Pediatrix Screening, Inc. v. Telechem International, Inc.

PRECEDENTIAL

UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT

No. 08-1391

PEDIATRIX SCREENING, INC.;
PEDIATRIX SCREENING, L.P.,
Appellant
v.

TELECHEM INTERNATIONAL, INC.,
t/a/d/b/a ARRAYIT.COM
____________

Appeal from the United States District Court
For the Western District of Pennsylvania
(D.C. Civ. No. 01-cv-02226)
District Judge: Honorable Joy Flowers Conti
____________

Argued December 15, 2009
Before: SLOVITER, JORDAN and WEIS, Circuit Judges.

(Filed: April 20, 2010)
____________
Deena J. Schneider, Esquire (ARGUED)
Joseph J. Anclien
SCHNADER HARRISON SEGAL & LEWIS LLP
1600 Market Street, Suite 3600
Philadelphia, PA 19103

Jeffrey G. Brooks, Esquire
MINTO LAW GROUP
603 Stanwix Street, Suite 2025
Pittsburgh, PA 15222

Mary-Jo Rebelo, Esquire
HOUSTON HARBAUGH, PC
401 Liberty Avenue, 22nd Floor
Pittsburgh, PA 15222

Attorneys for Appellant

Kim M. Watterson, Esquire (ARGUED)
Barry J. Coyne, Esquire
Kevin S. Katona, Esquire
REED SMITH LLP
435 Sixth Avenue
Pittsburgh, PA 15219

Attorneys for Appellee

____________

OPINION
____________

2
WEIS, Circuit Judge.

This action grew out of business disputes marked by
sharp disagreements over asserted trade secrets and contractual
obligations. A jury resolved multiple issues leaving but one
count which has been appealed. The principal questions before
us are whether, under Pennsylvania law, a fraudulent
misrepresentation is to be treated as a tort or breach of contract
and whether that point has been properly preserved for our
review. We conclude that the issue was not waived in the
District Court and will remand for a new trial.

TeleChem International, Inc., a California corporation,
provided technical assistance and hardware for use in
microarray technology applicable in genetic screening or
“genotyping.” The process allows microscopic spots of DNA to
be placed on glass slides for use in genetic research and testing.

Pediatrix Screening, Inc., a Pennsylvania corporation,
was engaged in traditional methods of genetic screening of
newborn infants.1 The company became interested in applying
for a research grant, but needed a collaborator with expertise in
microarray technology. After preliminary discussions during a
trade show attended by representatives of both entities, an

1
In 2003, Pediatrix Medical Group, Inc., bought Neo Gen
Screening, Inc., and Neo Gen Screening, L.P., the concerns that
originally had contact with TeleChem. Pediatrix was, in turn,
purchased by PerkinElmer, Inc. in March 2008. In the interest
of simplicity, the parties will be referred to as “Pediatrix” and
“TeleChem.”

3
officer of Pediatrix wrote to TeleChem to arrange a meeting
with personnel from the two companies. In that letter, Pediatrix
set forth that the parties’ joint efforts might ultimately lead to “a
long-term mutually beneficial relationship[,]” which would
require that “significant effort be made by both parties.”

On February 7, 2000, Pediatrix sent a letter to TeleChem
outlining a two-part proposal. During Phase One, TeleChem
would assist Pediatrix in performing a “small pilot experiment”
using microarray technology and in preparing a grant
application to the National Institutes of Health. Phase Two was
envisioned as a two-year study during which the parties would
develop a microarray screening process for nearly a dozen
genetic disorders. According to Pediatrix’s letter, “[a]ll of these
proposals are achievable in the short term and will lead to long
term commitments and mutual benefits.”

TeleChem responded on March 24, 2000, that it “fully
accept[ed] and embrace[d]” the February 7 proposal “in the
hopes that [TeleChem] will benefit from the residual
commercial uses” arising out of the collaboration. Following
the outline of Pediatrix’s overture, TeleChem agreed that all
grant money would go to Pediatrix and that TeleChem would
forego a $500,000 subcontract. TeleChem further agreed to
devote $1.5 million in like-kind commitments of personnel,
research, use of capital equipment, and supplies and stated that

4
it would build Pediatrix a “clean room”2 if necessary.3
Pediatrix, with the support of TeleChem, secured the grants
from NIH in August 2000 and commenced its research.

At a meeting in October 2000, Pediatrix presented
TeleChem with a proposal for a joint corporation to be named
NGS-ArrayIt and in December 2000, followed up with a
suggested “Pre Incorporation Agreement.” According to the
draft, NGS-ArrayIt would be created to “engag[e] in and
maintain[ ] a business which develops and sells microarray-
based genetic tests for newborn screening and other diagnostic
purposes.” TeleChem would own 67% of the company’s stock;
Pediatrix would possess 33%.

The parties executed the Agreement on April 12, 2001,4
promising to “cause the corporation to be formed . . . within
thirty days.” TeleChem signed the necessary incorporation
papers and returned them to Pediatrix. However, Pediatrix did
not file the documents with the appropriate authorities.
Unaware of the omission, TeleChem continued to work with
Pediatrix while touting NGS-ArrayIt at trade shows and
providing additional promotional publicity.

2
A “clean room” is a sophisticated laboratory facility
designed to provide an area free of contamination.
3
This arrangement was labeled as “Contract One” in the
District Court, and we will adopt that designation.
4
The District Court designated this Agreement as
“Contract Two.” We will adopt that nomenclature.

5
 On June 18, 2001, Pediatrix wrote to TeleChem with
complaints about its performance. After correspondence and
face-to-face meetings failed to resolve their differences,
Pediatrix terminated the Pre Incorporation Agreement on
July 24, 2001. TeleChem responded on August 21, 2001, that
it “decline[d] [Pediatrix’s] request to terminate the Pre-
Incorporation Agreement” and would “continue to operate as
NGS-ArrayIt, Inc. and in the best interests of NGS-ArrayIt,
Inc.”

In the months following this exchange, the parties
discussed future collaborations and the development of a
business plan. TeleChem, with Pediatrix’s encouragement,
continued working on the microarray project. However, on
November 14, 2001, TeleChem gave notice that Pediatrix had
breached Contract Two and demanded specific performance or
return of consideration. Pediatrix filed this suit six days later,
seeking declaratory relief and asserting breaches of Contracts
One and Two.

TeleChem counterclaimed, requesting declaratory and
injunctive relief as well as damages. In particular, TeleChem
asserted a breach of Contract Two, as well as a number of
claims sounding in tort, including fraudulent misrepresentation
and misappropriation of trade secrets. TeleChem did not plead
a breach of Contract One, but averred that Contract Two had
memorialized what it dubbed the “Oral Agreement.” Pursuant
to that understanding, TeleChem was to “provide tools, skills
and expertise . . . thereby enabling [Pediatrix] to qualify for and
benefit from various research grants, while TeleChem would
retain all commercial rights to any product developed.”

6
 Pediatrix moved to dismiss the counterclaims under
Federal Rule of Civil Procedure 12(b)(6), asserting, inter alia,
that TeleChem’s tort counts were barred by Pennsylvania’s
“economic loss doctrine.” Because that concept typically
applied to products liability suits and was “remarkably similar”
to Pennsylvania’s “gist of the action” test,5 the District Court
applied the latter label. Observing that “caution should be
exercised in determining the gist of an action at the motion to
dismiss stage,” the Court declined to dismiss the
misrepresentation and other tort claims.

The “gist of the action” question apparently was not
raised again until a June 7, 2007, pre-trial conference, shortly
before the trial began, when the court requested counsel to
submit points for charge. Addressing TeleChem as to which
claims the jury should receive, the trial judge stated,

“Count 3 is misrepresentation. And then, that
brings to question, are you proceeding in [tort,]6
or are you proceeding in contract? This is the
issue[ ] . . . what’s [the] gist of the action. My
sense is the gist of this action is contract, breach

5
Throughout the litigation, the parties have used “gist of
the action” and “economic loss” interchangeably. “Gist of the
action” is a better fit, and we will use it in this opinion. See
Bohler-Uddeholm Am., Inc. v. Ellwood Group, Inc., 247 F.3d
79, 104 n.11 (3d Cir. 2001).
6
This was misspelled as “court” in the transcript.

7
 of contract. So you’ll need to tell me whether
that’s in or out.”

TeleChem’s counsel requested, and later was granted, an
instruction listing the elements of a misrepresentation tort claim
and a related damages charge.

At the conclusion of lengthy testimony, the case was
submitted on special interrogatories. The jury’s responses set
forth that: (1) there were two contracts at issue; (2) TeleChem
had breached Contract One, for which Pediatrix would receive
only nominal damages; (3) both Pediatrix and TeleChem had
breached Contract Two, resulting in a $1 million award in
liquidated damages for each;7 and (4) Pediatrix was liable for
fraudulent misrepresentation, for which TeleChem was granted
$500,000 in compensatory and $3.5 million in punitive
damages. In addition, the jury nullified the claims for asserted
trade secrets.

After the District Court entered judgment, Pediatrix filed
a motion under Federal Rule of Civil Procedure 59, seeking
“Post Trial Relief and to Amend Judgment With Respect to
Defendant’s Counterclaim.” In that motion, Pediatrix argued
that the evidence of record did not support the misrepresentation
claim, the gist of the action doctrine barred TeleChem from
recovering for misrepresentation, and the punitive damages
award was unwarranted and excessive.

7
For reasons not relevant to this appeal, Pediatrix was
granted an additional $85,000 in accordance with the contract
terms. That award is not before us.

8
 After the parties briefed the issues, the Court conducted
a lengthy oral argument, during which the trial judge found that
“the misrepresentation here was with respect to fraud in the
inducement. There was no separate duty under . . . [Contract
One] that would have required Pediatrix to actually
commercialize the efforts on which they were collaborating.”

The District Court later issued an order denying
Pediatrix’s Rule 59 motion, stating that “the fraudulent
misrepresentation alleged by TeleChem did not concern the
performance of contractual duties.” In addition, the Court held
that Pediatrix could not argue insufficient evidence, having
failed to timely raise the issue. The damages awards were left
undisturbed.

Pediatrix timely appealed, asserting that the District
Court erred in failing to apply the “gist of the action” doctrine,
that the punitive damage verdict was excessive, and that the
recovery for misrepresentation was duplicative of the breach of
contract award. TeleChem contends, inter alia, that Pediatrix
waived its challenge to the misrepresentation claim by failing to
ask for judgment as a matter of law as prescribed by Rule 50 and
disputes that the damages were inappropriate.

I.

The jury’s verdict and parties’ arguments on appeal have
effectively transformed the dispute from an action focusing
primarily on whether Pediatrix had wrongfully appropriated
asserted trade secrets into a judgment for damages in favor of
TeleChem for misrepresentation on the part of Pediatrix. Before

9
we address the merits of Pediatrix’s contention that the gist of
the action doctrine precludes such an award, we must first
consider the propriety of our review.

In Unitherm Food Systems, Inc. v. Swift-Ehrich, Inc.,
546 U.S. 394 (2006), the Supreme Court observed, significantly,
that “the broad grant of authority to the courts of appeals in [28
U.S.C.] § 2106 [to ‘affirm, modify . . . [or] reverse any judgment
. . . brought before it for review’] must be exercised consistent
with the requirements of the Federal Rules of Civil Procedure as
interpreted by this Court.” 546 U.S. at 402 n.4. In wielding our
general statutory power of review, therefore, we are to take due
account of the limitations and restrictions set forth in the Rules
of Civil Procedure. The former practice of appealing directly
from an adverse judgment in a jury trial8 without filing post-trial
motions in the district court has been altered, at least insofar as
the movant requests judgment as a matter of law based on
insufficiency of the evidence.

TeleChem argues that Pediatrix waived its challenges to
the judgment for misrepresentation. Focusing at length on Rule
50 and the law governing the preservation of sufficiency of the
evidence claims, TeleChem asserts that Pediatrix’s failure to file
pre- and post-verdict motions seeking judgment as a matter of

8
See 11 Charles Alan Wright, Arthur R. Miller & Mary
Kay Kane, Federal Practice & Procedure § 2818 (2d ed. 1995)
(“[A] party may assert on appeal any question that has been
properly raised in the trial court. Parties are not required to
make a motion for a new trial challenging the supposed errors
as a prerequisite to appeal”).

10
law under Rule 50 precludes our review of Pediatrix’s
arguments on appeal.

Under Rule 50, a party may move “for judgment as a
matter of law . . . at any time before the case is submitted to the
jury,” and the court may enter judgment if it “finds that a
reasonable jury would not have a legally sufficient evidentiary
basis to find for the party on that issue . . . .” Fed. R. Civ. P.
50(a). If the motion is not granted, it may be renewed “[n]o
later than 10 days after the entry of judgment . . . and may
include an alternative or joint request for a new trial under Rule
59.” Fed. R. Civ. P. 50(b) (2008). The court may, on
consideration of the renewed motion, enter judgment as a matter
of law for the moving party, leave the jury’s original verdict
undisturbed, or order a new trial. Id. If a party seeks a
judgment in its favor based on insufficiency of the evidence, he
must file for judgment as a matter of law both before the case is
submitted to the jury and after a verdict is returned. Unitherm,
546 U.S. at 401-07.

TeleChem contends that Pediatrix’s failure to follow the
dictates of Rule 50 waived any claim challenging the sufficiency
of the evidence. In the circumstances before us,9 the District

9
“Sufficiency of the evidence” is a chameleon-like term
and must be considered carefully and in context. Although
typically invoked in motions for judgment as a matter of law
under Rule 50, a new trial may be granted under Rule 50 or 59
when deletion of erroneously admitted evidence resulted in
insufficient evidence to support a verdict. See, e.g., Weisgram
v. Marley Co., 528 U.S. 440, 451-52, 457 (2000) (reiterating

11
Court properly declined to enter judgment as a matter of law
against TeleChem on that ground. See id. at 405. That
conclusion, however, does not foreclose all post-trial and
appellate relief available to Pediatrix, especially since it does not
now contest the sufficiency of the evidence underlying the
misrepresentation judgment.

Pediatrix filed a post-verdict motion purporting to be in
accordance with Rule 59. The District Court was asked to
“amend” the judgments, and Pediatrix specifically argued not
only that the evidence failed to support the verdict for

holding in Neely v. Martin K. Eby Constr. Co., 386 U.S. 317
(1967), that appellate court may order new trial upon finding of
insufficient evidence).

TeleChem cites Yohannon v. Keene Corp., 924 F.2d
1255 (3d Cir. 1991), as precluding our consideration of
sufficiency of the evidence: “[T]he failure to move for a
directed verdict . . . .[ i]n this circuit, wholly waives the right to
mount any post-trial attack on the sufficiency of the evidence.”
Id. at 1262. We doubt that Yohannon’s broad, total foreclosure,
set forth in dicta, limits Rule 59 relief. See Weisgram, supra,
528 U.S. 440; see also Greenleaf v. Garlock, Inc., 174 F.3d 352,
365 (3d Cir. 1999) (party may seek new trial under Rule 59 on
“weight of the evidence” notwithstanding failure to move for
judgment as a matter of law pursuant to Rule 50). We need not
resolve the issue, however, because Pediatrix does not now
contest that there was evidence to support the jury’s finding of
deceit, but asserts that tort recovery was barred by the gist of the
action, a legal defense.

12
misrepresentation, but also that the judgment for
misrepresentation should be “stricken” as legally barred by the
gist of the action doctrine.

Neither Rule 50 nor 59 contain the term “stricken.” Rule
59, however, permits the court, on the motion of a party or sua
sponte, to grant a new trial “for any reason for which a new trial
has heretofore been granted in an action at law in federal court.”
Fed. R. Civ. P. 59(a)(1)(A). Under the Rule, a party may also
move to alter or amend a judgment. Fed. R. Civ. P. 59(e). A
Rule 59 “motion to alter or amend judgment m[ay] rely on . . .
the need to correct clear error [of law] or prevent manifest
injustice.” North River Ins. Co v. CIGNA Reinsurance Co., 52
F.3d 1194, 1218 (3d Cir. 1995) (second alteration in original)
(quotation marks and citation omitted).

Unlike Rule 50, the text of Rule 59 does not require any
pre-verdict motions. Further, although Unitherm stated that “a
party is not entitled to pursue a new trial on appeal unless that
party makes an appropriate postverdict motion in the district
court,” 546 U.S. at 404, that case addressed an insufficient
evidence challenge under Rule 50, and the Court specifically
noted the absence of a Rule 59 motion. Id. at 398. Courts of
appeals that have examined the issue generally have concluded
that Unitherm’s holding is limited to Rule 50 and insufficiency
of the evidence. They do not, with one exception, preclude the
ability to review relief under Rule 59.10

10
See, e.g., Van Alstyne v. Elec. Scriptorium, Ltd., 560
F.3d 199, 203 n.3 (4th Cir. 2009) (Unitherm inapplicable where
defendants do not challenge sufficiency of the evidence); Bryant

13
 TeleChem also observes that Pediatrix “did not challenge
the fraud claim at any point during the trial” by objecting to its
submission to the jury or requesting any “gist of the action”
instruction. Those arguments miss the mark. The issue here is
whether the misrepresentation claim, even if supported by
sufficient evidence, is nevertheless precluded by the gist of the
action doctrine.

That legal dispute is clearly set forth in Pediatrix’s Rule
12(b)(6) motion, filed early in the litigation, to dismiss the tort
counterclaims. The denial of that motion was not appealable
until the District Court entered its final judgment. “[T]he
general rule [is] that on appeal from a final judgment, all
previously unappealable orders merge in the judgment and are
subject to review.” 15A Charles Alan Wright, Arthur R. Miller
& Edward H. Cooper, Federal Practice & Procedure § 3901.1,
at 9 (2d ed. 1992). That includes rulings under Rule 12(b)(6).
See Murray v. Commercial Union Ins. Co., 782 F.2d 432, 434-

v. Dollar Gen. Corp., 538 F.3d 394, 398 n.2 (5th Cir. 2008)
(Unitherm only addresses pre-verdict motions based upon the
sufficiency of the evidence) (dicta); Fuesting v. Zimmer, Inc.,
448 F.3d 936, 939 (7th Cir. 2006) (limiting Unitherm to “the
situation of a litigant seeking a new trial on the basis of the
insufficiency of the evidence”). But see Hi Ltd. P’ship v.
Winghouse of Fla., Inc., 451 F.3d 1300, 1302 (11th Cir. 2006)
(court had “no authority to consider” appeal where party failed
to file post-verdict motions). See generally Steven Alan
Childress, Revolving Trapdoors: Preserving Sufficiency Review
of the Civil Jury After Unitherm & Amended Rule 50, 26 Rev.
Litig. 239 (2007) (discussing implications of Unitherm).

14
35 (3d Cir. 1986) (grant of Rule 12(b)(6) motion appealable
after final judgment entered); see also Pennbarr Corp. v. Ins. Co.
of N. Am., 976 F.2d 145, 149 (3d Cir. 1992) (denial of summary
judgment appealable after adverse verdict).

TeleChem was not ambushed by Pediatrix’s post-trial
argument concerning gist of the action, nor confronted by the
reanimation of a lifeless corpse. The district judge specifically
inquired at a pretrial conference whether the alleged
misrepresentation was a breach of contract or a tort. TeleChem
elected to treat the claim as a tort and was on fair notice that the
gist of the action defense was still pending at that point. The
legal issue was neither withdrawn nor transformed into a factual
issue to be resolved by the jury.

As Judge Becker colorfully expressed in a similar
circumstance, “[i]t would be unfair to . . . penalize [a party] for
failing to jump up and down or labor an objection that the
District Court had placed in the record.” Bohler-Uddeholm
Am., Inc. v. Ellwood Group, 247 F.3d 79, 109 (3d Cir. 2001).
Nor would we require such calisthenics from Pediatrix when its
objection had already been preserved for appeal.

The Rule 59 motion filed by Pediatrix was fully briefed
by both parties and supplemented by the extensive oral
argument in the District Court. Counsel explored such matters
as the gist of the action, the contract as to which the
misrepresentation occurred, whether the misrepresentation
amounted to fraud in the inducement, what the evidence at trial
had demonstrated, and whether either party had waived its
contentions. In short, the parties presented a complete review of

15
the case, aided by the active and thoughtful participation of the
district judge.

The Supreme Court advised courts of appeals to avail
themselves of the benefit derived from a district court’s post-
verdict proceedings. See Unitherm, 546 U.S. at 401 & n.3.
Given the length and breadth of the District Court’s examination
of the issues and the opportunities extended to both parties to
present their arguments, we are satisfied that Pediatrix’s gist of
the action challenge was fully aired in the District Court and
preserved for appellate review.

II.

The principal issue on the merits is whether the Court
erred in its disposition of the gist of the action question.
Although that legal issue is tied to factual matters, Pediatrix
does not now contest the sufficiency of the evidence as to
commission of the misrepresentation but the legal ruling
allowing tort recovery for conduct that arguably was a breach of
contract.

Sounding in diversity jurisdiction, the misrepresentation
claim and the gist of the action defense are governed by the
substantive law of Pennsylvania. Although its Supreme Court
has not expressly adopted the gist of the action doctrine, it
recognized decades ago the difficulties inherent in allowing a
party to proceed with both tort and contract claims for harm that
arose in connection with a contractual relationship. See Glazer
v. Chandler, 200 A.2d 416, 418 (Pa. 1964) (“[t]o permit a
promisee to sue his promissor in tort for breaches of contract

16
inter se would erode the usual rules of contractual recovery and
inject confusion into our wellsettled forms of actions”). Such
complications as statutes of limitations, damages, and standards
of proof come to mind as differences that have long been
established. Blurring the bright line between tort and contract
could diminish confidence in the value of the negotiated
instrument and deter private parties from entering into contracts.

The Pennsylvania Superior Court has “operated under the
assumption that the gist of the action doctrine is a viable
doctrine that will eventually be explicitly adopted by [the]
state’s High Court.” Reardon v. Allegheny Coll., 926 A.2d 477,
486 (Pa. Super. Ct. 2007). We have embraced that view as well.
Bohler-Uddeholm, 247 F.3d at 103-04.

The gist of the action “doctrine is designed to maintain
the conceptual distinction between breach of contract claims and
tort claims. As a practical matter, the doctrine precludes
plaintiffs from re-casting ordinary breach of contract claims into
tort claims.” eToll, Inc. v. Elias/Savon Adver., Inc., 811 A.2d
10, 14 (Pa. Super. Ct. 2002) (citation omitted). In some
circumstances, “it is possible that a breach of contract also gives
rise to an actionable tort[.] To be construed as in tort, however,
the wrong ascribed to defendant must be the gist of the action,
the contract being collateral.” Id. (alteration in original)
(quoting Bash v. Bell Tel. Co., 601 A.2d 825, 829 (Pa. Super.
Ct. 1992)). That the misconduct was fraudulent does not bar
application of the gist of the action principle. Werwinski v.
Ford Motor Co., 286 F.3d 661, 681 (3d Cir. 2002).

17
 The Superior Court has held that fraud claims should be
barred where they arose during the course of the parties’
contractual relationship; where the allegedly fraudulent acts also
were breaches of duties “created and grounded in the . . .
contract[;]” and where the damages “would be compensable in
an ordinary contract action[ and] thus, the claim would
essentially duplicate a breach of contract action.” eToll, Inc.,
811 A.2d at 20-21. Where fraud claims are “inextricably
intertwined” with the contract claims, the gist of the action is
contractual, and the fraud claim should be dismissed. Id. at 21.

The test has been discussed in other cases as well,
including Hart v. Arnold, 884 A.2d 316, 341 (Pa. Super. Ct.
2005) (dismissing fraud-in-the-performance claim because it
“essentially duplicate[d] . . . breach of contract claim and [its]
success . . . [wa]s wholly dependent on the terms of a contract”),
and Pittsburgh Construction Co. v. Griffith, 834 A.2d 572, 584
(Pa. Super. Ct. 2003) (vacating award for conversion on gist of
the action grounds where “tort and breach of contract claims
[were] inextricably intertwined, the success of the conversion
claim depending entirely on the obligations as defined by the
contract”). Compare Sullivan v. Chartwell Inv. Partners, LP,
873 A.2d 710, 719 (Pa. Super. Ct. 2005) (separate fraud claim
not barred when defendant “fraudulently . . . agreed to perform
obligations that it never intended to perform in order to induce”
plaintiff into entering into contract).

To determine whether the gist of the action applies to this
case, we begin by examining the “misrepresentation” that
TeleChem alleges. The record on this point, however, is vague
and unsettled.

18
 TeleChem’s requested instruction on misrepresentation
was delivered to the jury unchanged. It read: “TeleChem alleges
that Pediatrix fraudulently misrepresented that TeleChem would
benefit commercially from a grant collaboration.” However, in
closing remarks to the jury, TeleChem argued,

“We believe that the evidence shows that
Pediatrix intentionally deceived TeleChem into
collaborating with it on the grant work for single
patient [array] initially in return for commercial
benefit, and also for entering into the agreement
in the joint venture giving its multi-patient
microarray technology to that joint venture under
license for the expectation to get commercial
benefit.”

In its answering brief on the Rule 59 motion, TeleChem’s
characterization of the misrepresentation was, once again, more
limited. There, TeleChem asserted that Pediatrix
“misrepresented” its “commit[ment] to commercializing the
grant research and that TeleChem could receive all of the
commercial benefit resulting from the grant work.” But, during
oral argument on the motion, TeleChem appears to have asserted
that the misrepresentation was not about the benefits of
commercialization. Counsel described the deceit as Pediatrix’s
representation that the technology

“would be commercialized, not that [TeleChem]
would get the benefit from the commercialization,
but that the microarray technology would be
commercialized. That’s the fundamental

19
 misrepresentation throughout, frankly, the whole
case, throughout the whole relationship between
the parties . . . . It began first with the single
patient microarray technology that was the subject
matter of the grant collaboration [Contract One].”

Finally, in its brief on appeal, TeleChem states that the

“fraud did not concern the performance of the
contracts between the parties, but rather its
inducement of TeleChem to enter into a
relationship in the first place. The evidence
showed that Pediatrix represented that it intended
to enter into a long-term profitable business
relationship with TeleChem and that these
representations – both at the outset of the
relationship and throughout the parties’ dealings
– induced TeleChem to enter into the relationship
. . . .”

There is a difference, then, between the misrepresentation
submitted to the jury and the deceit espoused post-verdict by
TeleChem.

The District Court noted the jury’s finding that “there
was a fraudulent misrepresentation . . . . related to the grant
collaboration [Contract One]. That’s clearly what is set forth in
the final charge.” Moreover, the Court pointed out during
argument,

20
 “What is Contract No. 1 is what I was trying to
pin down[?] . . . If . . . [TeleChem] could then
later go and have the use of the commercialization
for it, that’s one thing. But if it’s a
misrepresentation so that [TeleChem] would turn
over these things and forego the $5 million that
they could have received otherwise, that’s a
different misrepresentation.”

Ultimately, the Court concluded that “the
misrepresentation here was with respect to fraud in the
inducement. There was no separate duty under the oral contract
relating to the grant collaboration [Contract One] that would
have required Pediatrix to actually commercialize the efforts on
which they were collaborating.” Those findings, however, do
not resolve the gist of the action issue. That test, as its name
suggests, requires the court to focus on the substance of the
dispute, or, more colloquially, to ask the question, “What’s this
case really about?” The doctrine deals less with specific
enumerated “duties” than with the parties’ conduct as it relates
to the contract and the tort alleged. See eToll, 811 A.2d at 21
(where “fraud claims [were] inextricably intertwined with the
contract claims[,]” gist of the action was in contract).

There remains for consideration, then, whether the fraud
in the inducement was collateral to Contract One and, moreover,
whether the parties ever incorporated the misrepresentation into
the terms of either contract. Also uncertain is whether the
misrepresentation was inextricably intertwined with the parties’
actions in carrying out the collaboration efforts. As in Bohler-
Uddeholm, we cannot determine whether the judgment on the

21
misrepresentation was “properly grounded on actions outside the
scope of the [a]greement.” 247 F.3d at 107. There is simply too
much uncertainty surrounding the “misrepresentation” on this
record to determine whether the gist of the action was in tort or
contract.

We recognize that counsel and the district judge faced
less than ideal conditions throughout the litigation. Both parties
obtained new counsel on several occasions, and the trial was
conducted by the third judge in a series of necessary, though
unfortunate, reassignments.

The record illustrates that the main focus of the complex
litigation was the alleged misappropriation of trade secrets and
the breaches of Contract Two. The jury was asked to answer 59
interrogatories, including subparts on such technical questions
as whether “any of the following is a trade secret[:] . . . .
Oligonucleotide designs with melting temperatures falling
within a narrow window for multi-patient genotyping.” It is not
unexpected that even with the efforts of all concerned, too many
loose ends and unanswered questions remain to resolve the gist
of the action issue.

The district judge, at the conclusion of argument on
Pediatrix’s Rule 59 motion, remarked, “If it [gist of the action]
hasn’t been waived, I think it’s a ground for a new trial and the
case should be remanded.” Finding no waiver, we will direct
the grant of a new trial limited to the counterclaim for
misrepresentation. We decline to rule on the compensatory and
punitive damages issues at this stage because they may become

22
moot or otherwise affected by additional factual circumstances
brought to light on remand.

23
Pediatrix Screening, Inc. v. Telechem, No. 08-1391
JORDAN, Circuit Judge, dissenting.

Because I believe that the gist of the action argument
raised by Pediatrix is effectively a challenge to the sufficiency
of the evidence supporting the jury verdict, I necessarily
conclude that Pediatrix has waived that challenge by failing to
move for judgment as a matter of law pursuant to Federal Rule
of Civil Procedure 50. Accordingly, I respectfully dissent on the
issue of waiver.

As the majority correctly points out, a party on appeal
may not mount an attack on the sufficiency of the evidence if
that party has failed to file a motion for judgment as a matter of
law pursuant to Rule 50(a) before the case is submitted to the
jury, and pursuant to Rule 50(b) after the verdict. See Unitherm
Food Sys., Inc. v. Swift-Eckrich, Inc., 546 U.S. 394, 407 (2006)
(“[W]e hold that since respondent failed to renew its preverdict
motion as specified in Rule 50(b), there was no basis for review
of respondent’s sufficiency of the evidence challenge in the
Court of Appeals.”); Yohannon v. Keene Corp., 924 F.2d 1255,
1262 (3d Cir. 1991) (“In this Circuit, [failure to move for
judgment as a matter of law at the close of all the evidence]
wholly waives the right to mount any post-trial attack on the
sufficiency of the evidence.”). The Supreme Court in Unitherm
made it particularly clear that an appellate court may not
entertain an argument about the sufficiency of the evidence if
the party seeking relief has not previously filed a Rule 50
motion in District Court. 546 U.S. at 403-04.

The majority suggests that the gist of the action argument
has not been waived in this case because Pediatrix raises a legal
defense as opposed to a factual issue. However, a Rule 50
motion may very well be required when a legal question
depends on the resolution of factual issues, such that the legal
question cannot be resolved without reference to the evidence
amassed at trial. Cf. Chemetall GMBH v. ZR Energy, Inc., 320
F.3d 714, 720 (7th Cir. 2003) (“[I]f the legal question can be
separated from the factual one, then we see no bar to reviewing
the legal question notwithstanding the party’s failure to raise it
in a motion for judgment as a matter of law at trial.”); United
Techs. Corp. v. Chromalloy Gas Turbine Corp., 189 F.3d 1338
(Fed. Cir. 1999) (“A denial of a motion for summary judgment
may be appealed, even after a final judgment at trial, if the
motion involved a purely legal question and the factual disputes
resolved at trial do not affect the resolution of that legal
question.”). Although the gist of the action question is a legal
one, see eToll, Inc. v. Elias/Savion Advertising, Inc., 811 A.2d
10, 15 (Pa. Super. Ct. 2002) (“The question of whether the gist
of the action doctrine applies is an issue of law ... .), it often
requires a fact-intensive analysis as to the true nature of a claim,
as is the case here, see Baker v. Family Credit Counseling
Corp., 440 F. Supp. 2d 392, 418 (E.D. Pa. 2006)
(acknowledging that “whether tort and contract claims are
separate and distinct can be a factually intensive inquiry”
(quotations omitted)).

Pediatrix’s gist of the action challenge appears to me to
be nothing more than a tardy Rule 50 motion dressed up in Rule
59 garb.1 Instead of a discussion of legal distinctions between

1
Calling its late effort a “motion for post trial relief to
amend judgment with respect to [TeleChem’s] counterclaims,”
Pediatrix argued to the District Court that the judgment on the

2
contract and tort claims, Pediatrix’s argument deals repeatedly
and at length with how the evidence at trial failed to establish
any tort liability, focusing on the trial testimony of TeleChem’s
representatives, the expert testimony on damages, and
documents admitted into evidence at trial. (E.g., Appellants’
Op. Br. at 30 (“[TeleChem] presented no evidence to support
any alleged misrepresentation outside of [the parties’]
contracts.”); id. at 33 (“TeleChem’s own documents and
testimony showed that the grant work arrangement also
promised that it would receive the commercial benefit of any
technology resulting from Pediatrix’s research.”); id. at 35
(“TeleChem’s evidence, therefore, was that both contracts
promised TeleChem that it would receive commercial benefit
from the technology. Its misrepresentation claim was based on
precisely the same promise.”).)

Accordingly, it seems that Pediatrix is really saying that
it is entitled to judgment in its favor on TeleChem’s fraudulent
misrepresentation counterclaim because there was insufficient
evidence at trial to establish any fraud independent of the
parties’ contractual relationship. That is an argument that could
have, and should have, been raised at trial. Because it was not,
it has been waived. See Yohannon, 924 F.2d at 1262 (failure to
move for judgment as a matter of law waives any attack on the
sufficiency of the evidence). This is not a hypertechnical

misrepresentation counterclaim “must be stricken” because “the
misrepresentation counterclaim is incorporated into [the]
contract counterclaim ... .” (App. at 1010a.) Likewise, on
appeal, Pediatrix argues that the judgment cannot stand because
it is barred by the gist of the action.

3
application of the rules of procedure. It is a recognition that
what Pediatrix is actually complaining of has less to do with
what cause of action rightly fits the facts and more to do with
what the facts are at all. Pediatrix cannot circumvent its
obligation to file a Rule 50 motion by styling its post-trial
motion as a motion to amend the judgment or otherwise seeking
to “strike” the judgment, when what it really argues for is
judgment as a matter of law due to insufficient evidence.2

Given my views on this point, were I writing for the
court, I would address Pediatrix’s other challenges to the jury

2
Even leaving the Rule 50 issue to the side, I am not
convinced that Pediatrix adequately preserved its defense. The
majority has rightly noted that Pediatrix raised the gist of the
action doctrine in a Rule 12(b)(6) motion (Pediatrix actually
moved to dismiss pursuant to the economic loss doctrine, but I
agree with the majority that the gist of the action doctrine may
better characterize the argument) and that the District Court sua
sponte raised the defense at a conference about three weeks
prior to trial. However, Pediatrix’s silence in the face of
TeleChem’s requested jury instruction on the elements of
misrepresentation might alone be sufficient to waive the gist of
the action defense, regardless of the Court’s sua sponte
identification of the issue shortly before trial. In fact, contrary
to the majority’s suggestion that we would be requiring
“calisthenics” from Pediatrix by insisting on some indication
that it still sought to pursue that defense (Majority Op. at 19),
the District Court’s inquiry about the gist of the action indicated
that the defense was still viable if Pediatrix simply did
something, practically anything, to pursue it.

4
verdict, namely, whether the damages on TeleChem’s
misrepresentation counterclaim are duplicative of the damages
TeleChem received on its contract counterclaim and whether the
punitive damages award is excessive and hence in violation of
due process. However, in light of the majority’s disposition of
the appeal, there is no need to address those issues, and I write
solely to state my view that Pediatrix failed to preserve the gist
of the action defense it raises now.

5