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