Dansko Holdings Inc v. Benefit Trust Co ( 2021 )

PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
_______________
Nos. 19-3847 & 19-3892
_______________
DANSKO HOLDINGS, INC.,
Appellant in No. 19-3892
v.
BENEFIT TRUST CO.,
Appellant in No. 19-3847
_______________
On Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D.C. No. 2-16-cv-00324)
District Judge: Hon. Jan E. DuBois
_______________
Argued: November 16, 2020
Before: AMBRO, BIBAS, and ROTH, Circuit Judges
(Filed: March 16, 2021)
_______________
Richard N. Bien [ARGUED]
J. Bradley Leitch
Lathrop GPM
2345 Grand Boulevard, Suite 2200
Kansas City, MO 64108
Joshua Bachrach
Wilson Elser Moskowitz Edelman & Dicker LLP
2001 Market Street,
Two Commerce Square, Suite 3100
Philadelphia, PA 19103
Counsel for Appellant in No. 19-3847
Robert W. Hayes [ARGUED]
Cozen O’Connor
1650 Market Street, Suite 2800
Philadelphia, PA 19103
Counsel for Appellee in No. 19-3847
_______________
OPINION OF THE COURT
_______________
BIBAS, Circuit Judge.
A shoe company hired a trust company as trustee for its
employees’ stock ownership plan. After that, the trustee hinted
that it would help the shoemaker refinance its debt, but then
backed out of that deal. The shoemaker sued the trustee. The
trustee counterclaimed for the cost of defending the suit. On
2
summary judgment, the District Court rejected both parties’
claims.
We will vacate and remand. The court erred in rejecting the
shoe company’s contract, estoppel, and fraud claims. But under
the trust agreement, the shoe company must advance the trus-
tee’s reasonable litigation expenses.
I. BACKGROUND
A. Dansko and Benefit’s falling out
Dansko Holdings, a maker of shoes, offers its employees a
stock ownership plan. In 2011, it hired Reliance Trust Com-
pany as the plan’s trustee. Dansko and Reliance signed a trust
agreement.
In 2014, Dansko considered replacing Reliance with Bene-
fit Trust Company. During its due diligence, it asked Benefit
whether it had recently been investigated by the Department of
Labor. Benefit had been, but falsely denied it.
Dansko hired Benefit. In June 2014, Dansko’s board passed
a resolution “appoint[ing]” Benefit as the new trustee. App.
396–97. The resolution added that Benefit would be “substi-
tuted for Reliance Trust Company in the Trust Agreement.”
App. 396. About two weeks later, Benefit “accepted its ap-
pointment.” App. 399.
Around that time, Dansko decided to refinance its debt. It
needed a trustee’s help with that and raised the issue a few
times with Benefit over the next six months. Benefit never
agreed in writing to do this work. But it allegedly said it would
3
“be able to do the [deal]” and estimated that it would need a
month or more to do due diligence for the trust. App. 2 (em-
phasis added). So Dansko thought Benefit would be the trustee
for the deal.
But Benefit backed out. In December 2014, it told Dansko
that it would not serve as trustee for the debt deal. That caught
Dansko off guard and delayed the deal. The delay allegedly
cost Dansko more than $2 million in extra interest.
B. District court proceedings
Dansko sued Benefit, making three claims relevant here:
First, Benefit breached the trust agreement, which required it
to help with the deal. Second, when Benefit hinted that it would
help with the deal, it made an implied promise that is now en-
forceable by promissory estoppel. And third, Benefit fraudu-
lently induced Dansko to hire it by falsely denying the Depart-
ment of Labor’s investigation. Benefit counterclaimed for its
defense costs under an indemnification clause in the trust
agreement.
After discovery, the District Court granted summary judg-
ment. It rejected Dansko’s claims but held that Dansko did not
have to indemnify Benefit for its defense costs. Dansko Hold-
ings, Inc. v. Benefit Trust Co., 418 F. Supp. 3d 100, 105–12
(E.D. Pa. 2019).
Both sides now appeal. As the parties agree, Pennsylvania
law governs this case. Sitting in diversity, we must predict how
the Supreme Court of Pennsylvania would resolve each issue.
4
II. DANSKO’S CONTRACT CLAIM SURVIVES
First, Dansko claims that Benefit must help with the debt
deal under the trust agreement. The District Court thought that
Dansko had waived this claim in its summary-judgment brief.
But we read its brief as preserving that claim. Alternatively,
Benefit asks us to hold the claim barred by federal and Penn-
sylvania law. But those arguments fail too.
A. Dansko did not waive its contract claim
Throughout this case, Dansko has pressed its contract
claim. It first raised this claim in its complaint, alleging that
Benefit both “breached the express terms of the Trust Agree-
ment” and “breached the implied duty of good faith and fair
dealing.” App. 46–47. Dansko repeated the second contract
theory in its summary-judgment brief, narrowing its position
by pressing “only . . . its claim for breach of the duty of good
faith and fair dealing.” Supp. App. 47. It claimed that although
the contract did not expressly address Benefit’s obligation to
help with a refinancing, that duty came within the contract’s
broad purpose.
The District Court thought that by pressing “only” the
good-faith theory, “Dansko withdrew its breach of contract
claim.” 418 F. Supp. 3d at 106. We disagree. Dansko’s good-
faith theory was not an alternative to the contract claim, but a
version of the claim. Under Pennsylvania law, a good-faith
claim is a type of contract claim. Burton v. Teleflex Inc., 707
F.3d 417, 432 (3d Cir. 2013). By relying “only” on a good-faith
theory for its contract claim, Dansko abandoned its first theory
5
that Benefit had breached the agreement’s express terms. It did
not abandon the contract claim entirely.
B. Dansko’s claim is not barred by federal or
Pennsylvania law
Benefit says that even if Dansko did not waive the contract
claim, we can affirm its rejection under ERISA or Pennsylva-
nia trust law. We disagree.
1. Federal law. Benefit argues that ERISA preempts this
suit. Employee Retirement Income Security Act of 1974, 29
U.S.C. ch. 18 (ERISA). We disagree. ERISA does preempt
some state-law claims, but only those that are “challenge[s] to
the actual administration of [an employee benefit] plan.” Nat’l
Sec. Sys., Inc. v. Iola, 700 F.3d 65, 85 (3d Cir. 2012). It does
not preempt “run-of-the-mill state law claims” that just happen
to “affect[ ] and involv[e] ERISA plans and their trustees.”
Mackey v. Lanier Collection Agency & Serv., Inc., 486 U.S.
825, 833 (1988).
Dansko’s contract claim happens to involve an ERISA
plan. But its claim is “quite remote from the areas with which
ERISA is expressly concerned—reporting, disclosure, fiduci-
ary responsibility, and the like.” Iola, 700 F.3d at 85 (internal
quotation marks omitted). It is thus not preempted.
2. Pennsylvania law. Benefit adds that Dansko cannot sue
for breach of trust. In Pennsylvania, a breach of trust is “[a]
violation by a trustee of a duty the trustee owes to a benefi-
ciary.” 20 Pa. C.S.A. § 7781(a) (emphasis added). Dansko is
not a beneficiary of the trust; only its employees are. But
Dansko did not sue for breach of trust. It sued Benefit not on
6
behalf of its employees, but for itself. So Benefit’s argument is
off base.
Finally, Benefit says that it never breached the contract. But
because the District Court thought Dansko had waived the con-
tract claim, it never addressed this issue. We will let the District
Court consider Benefit’s remaining arguments on remand.
III. DANSKO’S ESTOPPEL CLAIM SURVIVES
Next, Dansko claims promissory estoppel. It alleges that
along with whatever promises Benefit made in the trust agree-
ment, it also promised to serve as trustee for the debt deal. Even
though Benefit never put the promise in a formal contract,
Dansko says, it is enforceable by estoppel.
The District Court thought that the estoppel claim was
barred because Dansko and Benefit did have a formal contract:
the trust agreement. We disagree. True, a party cannot bring an
estoppel claim when a contract claim could cover the same
ground. But here, the estoppel claim is about a promise that
Benefit made years after it signed the agreement. Thus, though
Dansko cannot recover on both its contract and promissory es-
toppel claims because they allege the same injury, it can still
bring both claims for now.
Benefit asks us to affirm on two other grounds, arguing that
estoppel cannot enforce implied or oral promises. Both these
arguments are mistaken too.
7
A. The estoppel claim is not barred by the trust
agreement
A party may not use estoppel to enforce a contractual prom-
ise. After all, estoppel is only a contract “substitute” for when
“the formal requirements of contract formation have not been
satisfied.” Carlson v. Arnot-Ogden Mem’l Hosp., 918 F.2d
411, 416 (3d Cir. 1990) (internal quotation marks omitted). But
Dansko is not trying to use estoppel to enforce the words of the
trust agreement. Instead, it relies on statements Benefit alleg-
edly made after signing the agreement. Compare App. 46
(Complaint) (pleading that Benefit agreed to serve as trustee
on June 18, 2014), with id. at 48 (alleging estoppel based on
statements made over the next six months). So the estoppel
claim is proper.
B. The estoppel claim need not rely on an express
promise
In the alternative, Benefit argues that it never expressly
promised to help with the deal. In Pennsylvania, it argues, es-
toppel applies only to express promises.
Though the Supreme Court of Pennsylvania has never ad-
dressed this issue, we doubt it would agree. First, “Pennsylva-
nia has adopted the Restatement view of promissory estoppel.”
Edwards v. Wyatt, 335 F.3d 261, 277 (3d Cir. 2003); see Kreut-
zer v. Monterey Cty. Herald Co., 747 A.2d 358, 361 (Pa. 2000).
And one of the Restatement’s examples of estoppel involves
an “implied promise.” Restatement (Second) of Contracts § 90
illus. 3. Plus, in dicta, many lower Pennsylvania courts have
said that “[m]isleading words, conduct, or silence” can amount
8
to a “promise” that will support promissory estoppel. Penn-
Aire Aviation, Inc. v. Adapt Appalachia, LLC, No. 565 WDA
2016, 2017 WL 3169280, at *5 (Pa. Super. Ct. July 26, 2017)
(citing Novelty Knitting Mills, Inc. v. Siskind, 457 A.2d 502,
503 (Pa. 1983)); accord Lehigh Valley Hosp. v. Cty. of Mont-
gomery, 768 A.2d 1197, 1200 (Pa. Commw. Ct. 2001); Thomas
v. E.B. Jermyn Lodge No. 2, 693 A.2d 974, 977 (Pa. Super. Ct.
1997).
What is more, at oral argument Benefit’s lawyer admitted
that he could not point to any Pennsylvania estoppel case that
required a promise to be express. So we see no evidence that
Pennsylvania courts limit estoppel to express promises.
True, Benefit does cite one of our cases, but it overreads
that case. C & K Petroleum Prods., Inc. v. Equibank, 839 F.2d
188 (3d Cir. 1988). In C & K, we upheld dismissal of an estop-
pel claim because “there [was] no express promise by [the de-
fendant] that could justifiably be relied upon.” Id. at 192. Ben-
efit reads C & K as requiring an express promise. But the case
is not so broad. There, we upheld the dismissal because it
rested on “such a broad and vague implied promise.” Id. In
other words, that promise was too indefinite. We did not hold
that an implied promise could never be narrow and specific
enough. We think that one could be. On remand, the District
Court may consider if the promise here was concrete enough
to support an estoppel claim.
9
C. The estoppel claim need not rely on a written
promise
Finally, Benefit argues that if it had helped with the deal, it
would have eventually needed to commit in writing. So it ar-
gues that Dansko’s reliance on an oral promise was unreason-
able.
We disagree. The whole point of promissory estoppel is to
enforce a promise even when “the formal requirements of con-
tract formation have not been satisfied.” Carlson, 918 F.2d at
416. Thus, failure to follow contract formalities does not by
itself defeat an estoppel claim.
In sum, Dansko’s estoppel claim is not barred by the trust
agreement or by resting on an implied oral promise. The Dis-
trict Court erred in holding otherwise.
IV. DANSKO’S FRAUD CLAIM SURVIVES
Dansko’s last claim is that Benefit fraudulently induced
Dansko to hire it as a trustee. When Dansko was vetting Bene-
fit, Benefit falsely denied that the Department of Labor had in-
vestigated it. Dansko says that lie tricked it into hiring Benefit.
The District Court rejected the fraud claim based on the
trust agreement’s integration clause. We disagree. By signing
an integration clause, a party concedes that it has not yet been
falsely induced to sign the contract. But here, Benefit made
false statements years after Dansko signed the integration
clause. So the clause does not cover Benefit’s statements and
does not bar the fraud claim.
10
Alternatively, Benefit argues, the gist-of-the-action doc-
trine bars the fraud claim because it is just a repackaging of the
contract claim. Again, we disagree. The trust agreement is si-
lent on Benefit’s background. Any duty to be honest about the
investigation came from tort law, not the contract.
A. Dansko’s fraud claim is not barred by the
integration clause
The trust agreement has an integration clause. It says:
“[T]here are no other agreements or understandings between
the parties relating to the subject matter hereof . . . .” App. 99.
Normally, an integration clause bars a party’s later claim that
he was fraudulently induced to sign the contract. Yocca v. Pitts-
burg Steelers Sports, Inc., 854 A.2d 425, 436–37, 437 n.26 (Pa.
2004). A plaintiff can hardly claim to have relied on a lie about
the contract if he denied having any side understandings.
But that logic does not apply here. The substance of the
trust agreement, including the integration clause, was negoti-
ated by Dansko and Benefit’s predecessor in 2011. When the
original parties signed the integration clause, they were assert-
ing that they had “no other agreements or understandings” as
of 2011. Three years later, Dansko and Benefit agreed to sub-
stitute Benefit in as the new trustee. But they did not touch the
rest of the agreement. They never updated the integration
clause to say they had no side agreements as of 2014.
Nor did the clause update automatically. Under Pennsylva-
nia law, a contract’s integration clause “does not serve as an
integration clause for [a] subsequently signed . . . [a]mend-
ment.” Giant Food Stores, LLC v. THF Silver Spring Dev.,
11
L.P., 959 A.2d 438, 447 n.4 (Pa. Super. Ct. 2008). If the parties
want to disclaim any outside understandings about an amend-
ment, they must say so when they sign the amendment. Dansko
and Benefit did not say so as of 2014. So the integration clause
applies as of 2011, not to the false statements in 2014.
In its brief, Benefit characterized the 2014 change not as an
amendment, but as a new contract with the same terms (a no-
vation). But at oral argument, Benefit retreated from this posi-
tion, conceding that we could view the substitution as an
amendment. It does not matter. Either way, the parties never
renegotiated the terms or updated the integration clause. They
never stipulated that they had no side understandings about the
2014 substitution.
B. The fraud claim is not a contract claim
In the alternative, Benefit asks us to reject Dansko’s claim
as just a repackaging of its contract claim. We disagree. A
fraud claim is really a contract claim (and must thus be dis-
missed) if the “duty [allegedly] breached is one created by the
parties by the terms of their contract.” Bruno v. Erie Ins. Co.,
106 A.3d 48, 68 (Pa. 2014). In other words, a plaintiff cannot
say that a defendant defrauded him just by reneging on a con-
tractual promise. By contrast, when “the claim involves the de-
fendant’s violation of a broader social duty owed to all individ-
uals, which is imposed by the law of torts,” it is a true fraud
claim. Id.Dansko’s claim is a true fraud claim. Benefit’s statement
had nothing to do with the contents of the trust agreement. It
lied about a side issue: Benefit’s suitability to become trustee.
12
By making that statement, Benefit violated not the contract, but
(if anything) a social duty not to lie to business partners.
Benefit asks us to affirm on other grounds. It says that
Dansko never relied on the false statement, that any reliance
was unreasonable, and that the statement did not harm Dansko.
We will leave all of these issues for the District Court to ad-
dress on remand.
V. DANSKO MUST ADVANCE BENEFIT’S LEGAL FEES
Benefit counterclaims for the costs of defending this law-
suit, based on the trust agreement’s indemnification clause. In
response, Dansko argues that Benefit is not a party to the agree-
ment and that this case does not trigger the clause. We disagree
with Dansko. A premise of its own suit is that Benefit is a party
to the agreement. And the agreement unambiguously requires
Dansko to indemnify and reimburse Benefit for the costs of de-
fending this suit.
A. Benefit is a party to the trust agreement
Dansko errs in arguing that Benefit never signed the agree-
ment. In June 2014, Dansko “appoint[ed] Benefit Trust Com-
pany to replace Reliance Trust Company as the successor trus-
tee of the Trust” and “RESOLVED . . . that Benefit Trust Com-
pany be substituted for Reliance Trust Company in the Trust
Agreement.” App. 396–97. Just over two weeks later, Benefit
“accepted its appointment as the Trustee.” App. 399. By doing
that, Benefit signed onto the trust agreement.
Dansko’s argument is not only wrong, but also estopped.
Dansko sued Benefit for breaching the trust agreement. That
13
claim presupposes that Benefit agreed to the trust agreement.
By bringing its contract claim, Dansko has conceded that the
trust agreement binds the party. It is estopped from taking an
inconsistent position.
B. Under the trust agreement, Dansko must advance
Benefit’s legal fees
The indemnification clause is broad but clear: Dansko must
advance Benefit’s legal fees. The clause says that “[Dansko]
agrees to indemnify [Benefit] and its directors, employees and
officers . . . [for] any and all expenses reasonably incurred in . . .
defending . . . any . . . litigation . . . to which [it] may become
subject . . . relating to [Benefit’s] duties as Trustee.” App. 100
(§ 9.9). Dansko must pay these expenses “as and when [Bene-
fit] incurs them.” App. 101 (§ 9.10).
But the parties carved out from the scope of the indemnity
a “Non-Indemnity Loss,” which includes any “claim, damage,
expense, liability or loss . . . from the bad faith, gross negli-
gence, willful misconduct or material breach of the terms of
[the trust agreement] by [Benefit].” App. 100–01 (§ 9.9). If
Benefit receives any advancement for what is ultimately deter-
mined to be a Non-Indemnity Loss, it probably would have to
return that money to Dansko. App. 101–12 (§ 9.10).
1. The word “indemnify” includes first-party indemnity. In
resisting this conclusion, Dansko focuses on the word “indem-
nify.” It argues that to “indemnify” means to reimburse for
losses caused by a third party, not by Dansko. We disagree.
“The plain, unambiguous meaning of ‘indemnify’ is not ‘to
compensate for losses caused by third parties,’ but merely ‘to
14
compensate.’ ” Atari Corp. v. Ernst & Whinney, 981 F.2d 1025,
1032 (9th Cir. 1992) (quoting Black’s Law Dictionary 769 (6th
ed. 1990)); see, e.g., Indemnify, Black’s Law Dictionary (11th
ed. 2019) (“To reimburse (another) for a loss suffered because
of a third party or one’s own act or default” (emphasis added));
see also Indemnify (def. 2a), Oxford English Dictionary (2d ed.
1989) (drawing no distinction between first-party and third-
party indemnification). Dansko cites no authority for its nar-
rower definition.
Further, the parties contemplated exceptions to the indem-
nity when they carved out “Non-Indemnity Loss” from the in-
demnity and reimbursement provisions. But that carve-out
does not extend to all first-party claims. So we will not read in
that exception when the parties negotiated none.
2. The indemnification clause does not contradict another
part of the contract. The District Court thought that another
part of the contract would make no sense if the clause applied
to first-party claims. The contract says that if Benefit is sued,
Dansko can assume Benefit’s defense. The court thought “[i]t
would be absurd to give Dansko the right to assume [Benefit’s]
defense against [Dansko].” 418 F. Supp. 3d at 111. It would
be. But the contract does not say that. Though the contract gen-
erally lets Dansko assume Benefit’s defense, it carves out an
exception for when Dansko and Benefit have a conflict of in-
terest.
3. The indemnification clause will not limit Benefit’s neg-
ligence liability. Lastly, Dansko says that the contract cannot
cover first-party claims because if it did, that “would limit
[Dansko’s] rights of action.” Dansko Br. 29. Here, Benefit
15
seeks only litigation costs. But Dansko points out that the in-
demnification clause covers not only litigation costs, but also
“damages . . . liabilities and losses.” App. 100 (§ 9.9). If Dansko
had to indemnify Benefit against its own negligence suits
against Benefit, that would effectively release Benefit from
negligence liability to Dansko.
We doubt this would happen. In Pennsylvania, a prospec-
tive release for negligence is “unenforceable” unless it does so
“with the greatest particularity.” Topp Copy Prods., Inc. v. Sin-
gletary, 626 A.2d 98, 99 (Pa. 1993). The trust agreement’s
words are general and do not mention Dansko’s own suits. So
the agreement is not an enforceable release, and our reading
does not limit Dansko’s substantive rights to sue for negli-
gence.
At root, Dansko objects that a first-party indemnity would
be surprising. But the words to which the parties agreed require
that. “When a writing is clear and unequivocal, its meaning
must be determined by its contents alone.” Murphy v. Du-
quesne Univ. of the Holy Ghost, 777 A.2d 418, 429 (Pa. 2001)
(quoting Robert F. Felte, Inc. v. White, 302 A.2d 347, 351 (Pa.
1973)). And while we “must strictly construe the scope of an
indemnity contract against the party seeking indemnification,”
this contract is unambiguous. Jacobs Constructors, Inc. v. NPS
Energy Servs., Inc., 264 F.3d 365, 371 (3d Cir. 2001). We will
hold Dansko to the terms it agreed to.
16
* * * * *
The District Court erred in granting summary judgment
against Dansko’s contract, estoppel, and fraud claims as well
as Benefit’s indemnity claim for reasonable litigation costs.
We will thus vacate and remand for further proceedings.
17