Like many Western Pennsylvania homebuyers, Lisa Earl was enticed by Heartland Homes’ billboards and post signs touting luxury finishes, timeless design, and quality architecture. Understandably, when she chose to build with Heartland Homes, she expected to receive a luxury home. Unfortunately, that’s not what she got. After dealing with a multitude of issues, she decided to pursue legal action against NVR, Inc., Heartland Homes’ parent company. She asserted – among other claims – an Unfair Trade Practices and Consumer Protection Law (“UTPCPL”) claim. It’s important to understand that a UTPCPL claim has teeth because – unlike common law claims – it allows for the recovery of attorney’s fees and treble damages. It also has a six (6) year statute of limitations as opposed to the two (2) year statute applicable to common law tort claims.  The UTPCPL is applicable to most consumer transactions, not just buying a home, including automobile transactions, home improvement contracts, insurance contracts, leases, and service contracts.

Now let’s travel back to 2002. In 2002, the Third Circuit decided Werwinski v. Ford Motor Co., 286 F.3d 661 (3d Cir. 2002). The Werwinski Court was tasked with deciding whether the economic loss doctrine^[1] applied to claims arising under both Pennsylvania common law and statutory law. Because there was no Pennsylvania Supreme Court authority on the issue, the Court was forced to predict how the Supreme Court would rule. In so doing, the Werwinski Court held that the doctrine was to be applied broadly, i.e. it bars – or can bar – UTPCPL claims.

In reliance on Werwinski, the District Court in Earl held that Ms. Earl’s UTPCPL claim was barred by the economic loss doctrine and also the gist of the action doctrine.^[2] Ms. Earl appealed to the Third Circuit challenging Werwinski’s continued validity in light of two (2) recent Pennsylvania Superior Court decisions. Remember, Werwinski was decided almost twenty (20) years ago.

On appeal, the Third Circuit in Earl explained that since its decision in Werwinski, the Pennsylvania Supreme Court – though it hasn’t ruled on the specific issue at hand – has clarified that the economic loss doctrine gives way if there is a statutory basis to impose liability for economic losses. The Court noted that the UTPCPL does just that, it permits plaintiffs to recover for “any ascertainable loss of money or property, real or personal.” 73 Pa. Cons. Stat. § 201-9.2. The Court also recognized that Pennsylvania has extended this logic via two (2) relatively recent Superior Court decisions.^[3]

Based on these decisions, the Third Circuit in Earl set aside its decision in Werwinski “with respect to the economic loss doctrine’s application to UTPCPL claims.” The Court also held that Ms. Earl’s UTPCPL claim was not barred by the gist of the action doctrine.

This is a major development in the law and frankly, changes the game when it comes to new home construction suits – as well as automobile transactions, home improvement contracts, insurance contracts, leases, and service contracts. Until the Third Circuit abrogated Werwinski, the applicable law differed depending on where the suit was filed. In state court, plaintiffs were able to keep their UTPCPL claims (under Knight and Dixon) while in federal court, UTPCPL claims were routinely dismissed (under Werwinski). This recent, precedential decision brings the federal courts into alignment with the state of the law in Pennsylvania, which happens to be buyer friendly.

Though the Earl case deals with residential new construction, as noted above, the Third Circuit opinion has much broader implications. In other words, Earl provides just one example of the type of transaction impacted by the decision (Werwinski dealt with a vehicle lease). Under Earl, consumers get to have their cake (breach of contract claim) and eat it too (UTPCPL claim).

^[1] The economic loss doctrine states that “no cause of action exists for negligence that results solely in economic damages unaccompanied by physical injury or property damage.” Knight v. Springfield Hyundai, 81 A.3d 940 (Pa. Super. Ct. 2013). In other words, it prohibits plaintiffs from recovering in tort economic losses to which their entitlement flows only from a contract.

^[2] The gist of the action doctrine states that “an alleged tort claim against a party to a contract, based on the party’s actions undertaken in the course of carrying out a contractual agreement, is barred when the gist or gravamen of the cause of action stated in the complaint, although sounding in tort, is, in actuality, a claim against the party for breach of its contractual obligations.” Dixon v. Nw. Mut., 146 A.3d 780 (Pa. Super. Ct. 2016).

^[3] See Knight v. Springfield Hyundai, 81 A.3d 940 (Pa. Super. Ct. 2013) and Dixon v. Nw. Mut., 146 A.3d 780 (Pa. Super. Ct. 2016).