the Restatement (Second) of Contracts
suggests that "[e]very contract imposes upon each
party a duty of good faith and fair dealing in its
performance and its enforcement." A similar
requirement has been imposed upon contracts within the
Uniform commercial Code by 13 Pa.c.s. § 1203. The duty
of "good faith" has been defined as "[h]onesty in fact
in the conduct or transaction concerned." Where a duty
of good faith arises, it arises under the law of
contracts, not under the law of torts. In this
Commonwealth the duty of good faith has been
recognized in limited situations. Most notably, a
duty of good faith has been imposed upon franchisors
in their dealings with franchisees. It has also been
imposed upon the relationship between insurer and
insured.

Conversely, the Supreme Court of Pennsylvania has
refused to impose a duty of good faith which would
modify or defeat the legal rights of a creditor.

It seems reasonably clear from the decided cases that
a lending institution does not violate a separate duty
of good faith by adhering to its agreement with the
borrower or by enforcing its legal and contractual
rights as a creditor. The duty of good faith imposed
upon contracting parties does not compel a lender to
surrender rights which it has been given by statute or
by the terms of its contract. Similarly, it cannot be
said that a lender has violated a duty of good faith
merely because it has negotiated terms of a loan which
are favorable to itself. As such, a lender generally
is not liable for harm caused to a borrower by
refusing to advance additional funds, release
collateral, or assist in obtaining additional loans
from third persons. A lending institution also is not
required to delay attempts to recover from a guarantor
after the principal debtor has defaulted. Finally, if
the bank in this case falsely represented appellants'
financial circumstances to other creditors for the
purpose of damaging appellants' ability to continue
doing business, appellants may have causes of action
in tort for slander, misrepresentation, or

10
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Rearick v. Elderton State Bank
No. 2012-1615-Civil

interference with existing or prospective contractual
relations. There is no need in such cases to create a
separate tort for breach of a duty of good faith.

Creeger, 560 A.2d at 153-54 (internal citations omitted}. Given

the nature of the plaintiffs' allegations, which essentially

claimed that that bank failed to extend them extra credit,

failed to work with them to obtain additional financing

elsewhere, and maneuvered to protect itself against the

plaintiffs' default, the Superior Court agreed with the trial

court that the plaintiffs had failed to plead facts sufficient

- to establish a claim for breach of the duty of good faith and

affirmed the trial court's decision. Id. at 155.

The Superior Court confirmed the Creeger decision in Cable

& Assocs. Ins. Agency, Inc. v. Commercial Nat'l Bank of Pa., 875

A.2d 361 (Pa. Super. Ct. 2005}. In Cable & Associates, the

plaintiff borrower brought claims for "Lender's liability" and

"Bad Faith" against the defendant bank, alleging that the bank

engaged in bad faith when it refused to release certain accounts

receivable from the security on the plaintiff's loan so that it

could obtain additional financing elsewhere. Id. at 362-63.

The plaintiff alleged that the bank intended to transfer the

money received from the accounts to an insurance business in

which it had an interest. Id. at 363. The bank demurred to

both claims, alleging that there existed no duty of good faith

11
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Rearick v. Elderton State Bank
NO, 2012-1615-Civil

in the lender-borrower relationship, Id. The trial court

agreed, and sustained the preliminary objections. Id.

on appeal, the Superior Court, relying on Creeger, noted

that there does not exist a separate duty of good faith between

a borrower and lender outside of the general contractual duty of

good faith inherent in every contract. Id. at 364. But see

Corestates Bank, N.A. v. Cutillo, 723 A.2d 1053, 1059 (Pa.

Super. Ct. 1999) ("due to the longstanding relationship between

the parties in this case, we cannot say that the parties have

not, as a matter of law, developed a relationship wherein the

Bank owes appellant [borrower] a duty of good faithll). The

Court reiterated that "a borrower may plead sufficient facts to

make out a claim that a lender violated its general duty of

1'
"good faith" arising out of the law of contracts. Id.

However, the court was careful to note that a borrower must

demonstrate more than the fact that a lender negotiated terms of

a loan favorable to itself, adhered to and enforced its

contractual or statutory rights, or refused to advance

additional funds, release collateral, or assist the borrower in

obtaining additional financing from other lenders. Id. at 364.

The court affirmed the trial court's dismissal of the

plaintiff1s claim, holding that the bank's refusal to release

collateral on the plaintiff's loan was insufficient as a matter

12
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Rearick v. Elderton State Bank
No. 2012-1615-Civil

of law to establish a claim for breach of the duty of good

faith. Id. at 365.

Based on our readings of Creeger and Cable & Associates, we

find Count I of Rearick's complaint to be devoid of sufficient

allegations of fact that could establish a claim for breach of

the contractual duty of good faith and fair dealing. Examined

closely, and without regard to the colorful rhetoric and

conclusory allegations regarding ESB's intentions and state of

mind, the complaint indicates that Rearick's claim for breach of

the duty of good faith and fair dealing is based on the

following actions of ESB: 1) encouraging Rearick to expand the

Saltwork Project without sufficient financing; 2) selecting

Smith as an investor in the project and ensuring that the

investment would be repaid using Rearick's payments on the loan;

3) allowing Smith to control the Saltwork Project and make

construction and business decisions to benefit ESB ~nd Smith; 4)

requiring Rearick to increase the amount of his loan to cover

the funds advanced by Smith; 5) overburdening the Saltwork

Project with excessive debt and refusing to restructure the debt

to benefit Rearick; and 6) executing deeds in lieu of

foreclosure and then liquidating the properties in a

commercially unreasonable manner. (Complaint at~~ 26(a)-(f)).

These allegations are insufficient as a matter of law to

establish that ESB breached any general duty of good faith and

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Rearick v. Elderton State Bank
No. 2012-1615-Civil

fair dealing implicit in the loan documents. Rearick does not

allege that ESB violated any terms of any of the loan documents

executed among him, ESB, and Smith. Nor does he, outside of

generalized statements about ESB's alleged hidden intent and

scheming, plead that ESB made any specific misrepresentations or

committed any fraud in the parties' business relationship. See

Cable, 875 A.23d at 365 (plaintiff borrower alleging breach of

duty of good faith must "define the issues and every act or

performance essential to that end must be set forth in the

complaint"; plaintiff's complaint must contain facts to support

reasonable inferences as to defendant bank's state of mind or

improper behavior). Further, Rearick's own allegations indicate

that it was Rearick, and not ESB, that decided to expand the

Saltwork Project and request additional funding. The fact that

ESB protected its investment with a guarantee from the United

States Department of Agriculture, refused to directly advance

any further funding to Rearick, and executed loan documents that

protected its interests in the deal cannot form the basis of a

claim for breach of the duty of good faith and fair dealing.

Those facts are almost identical to those in Creeger, where the

Superior Court rejected the plaintiff's claim. It is noteworthy

that Rearick does not discuss the Creeger case anywhere in his

brief, most likely because it is fatal to Count I of his

complaint.

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Rearick v. Elderton State Bank
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Rearick relies heavily on the fact that ESB allegedly hand-

picked Smith as an investor in the Saltwork Project. He

contends that ESB, instead of directly loaning more money to

Rearick, found an investor, who also was a shareholder of ESB,

to advance significant additional funds to the Project, to be

repaid via loan payments from Rearick. Pursuant to this

arrangement, Rearick alleges that ESB minimized its risk by

getting a guarantee from the Department of Agriculture (which

Rearick initially suggested) and leaving Rearick with the debt

burden. However, none of those facts, even if proven, could

amount to bad faith. ESB protected itself with the guarantee

and the funds from Smith. It also increased Rearick's debt

load, which would have increased in any event had ESB directly

loaned the funds to Rearick instead of employing an outside

investor. Finally, Rearick alleges that ESB forced the

expansion of the Saltwork Project and Rearick to incur more

debt, and then deviously failed to fund the project to

completion. However, Rearick himself admits in the complaint

that the Project was expanded at his request, that he desired

the additional funds to support the expansion, and that the

Project ultimately was funded to completion. Compare Complaint,

~ 26 with complaint, ~~ 4, 7, 8, 9, 16.

Moreover, we further find that Rearick has failed to plead

any facts to establish a duty of good faith separate and apart
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Rearick v. Elderton state Bank
No. 2012-1615-Civil

from the general duty of good faith contained in the parties'

loan documents. A plaintiff borrower may establish the

existence of a separate duty of good faith owed by a lender if

it can establish that it and the lender's relationship is

longstanding and of a quality that would give rise to such a

duty. See Cutillo, 723 A.2d at 1059. In the instant case,

Rearick pleads a single allegation that his family and ESB had

been "doing business with ESB for more than 50 years."

(Complaint, ~ 4). He does not, however, allege any facts with

regard to the nature of the relationship, the types of

transactions that were involved, or, most importantly, the

specifics of the relationship between ESB and Rearick himself.

Without more, Rearick has failed to allege any facts that could

give rise to an independent duty of good faith outside of the

loan documents. Compare Cutillo, 723 A.2d at 1059.

In sum, even accepting as true all of the material facts

pled in the complaint, many of which are contradictory, we

cannot glean any set of circumstances that could support a

viable claim for breach of the contractual duty of good faith

and fair dealing. For all these reasons, and based on the

Superior Court's decisions in Creeger and Cable & Associates, we

conclude that Count I of Rearick's complaint fails as a matter

of law and must be dismissed.

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Rearick v. Elderton state Bank
No. 2012-1615-Civil

2. Preliminary Objection 3 - Failure to Conform (Count I)

ESB next argues that Count I of Rearick's complaint should

be dismissed pursuant to Pa. R. Civ. P. 1028(a) (2) and Pa. R.

Civ. P. 1019(i) because Rearick did not attach to his complaint

the loan documents that form the basis of his breach of contract

claim. Rearick counters that he is not required to attach any

of the loan documents because the breach of contract claim is

based on an \\implied" duty and not on any particular term of the

loan documents. He argues alternatively that he is under no

obligation to attach the loan documents because they are in

ESB's possession.

Rule 1019(i) of the Pennsylvania Rules of Civil Procedure

provides as follows:

(i) When any claim or defense is based upon a writing,
the pleader shall attach a copy of the writing, or the
material part t·hereof, but if the writing or copy is
not accessible to the pleader, it is sufficient so to
state, together wit~ the reason, and to set forth the
substance in writing.

Pa. R. Civ. P. 1019(i). By its clear language, the Rule

requires a plaintiff to attach to the complaint the writings on

which the claims in the complaint are based. Although this

requirement may be waived or overlooked where the missing

documents are in the possession of the defendant, see 4 Standard

Pa. Prac. 2d § 21:80, Rearick has not argued any viable reason

why the requirement should be waived in this case. He does not

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Rearick v. Elderton State Bank
No. 2012-1615-Civil

argue that the loan documents are large and cumbersome or that

attaching them would incur significant cost. He further does

not argue that he is not in possession of the loan documents or

that he has demanded a copy from ESB and they were not produced.

Rearick instead merely relies on the fact that ESB is in

possession of the documents, and therefore he should not have to

attach them.

Because Count I of the complaint does not allege a specific

breach of any of the terms of the loan documents, and because

ESB no doubt is in possession of those documents, we will not

dismiss Count I solely on the basis of Rearick's failure to

attach them to the complaint. We note, however, that because

the documents are not attached, their contents do not become a

part of the allegations in the complaint, and we do not have the

benefit of reviewing them to better determine the relationship

between the parties. Nevertheless, we will overrule this

preliminary objection.

3. Preliminary Objection 4 - Demurrer (Count II)

ESB next demurs to Count II of Rearick's complaint for

breach of fiduciary duty. Rearick alleges that ESB owed a

fiduciary duty to Rearick created by ESB's exertion of control

over the Saltwork Project via its "proxy," Smith. ESB contends

that no fiduciary duty existed between ESB and Rearick because

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Rearick v. Elderton State Bank
No. 2012-1615-Civil

Rearick has not pled facts sufficient to show the requisite

control necessary to create the duty. We agree.

For a fiduciary relationship to exist in a commercial

setting, there must be a special relationship between the

parties involving ~confidentiality, the repose of special trust

or fiduciary responsibilities." eToll, Inc. v. Elias/Savion

Advertising, Inc., 811 A.2d 10, 22 (Pa. Super. Ct. 2002) (citing

Valley Forge Convention & Visitors Bureau v. Visitor's Servs.,

Inc., 28 F. Supp.2d 947, 952-953 (E.D. Pa. 1998)). Such a

relationship "generally involves a situation where by virtue of

the respective strength and weakness of the parties, one has the

power to take advantage of or exercise undue influence over the

other." Id. The critical question is "whether the relationship

goes beyond mere reliance on superior skill, and into a

relationship characterized by 'overmastering influence' on one

side or 'weakness, dependence, or trust, justifiably reposed' on

the other side." eToll, 811 A.2d at 23 (quoting Basile v. H & R

Block, 777 A.2d 95, 101 (Pa. Super. Ct. 2001)).

Ordinarily, the relationship between a lender and a

borrower is contractual in nature and does not give rise to a

confidential relationship. See Fed. Land Bank of Baltimore v.

Fetner, 410 A.2d 344, 348 (Pa. Super. Ct. 1979); Buczek v. First

Nat'] Bank, 531 A.2d 1122, 1124 (Pa. Super. Ct. 1987); Temp-Way

Corp. v. Continental Bank, 139 B.R. 299, 318 (E.D. Pa. 1992).

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Rearick v. Elderton State Bank
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However, the ordinary lender-borrower relationship may be

transformed into a special or fiduciary relationship if the

lender gains substantial control over the borrower's business

affairs. Stainton v. Tarantino, 637 F. Supp. 1051, 1066 (E.D.

Pa. 1986) "Control over the borrower is demonstrated when

there is evidence that the lender was involved in the actual

day-to-day management and operations of the borrower or that the

lender had the ability to compel the borrower to engage in

unusual transactions." Temp-Way, 139 B.R. at 318. Generally,

courts have required a strong showing of control to establish a

fiduciary relationship. Blue Line Coal Co., Inc. v. Equibank,

683 F. Supp. 493, 496 (E.D. Pa. 1988). A lender's actions in

monitoring the borrower's operations, proffering of management

advice, or taking measures to minimize risk do not constitute

sufficient control to establish a fiduciary relationship. Temp-

Way, 139 B.R. at 318; Blue Line Coal, 683 F. Supp. At 496-97

(citing cases).

Rearick alleges in his complaint that: "[a]s a result of

ESB selecting the individual with whom Rearick would 'partner'

and by ESB, through its proxy, taking direct control of the

Saltwork Project, ESB's involvement with Rearick extended beyond

the traditional lender/borrower relationship to form a

confidential relationship giving rise to a fiduciary duty."

(Complaint, ~ 29); "ESB, acting through its proxy, exercised

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Rearick v. Elderton State Bank
No. 2012-1615-Civil

complete control over the Saltwork Project, going so far as to

make construction decisions and pass judgment on what kind of

business constituted an appropriate tenant" (Id., 130); and "the

Saltwork Project was completed with Smith, as ESB's surrogate,

assuming complete control of the Saltwork Project and making all

decisions relating to construction, build-out, tenant selection

and the like." (Complaint, 1 16). Rearick does not allege that

ESB or any of its employees directly controlled Rearick, his

business, his decisions, or the day-to-day operations of the

Saltwork Project, Nor does Rearick argue that ESB directly

managed the funds that were used to finance the construction of

the Saltwork Project. Rearick instead contends that ESB,

through a "proxy" or "surrogate," controlled the Saltwork

Project. Thus, as a preliminary matter, for Rearick's breach of

fiduciary duty claim to succeed, he must be able to show that

Smith was ESB's agent, expressly or implicitly authorized to

make decisions and take actions binding on ESB.

The Pennsylvania Supreme Court has summarized the

parameters of the principal-agent relationship as follows:

The law is clear in Pennsylvania that the three basic
elements of agency are: the manifestation by the
principal that the agent shall act for him, the
agent1s acceptance of the undertaking and the
understanding of the parties that the principal is to
be in control of the undertaking. Agency results only
if there is an agreement for the creation of a
fiduciary relationship with control by the
beneficiary. The burden of establishing an agency

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Rearick v. Elderton State Bank
No. 2012-1615-civil

relationship rests with the party asserting the
relationship. An agency relationship is a fiduciary
one, and the agent is subject to a duty of loyalty to
act only for the principal1s benefit. Thus, in all
matters affecting the subject of the agency, the agent
must act with the utmost good faith in furthering and
advancing the principal1s interests, including a duty
to disclose to the principal all relevant information.

The special relationship arising from an agency
agreement, with its concomitant heightened duty,
cannot arise from any and all actions, no matter how
trivial, arguably undertaken on another's behalf.
Rather, the action must be a matter of consequence or
trust, such as the ability to actually bind the
principal or alter the principal1s legal relations.
Indeed, implicit in the long-standing Pennsylvania
requirement that the principal manifest an intention
that the agent act on the principal1s behalf is the
notion that the agent has authority to alter the
principal1s relationships with third parties, such as
binding the principal to a contract.

Basile v. H & R Block, 761 A.2d 1115, 1120, 1121 (Pa.

2000) (internal citations and quotations omitted).

Considering these principles, we conclude that Rearick has

failed to plead facts sufficient to establish an agency

relationship between ESB and Smith that would operate to bind

ESB to Smith's actions with regard to the Saltwork Project.

Rearick alleges throughout his complaint that ESB selected

Smith, who was then a shareholder of ESB, to be an investor in

the Project, built into the loan documents a guarantee to

protect Smith's investment, and that Smith, after Rearick's

default, purchased the Saltwork Project property. These facts,

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Rearick v. Elderton State Bank
No. 2012-1615-Civil

even accepted as true and taken in the light most favorable to

Rearick, do not establish that ESB manifested its intention for

Smith to act on its behalf, to alter ESB's relationship with

Rearick or other third parties, or to bind ESB in its legal

dealings. The facts instead establish, at most, that Smith

acted as an investor in the Project and took actions for his own

benefit. There is no indication in the complaint that Smith

acted specifically for ESB's benefit or under its direction.

Further, the mere fact that Smith allegedly was a shareholder of

ESB does not, in and of itself, create an agency relationship.

A shareholder does not, by virtue of its ownership interest in a

corporation, become a de facto agent of the corporation in

dealing with third parties. MacBrine-McAdams Realty Co. v.

Morris, 196 A. 511, 512 (Pa. Super. Ct. 1938) (citing Puritan

Coal Mining Co. v. Pa. Railroad Co., 85 A.426, 432-33 (Pa.

1912)) .

Even assuming that Smith became ESB's agent, Rearick

nonetheless has failed to allege facts in his complaint that

would evidence the level of control necessary to create a

fiduciary relationship between ESB and Rearick. Rearick alleges

that Smith made construction decisions, determined what kinds of

tenants he thought would be appropriate, and made decisions

regarding \\build-out." He makes several conclusory allegations

that Smith took \\direct" and "complete" control of the Saltwork

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Rearick v. Elderton State Bank
No. 2012-1615-Civil

Project, but he alleges no facts to support those contentions.

He does not allege that either Smith or ESB entered into

contracts with builders, subcontractors, or tenants. He does

not allege that either ESB employees or Smith dealt with local

government agencies and municipalities in securing necessary

permitting, utilities, taxes, or the like. Most importantly,

with regard to the funds disbursed to Rearick, he does not

allege that ESB or Smith dictated how the funds would be

disbursed, managed payments to third parties, or in any other

way exercised dominating control over the funding, planning, or

management of the Saltwork Project. Other than making decisions

regarding construction matters and rendering opinions with

regard to who would be appropriate tenants on the premises,

Smith, and thereby ESB, did not exert the requisite level of

control over Rearick or the Saltwork Project that would create a

fiduciary duty.

Rearick relies heavily on the Superior Court's decision in

Garbish v. Malvern Federal Savings and Loan Ass'n, 517 A.2d 547

(Pa. Super. Ct. 1986) to support his argument that ESB owed

Rearick a fiduciary duty outside of their ordinary lender-

borrower relationship. We find Garbish to be markedly

distinguishable from the case at bar. In Garbish, the plaintiff

borrowers brought suit against the defendant bank in trespass

and assurnpsit, alleging that the bank misappropriated the

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Rearick v. Elderton State Bank
No. 2012-1615-Civil

disbursement of funds from a construction account over which the

bank retained complete control. Id. at 550. The plaintiffs in

Garbish argued that the bank owed the plaintiffs a fiduciary

duty as their agent in disbursing the construction funds, which

the bank breached. A jury agreed, and the bank appealed the

verdict. Id. at 550-51.

On appeal, the Superior Court agreed that the bank owed the

plaintiffs a fiduciary duty given the degree of control that the

bank exercised over the fund used to finance the construction of

the plaintiffs' new home. The court noted that the fund was

created at closing, where both the plaintiffs and the building

company were required to execute a building agreement, a

schedule of operations, and a description of materials. The

plaintiffs also were required to contribute $16,000 of their own

money at closing that ultimately would be controlled by the

bank. Id. at 549. The plaintiffs in Garbish were not permitted

to participate at all in the payments that the bank made to the

builder and generally were not advised of the nature and details

of the vouchers that were paid. The bank also expressly told

the plaintiffs that it was an expert in the disbursement of

construction fund money and utilized its own inspectors to

review the progress of the construction site. Id. at 549-50.

Based on those facts, the Superior Court concluded that the bank

had indeed exercised absolute and exclusive authority over the

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Rearick v. Elderton State Bank
No. 2012-1615-civil

building project and the fund that was financing it. Id. at

551.

Such are not the facts pled in Rearick's complaint. There

are no indications that ESB or Smith managed the day-to-day

operations of the Saltwork Project. Rearick cannot merely state

that Smith exerted "complete" control over the Project without

showing how that occurred, particularly with regard to how funds

were used and who made financial decisions.

For these reasons, we will sustain ESB's preliminary

objection and dismiss Count II of Rearick's complaint.

4. Preliminary Objection 5 - Demurrer (Count IV)

ESB demurs to Count IV of Rearick's complaint for

negligence on several grounds. ESB argues first that the claim

is barred by Pennsylvania's "gist of the action doctrine." ESB

next argues that the negligence claim fails because Rearick has

failed to plead facts that would establish that ESB either owed

a duty of care to Rearick or that any breach of such a duty

caused Rearick's default. Finally, ESB argues that the

negligence claim is barred by the "economic loss doctrine." We

will address each argument in turn.

a. Gist of the Action

The "gist of the action" doctrine remains viable in

Pennsylvania, as it is used and addressed frequently by the

Superior Court and has not expressly been rejected by the

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Rearick v. Elderton State Bank
No. 2012-1615-Civil

Supreme Court. See Reardon v. Allegheny College, 926 A.2d 477,

486 & nn. 10,11 (Pa. Super. Ct. 2007). Generally, the doctrine

bars a plaintiff from re-casting ordinary breach of contract

claims into tort claims. Empire Trucking Co., Inc. v. Reading

Anthracite Coal Co., 71 A.3d 923, 931 n.2 (Pa. Super. Ct. 2013}.

In Reardon, the Superior Court summarized the doctrine as

follows:

The gist of the action doctrine acts to foreclose tort
claims: 1) arising solely from the contractual
relationship between the parties; 2) when the alleged
duties breached were grounded in the contract itself;
3) where any liability stems from the contract; and 4)
when the tort claim essentially duplicates the breach
of contract claim or where the success of the tort
claim is dependent on the success of the breach of
contract claim. The critical conceptual distinction
between a breach of contract claim and a tort claim is
that the former arises out of breaches of duties
imposed by mutual consensus agreements between
particular individuals, while the latter arises out of
breaches of duties imposed by law as a matter of
social policy.

Reardon, 926 A.2d at 486-87 (internal quotations and citations

omitted). "A breach of contract may give rise to an actionable

tort where the wrong ascribed to the defendant is the gist of

the action, the contract being collateral." Hart v. Arnold, 884

A.2d 316, 339 {Pa. Super. Ct. 2005). In determining whether the

doctrine applies to bar a tort claim,' Pennsylvania courts employ

the following principles:

When a plaintiff alleges that the defendant committed
a tort in the course of carrying out a contractual
agreement, Pennsylvania courts examine the claim and

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Rearick v. Elderton state Bank
No. 2012-1615-civil

determine whether the "gist" or gravamen of it sounds
in contract or tort. The test is not limited to
discrete instances of conduct; rather, the test is, by
its own terms, concerned with the nature of the action
as a whole.

Indalex Inc. v. Nat'l Union Fire Ins. Co. of Pittsburgh, 83 A.3d

418, 424 (Pa. Super. Ct. 2013) (quoting Erie Ins. Exchange v.

Abbott Furnace Co., 972 A,2d 1232, 1238 (Pa. Super. Ct. 2009))

We note first that the relationship between Rearick and ESB

essentially was contractual. Although Rearick generally alleges

that his family and ESB had a relationship lasting more than 50

years, such a relationship in and of itself does not give rise

to a special, social relationship that would create any duties

between them independent of their financial agreements. Rearick

argues in his brief that the duties underlying his negligence

claim arise from the "special relationship" between ESB and

Rearick, whereby ESB made Rearick's business decisions for him

and "took control" of the business. (Rearick Brief, at 12) .

Rearick alleges that ESB selected Smith as an investor and

forced Rearick to enter into a relationship with him so that the

Saltwork Project could be financed by Smith's funds. He further

alleges that ESB entered into a financing arrangement with

Rearick such that Smith would be paid back his investment via

Rearick's payments on the loan. Rearick contends that ESB

protected itself against a significant majority of the financial

risk of the Project by utilizing the Business and Industry

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Rearick v. Elderton State Bank
No. 2012-1615-Civil

Guaranteed Loan Program, which Rearick himself initially

suggested to ESB. ( Comp 1 a int , 1, 5, 12 - 1 7 ) .

We conclude that, as pled, the alleged duties giving rise

to Rearick's negligence claim are grounded in what Rearick

argues is a "special relationshipn that existed between the

parties outside the parameters of the loan documents. The

gravamen of Rearick's claims in this regard essentially sound in

tort and not in contract. This relationship is the very

relationship that forms the basis of Rearick's breach of

fiduciary duty claim, discussed infra. The only contractual

claim in Rearick's complaint is Count I, which is based on a

general duty of good faith and fair dealing. Rearick does not

allege any specific breaches of any of the several agreements

between himself and ESB. We therefore are constrained to

conclude that his action, taken as a whole, is grounded in what

he contends are duties arising out of social policy

considerations and not strictly contractual obligations. For

this reason, we conclude that the gist of the action doctrine

does not, in and of itself, bar Rearick's negligence claim. We

already have discussed, and will again discuss supra, whether

these alleged duties are in fact present in this case.

b. Economic Loss Doctrine

ESB contends that Rearick's negligence claim, which seeks

monetary damages in excess of $25,000, is barred by

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Rearick v. Elderton State Bank
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Pennsylvania's economic loss doctrine. The economic loss

doctrine, as adopted by the Pennsylvania Supreme Court, provides

that "no cause of action exists for negligence that results

solely in economic damages unaccompanied by physical injury or

property damage." Knight v. Springfield Hyundai, 81 A.3d 940,

952 (Pa. Super. Ct. 2013) {quoting Excavation Technologies, Inc.

v. Columbia Gas Co. of Pa, 985 A.2d 840, 841 (Pa. 2009)). See

also Id. at 952 n. 9 (noting alternative definitions of the

doctrine, which preclude recovery in tort of purely economic

losses that either arise exclusively from a contract or are

unaccompanied by physical harm to a plaintiff or his property).

Rearick does not specify the amount of damages that he

seeks in this action. It is unclear from the complaint whether

he seeks reimbursement of funds paid on the loans that financed

the Saltwork Project, the value of the properties that were

foreclosed upon in the mortgage foreclosure action, or another

amount. What is clear, however, is that any damages that

Rearick allegedly has suffered are purely economic and cannot be

recovered via his negligence claim. Rearick has not alleged any

personal injury or damage to property as a result of any of

ESB's actions. Instead, he claims that he seeks monetary

damages together with damages as a result of the "loss of his

properties which ESB frivolously disposed of through the Horse

Trader or unfairly bestowed upon its own agent." {Rearick

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Rearick v. Elderton State Bank
No. 2012-1615-Civil

Brief, at 14); (Complaint, ~1 19-22). The loss of the

properties and their value also is economic harm that cannot be

recovered in a negligence claim. Moreover, the loss of

Rearick's income-producing properties, which he argues came as a

result of ESB's "frivolous" manner of reselling them and unfair

bestowal of the properties on Smith, are damages that cannot be

recovered in this action. They directly are related to the

prior mortgage foreclosure action and permitting such a claim in

this action would undermine ESB's judgment in that case. See

Superior Court Op. at 21.

Accordingly, we conclude that Rearick's negligence claim is

barred by the economic loss doctrine, and we will sustain ESB's

preliminary objection in this regard.

c. Duty and Causation

To establish a claim for negligence, a plaintiff must

demonstrate that "the defendant owed a duty of care to the

plaintiff, the defendant breached that duty, the breach resulted

in injury to the plaintiff, and the plaintiff suffered an actual

loss or damage." Martin v. Evans, 711 A.2d 458, 461 (Pa. 1998).

Rearick alleges in his negligence claim that ESB owed him a

duty of care arising out of "its longstanding relationship with

him," its directive to him to contact other investors for the

Saltwork Project, and its "brokering" of the transaction between

him and Smith. (Complaint, ~~ 39-41) He then alleges that ESB

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Rearick v. Elderton State Bank
No. 2012-1615-Civil

breached those duties of care by selecting Smith as an investor

and colluding with him to place Rearick at a disadvantage.

These alleged duties are separate and apart from the duties that

undergird Rearick's breach of contract and breach of fiduciary

duty claims. The facts, however, do not as a matter of law give

rise to a duty of care running from ESB to Rearick that is

independent of the duties embodied in the loan documents between

the parties. Absent a special relationship that would give rise

to a potential fiduciary duty, a lending institution does not

owe a general duty of care to a borrower. See Rousseau v. City

of Phila., 514 A.2d 649, 652 {Pa. Commw. Ct. 1986). Rearick

argues in his brief that a duty of care arose because of the

"special role" that ESB took in Rearick's business by

controlling its business through its alleged agent, Smith. That

relationship, however, if it did indeed exist, would give rise

to a potential claim for breach of fiduciary duty and not one

for ordinary negligence, As we discussed above, no claim for

breach of fiduciary duty exists in this case.

Moreover, Rearick has not pled any facts to substantiate

his allegations that a duty arose from his prior relationship

with ESB. The mere fact that the relationship is alleged to

have been for a significant duration {50 years) does not create

a duty of care between ESB and Rearick. Nor do the facts that

ESB found an investor to fund the Saltwork project and organized

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Rearick v. Elderton State Bank
No. 2012-1615-Civil

the contractual arrangements to allow the investor to become

involved in the Project in and of themselves give rise to a duty

of care. Rearick has directed the Court to no legal authority

that would support such a duty, and we have not found any in our

own search. Thus, we find that Rearick has failed to plead

facts that, if true, would establish a duty to support his

negligence claim, which we will dismiss on this ground.

We further conclude the Rearick has failed to plead facts

sufficient to establish the causation element of his negligence

claim. Even assuming that Rearick has pled facts establishing a

duty of care and that ESB breached that duty by involving Smith

in the financing arrangement, over-leveraging the properties, or

organizing or exercising control over the Saltwork Project,

Rearick does not plead any facts showing how any of the Bank's

actions caused Rearick's default. Instead, he alleges that many

of the increases in financing were made at his own request, that

the Saltwork Project ultimately was completed, and that he paid

on the loan for several months before defaulting, at least in

part because of "a still floundering economy and tenant

occupancy rates that, as a result of a poor economy, were below

projections." (Complaint, ~1 4-9, 12, 16, 18}. Because Rearick

has failed to set forth sufficient facts to establish the

causation element of his negligence claim, we will sustain ESB's

preliminary objection on this additional ground as well.

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Rearick v. Elderton State Bank
No. 2012·1615·Civil

5. Preliminary Objection 6 - Demurrer (Count III)

Lastly, ESB demurs to Rearick's "alter ego" claim on the

ground that such a claim does not exist in Pennsylvania.

Rearick alleges that ESB controlled Rearick and the Saltwork

Project to a degree that ESB, Rearick, and the Saltwork Project

essentially were the same economic entity. Rearick alleges that

11
ESB controlled the Sal twork Project chiefly through its \\proxy,

Mr. Smith. We conclude that the "alter ego" theory is

inapplicable to this case and, even if it were applicable,

Rearick has failed to plead facts that could prove the claim in

any event.

The Pennsylvania Superior Court recently has described the

nature of the "alter ego" theory of liability as follows:

Piercing the corporate veil is a means of assessing
liability for the acts of a corporation against an
equity holder in the corporation. The party seeking to
establish personal liability through piercing the
corporate veil must show the person in control of a
corporation used that control, or used the corporate
assets, to further his own personal interests.
Pennsylvania law has a strong presumption against
piercing the corporate veil. Any inquiry involving
corporate veil-piercing must start from the general
rule that the corporate entity should be recognized
and upheld, unless specific, unusual circumstances
call for an exception. One "exception" is the alter
ego theory which requires proof (1) that the party
exercised domination and control over corporation; and
(2) that injustice will result if corporate fiction is
maintained despite unity of interests between
corporation and its principal.

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Rearick v. Elderton State Bank
No. 2012-1615-Civil

Allegheny Energy Supply Co. v. Wolf Run Min. Co., 53 A.3d 53, 58

(Pa. Super. Ct. 2012) (internal citations and quotations

omitted). Piercing-the-veil principles may be applied in the

context of a lender-borrower context, wherein a corporate lender

so controls and dominates a corporate borrower that that

corporate construct of the borrower should be set aside and the

lender held responsible for the borrower's debts. See Pearson

v. Component Tech. Corp., 80 F. Supp.2d 510, 521 (W.D. Pa.

1999); 12 Bumm. Pa. Jur.2d Bus. Rel. § 1:30 (2d ed.). Thus, in

a lender-borrower relationship, a corporate lender may so

dominate and control a corporate borrower that the borrower's

debts, incurred at the behest of the lender, must be ascribed to

the lender because the borrower's "separate existence was a mere

sham." Pearson, 80 F. Supp.2d at 523. See also 15 Am. Jur. 3d.

695, §4.

Even reading Rearick's complaint in the light most

favorable to him, we cannot conceive of how the alter ego theory

of piercing the corporate veil applies in this case. There are

no allegations that either Rearick or the Saltwork Project were

themselves corporate entities. There also are no allegations

even suggesting that Rearick is attempting to hold the

shareholders of ESB responsible for Rearick's debts. Although

Rearick has alleged, in somewhat conclusory fashion, that ESB,

via its "proxy," controlled and dominated his business dealings

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Rearick v. Elderton State Bank
No. 2012-1615-Civil

and the Saltwork Project operations, there simply are no facts

suggesting that Rearick seeks to disregard or set aside a

particular corporate form. Rearick's argument that ESB must be

held accountable for Rearick's debt because ESB dominated and

controlled Rearick essentially is duplicative of Rearick's

breach of fiduciary duty claim, which we addressed above. The

alter ego theory, even in the lender-borrower context, is a

child of corporate liability jurisprudence and simply cannot

apply in this case. After a diligent search, we have found no

authority, in Pennsylvania or any other jurisdiction, that would

support such a claim in these circumstances; neither has Rearick

provided the Court with any such authority.2 For these reasons,

we will sustain this preliminary objection and dismiss Count III

of Rearick's complaint.

V. CONCLUSION

For all the reasons stated above, we will sustain ESB's

preliminary objections that remain after remand and dismiss

Rearick's complaint.

An appropriate Order follows.

2
The alter ego theory typically is used in lender-borrower situations where a
separate creditor of an insolvent borrower attempts to disregard the
borrower's corporate form to reach the coffers of the lender to satisfy debts
incurred by the borrower. We have found no reported cases where an
individual borrower seeks to use the alter ego theory to hold a lender
corporately responsible for his own debts serviced by that lender.

36
 Circulated 10/29/2015 01:27 PM

IN THE COURT OF COMMON PLEAS OF ARMSTRONG COUNTY, PENNSYLVANIA

MARK A. REARICK, )
)
Plaintiff, )
)
vs. ) No. 2012-1615-CIVIL
)
ELDERTON STATE BANK, )
} ··r) ...

Defendant. } . .. ":~-- -·..
:.-.:.
- .
. ) . ·- ~ ·- .. r
::.~ i

1925(a) OPINION

Panchik, J.

Plaintiff Mark A. Rearick ("Rearick") appeals from (1) this

Court's Memorandum and Order entered September 24, 2014, which

sustained those preliminary objections to Rearick's complaint that

remained undecided after remand from the Superior Court, and (2)

this Court's Order dated October 24, 2014, denying Rearick's "Mo-

tion for Leave to File Amended Complaint." For the reasons that

follow, and for the reasons set forth in the Court's Memorandum

entered September 24, 2014, I recommend affirmance in both ap-

peals.

I. PROCEDURAL HISTORY

This case has an unnecessarily protracted and confused proce-

dural history. Rearick filed his original complaint on October

24, 2012. That complaint asserted several contract and tort-

based claims against Defendant Elderton State Bank ("ESB") related

to the parties' business dealings from 2006 to 2009. ESB filed
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Rearick v. Elderton State Bank
No. 2012-1615-Civil

preliminary objections to the complaint, one of which was sus-

tained by this Court on the ground of res judicata. The Court de-

clined to decide the remaining preliminary objections as moot.

Rearick appealed the Court's decision to the Superior Court, which

reversed this Court's decision and remanded with instructions to

either rule on ESB's remaining preliminary objections or permit

Rearick to amend his complaint. The Court thereafter ruled on the

remaining preliminary objections, all but one of which it sus-

tained.1 The Court therefore dismissed Rearick's complaint and did

not grant him leave to file an amended complaint.

On October 14, 2014, twenty days after the entry of the

Court's order dismissing his complaint, Rearick filed an amended

complaint without leave of court. The amended complaint includes

revisions to Counts I and II and also includes two new claims for

fraudulent/negligent misrepresentation and "constructive fraud."

Ten days later, on October 24, 2014, in motions court, on the last

day of the 30-day appeal period following the Court's dismissal of

his original complaint, Rearick presented a motion requesting that

the Court both "deem" the amended complaint properly filed and

permit Rearick to file a second amended complaint. Rearick did

not present to the Court or to ESB a proposed second amended com-

plaint prior to or at motions court on October 24, 2014. Nor was

1
The Court overruled ESB's preliminary objection based on the "gist of the ac-
tion" doctrine. However, the Court sustained several other preliminary objec-
tions regarding Rearick's negligence claim, making dismissal of the claim appro-
priate in any event.
2
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Rearick v. Elderton State Bank
No. 2012-1615-Civil

Rearick's first amended complaint either attached to his motion or

presented to the Court for review prior to October 24, 2014. ESB

submitted a written opposition to Rearick's motion, in which it

argued that the filing of the amended complaint was improper, the

motion for leave was untimely, and that no proposed second amended

complaint was presented to the Court or ESB for review. ESB re-

quested that Rearick's motion be denied without prejudice and

Rearick be directed to file an appropriate motion for leave to-

gether with the amended pleading that he proposed to file.

Inexplicably, Rearick's counsel then requested that the Court

deny his motion for leave to file the first and second amended

complaints. The Court's order denying the motion clearly indi-

cates that the denial was entered at Rearick's counsel's request

and with his written consent. Rearick then filed, the same day,

notices of appeal from the Court's orders from both September 24,

2014 and October 24, 2014. The Court thereafter entered an order

directing Rearick to file Concise Statements of Errors Complained

of on Appeal pursuant to Pa. R. App. P. 1925(b) for each of his

two appea Ls, with which Rearick timely complied. We will address

each of his assertions of error in turn.

II. APPEAL REGARDING PRELIMINARY OBJECTIONS

Rearick makes nine assignments of error in his appeal from

the Court's order sustaining ESB's preliminary objections and dis-

missing his original complaint. All of the issues raised in

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Rearick v. Elderton State Bank
No, 2012-1615-Civil

Rearick's concise statement thoroughly are addressed in the

Court's September 24, 2014 Memorandum. The Court remains con-

vinced that its reasoning is sound and dismissal of Rearick's com-

plaint appropriate, Of note is the fact that Rearick's amended

complaint does not include claims for alter ego or negligence, and

his motion for leave acknowledges that, at the very least, Counts

I and II for breach of the duty of good faith and fair dealing and

breach of fiduciary duty are deficient. For these reasons, and

for the reasons set forth in the Memorandum entered September 24,

2014, I recommend affirmance on all issues raised in this appeal.

III. APPEAL REGARDING REARICK'S MOTION FOR LEAVE

The Court frankly is at a loss to fully understand the

grounds for this appeal. Rearick asserts in his concise statement

that the Court erred by (1) denying his motion to "allow as

properly filedll his amended complaint, filed without leave after

the Court dismissed his original complaint, and {2) denying

Rearick's motion for leave to file a second amended complaint.

The Court acknowledges the governing rule in Pennsylvania

that amendments to pleadings may be made at any time and should

liberally be permitted. See Chaney v. Meadville Med. Ctr., 912

A.2d 300, 303 (Pa. Super. Ct. 2006) (citing, in part, Pa. R. Civ.

P. 1033)). Amendment generally should be permitted when it will

not work "unduell prejudice on the opposing party. Id. Moreover,

although orders denying a party's motion for leave to amend a

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Rearick v. Elderton State Bank
No. 2012-1615-Civil

pleading generally are considered interlocutory and therefore non-

appealable, see Horowitz v. Universal Underwriters Ins. Co., 580

A.2d 395, 397 (Pa. Super. Ct. 1990), such orders are appealable if

they in essence put a plaintiff "out of court" or control the out-

come of the entire case. Id. Here, Rearick's motion for

leave to file both his amended and second amended complaints was

filed after the Court already had dismissed Rearick's original

complaint without leave to amend. Thus, the order dismissing the

original complaint was final and appealable. I will assume for

purposes of this appeal that, although Rearick already had been

put "out of court," the order denying his request to file amended

pleadings effectively worked the same result and should be treated

as final for purposes of this appeal.

However, the appealability of the Court's order being estab-

lished, I conclude that the appeal is without merit in any event

on several grounds. First, the Court did not have any opportunity

to rule upon the propriety of Rearick's amended complaint because

he did not request leave prior to filing it. Rule 1028(e) of the

Pennsylvania Rules of Civil Procedure provides that "if the filing

of an amendment, an amended pleading, or a new pleading is allowed

or required," it must be filed either within 20 days after the or-

der permitting the amendment or within a period fixed by the

court. Pa. R. Civ. P. 1028(e). In this case, the Court sustained

ESB's remaining preliminary objections and dismissed Rearick's

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Rearick v. Elderton State Bank
No. 2012-1615-Civil

complaint without leave to amend. Therefore, if Rearick desired

to file an amended complaint, he should have filed a motion for

leave to do so within 20 days of the Court's order. Rearick did

not file such a motion and did not present a proposed amended com-

plaint to the Court prior to filing it on October 14, 2014. Thus,

on its face, Rearick's motion appears to be untimely and therefore

was properly denied.

Second, with regard to Rearick's proposed second amended com-

plaint, neither the Court nor ESB was presented with a copy of the

amended pleading before, at, or since motions court on October 24,

2014. Indeed, the Court has never been presented with a proper

and timely filed motion for leave to file any amended pleadings.

Instead, and without notice, the Court was presented with a motion

to file both an amended complaint and a second amended complaint,

without having any prior opportunity to review proposed drafts of

either document. On that basis, Rearick's motion for leave to

file both proposed amended pleadings is inappropriate and was

properly denied by the Court.

Finally, and most importantly, Rearick's counsel requested at

motions court on October 24, 2014, that the Court not grant the

motion for leave to file either his amended or second amended com-

plaints (the latter to which ESB likely would have consented), and

instead enter an order, with his express, written consent, that

the motion be denied. Thus, the Court had no opportunity to

6
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~earick v. Elderton State Bank
No. 2012-1615-Civil

schedule a separate time for argument on Rearick's motion, permit

the submission of a proposed second amended complaint, or permit

ESB to review the proposed filing and reconsider its opposition to

the motion, In short, Rearick hardly can be heard to complain

about an order the entry of which was requested and consented to

in writing by his counsel.

I remain convinced that Rearick's motion was untimely-filed,

was procedurally defective, and was entered as his request and

with his express consent. For those reasons, I recommend affir-

mance on this appeal.

By the Court:

Date : ~....u.lJ-·___,l"'---(-e.c)O=f+--