Fourth Circuit applies “gist of the action doctrine,” avoids slippery slope of Rule 15
A century ago, pleading causes of action presented many traps for the unwary; entire cases could collapse over minor imperfections or pleading errors. Such rigid formalism ended in 1938 with enactment of the modern Federal Rules of Civil Procedure. Specifically, Rules 8 and 15 provide much more liberal standards for pleading and amending causes of action, even allowing some plaintiffs to amend their complaints after their trials have ended. But, as the Fourth Circuit recently reminded practitioners in Dan Ryan Builders, Inc. v. Crystal Ridge Development, Inc., No. 13-2234, — F.3d —-, (4th Cir. April 20, 2015), Rule 15’s capacity to accommodate pleading errors has its limits.
The Dan Ryan case arose out of problems with the construction of a 143-lot West Virginia housing development, “Crystal Ridge Development.” Id. at 3. The land developer, Lang Brothers Inc. (“Lang Brothers”), entered into a slew of contracts with the builder, Dan Ryan Builders (“Dan Ryan”), addressing various tasks associated with the development’s infrastructure. Id. Under certain contracts, the “fill slope contracts,” Lang Brothers agreed to grade certain lots to allow the home builders to pour stable foundations. But Lang Brothers botched the job. The slopes were poorly graded, and several homes’ foundations cracked in the next few years as an entire slope slowly slid towards an adjacent highway. Id. at 4-5. (Since law school, I’ve secretly hoped to write about a case with an actual, non-metaphorical slippery slope; alas, it has arrived.)
Dan Ryan sued Lang Brothers alleging contractual breaches of the Lot Purchase Agreement and its amendments and separate negligence claims related to the poor performance of the fill-slope contracts. Id. at 5. After a five-day bench trial, the court found Lang Brothers liable for some contract breaches but not liable in tort for negligent performance of any contracts. Id. at 3. In finding no actionable negligence, the district court applied West Virginia’s “gist of the action” doctrine, “which bars recovery in tort when the duty that forms the basis of the asserted tort claim arises solely from a contractual relationship.” Id. at 6.
The Fourth Circuit affirmed, explaining that the “requirement — that a tort claim must rest on a non-contractual duty — is hornbook law in most jurisdictions, even if they do not employ the ‘gist of the action’ nomenclature.” Id. at 11 n.6. Although Dan Ryan presented sufficient evidence to prove that Lang Brothers did not perform the fill-slope contracts as it had agreed to do, Dan Ryan did not allege a breach of the fill-slope contract in its original or amended complaint. Id. at 14. Dan Ryan did not even mention a purported breach of the fill slope contract in its pretrial listing of contested issues of fact and law, nor in its 78-page post-trial proposed findings of fact and conclusions of law. Id. Dan Ryan was barred on appeal from seeking “damages under contract claims never alleged nor even asserted before the district court.” Id. at 14.
Presumably shocked to learn that its improper pleading precluded recovery on what appeared to be a meritorious, but unpled, breach-of-contract claim, Dan Ryan invoked Rule 15’s liberal standard for amending pleadings before, during, or even after trial. Id. But the Fourth Circuit explained that, despite the rule’s liberal standard and preference for resolving cases on the merits, “Rule 15(b)(2) does not offer a failsafe for any and every faulty pleading.” Id. Instead, “Rule 15(b) applies only when the defendant has consented to trial of the non-pled factual issues and will not be prejudiced by amendment of the pleadings to include them.” Id. at 15.
Because the evidence presented in support of the unpled contract claim was also “germane” to the negligence claim that was pled, the Fourth Circuit rejected the argument Lang Brothers had implicitly consented to trial of the breach of the fill slope contracts. Id. at 18. The Court reminded Dan Ryan – and all other Fourth Circuit practitioners – that it “is not the responsibility of a trial court to wade through ambiguously or incorrectly labeled allegations in pursuit of any potential basis of awarding relief.” Id. at 21. Rather, “parties must be vigilant not to lose sight of the necessity of pleading and proving all of the elements of each cause of action.” Id.
In handing down its ruling, the Fourth Circuit appropriately considered the effect its case-specific ruling would have on future cases. Although Judge Gregory’s partial concurrence and dissent made a compelling case for why, given the facts of the Dan Ryan case, id. at 23-27, post-trial amendment of the claims should be allowed, the panel majority opinion explained why it would not let this hard case make bad law: “These are the only fair standards, for without them litigants and courts alike would be unable to ever adequately prepare for trial. Parties would be forced to defend against shadow claims, and trial courts would be forced to search, as for a needle in a haystack, for unpled causes of action purportedly hiding in the parties’ submissions.” Id.
Allowing post-trial amendment to find liability for breach of a contract that was never part of a breach-of-contract claim would have put the Fourth Circuit on a dangerous, metaphorical slippery slope. One can imagine the challenges that judges would face when asked to permit post-trial amendments of pleadings to allow the facts disputed at trial to be applied to an entirely new cause of action that never appeared in the complaint. Defendants would be apoplectic trying to defend their clients from actually pled claims while also scouring the transcripts and evidence every night at trial trying to anticipate what other claims the evidence adduced at trial might support. Although the age of rigid formalism is properly behind us, the onus properly remains on plaintiffs to clearly state what causes of action they are pursuing.