(CN) - Pediatrix Screening is entitled to a new trial on the claim that it misrepresented its partnership with a genotyping company, the 3rd Circuit ruled. The court said it was unclear whether the gist of TeleChem International's claim was misrepresentation or breach of contract.
Pediatrix, which performs genetic screening on newborns, paired up with TeleChem in 2000, because it needed TeleChem's genotyping expertise to apply for a research grant with the National Institutes of Health.
TeleChem allegedly agreed that all the grant money would go to Pediatrix, because it was hoping to "benefit from the residual commercial uses" of the products developed in collaboration.
The companies agreed to form a joint corporation called NGS-ArrayIt, but unbeknownst to TeleChem, Pediatrix never properly filed the documents for the new company.
TeleChem worked for Pediatrix until disagreements arose about TeleChem's performance. When the two companies failed to resolve the issue, TeleChem notified Pediatrix that it had breached their contract. Pediatrix filed suit, accusing TeleChem of breaching the contract.
TeleChem filed a counterclaim for breach of contract, fraudulent misrepresentation and misappropriation of trade secrets. It claimed to have worked with Pediatrix on the false promise that it would reap the commercial benefits.
A jury found both parties in breach of contract, but ruled that Pediatrix was liable for fraudulent misrepresentation and awarded TeleChem $4 million in damages.
On appeal, Pediatrix argued that TeleChem can't recover damages based on the "gist of the action" doctrine, which bars plaintiffs from recasting breach of contract claims as tort claims.
The Philadelphia-based appeals court ruled 2-1 against TeleChem, saying Pediatrix had not waived its right to the gist of action claim.
"[T]oo many loose ends and unanswered questions remain to resolve the gist of the action issue," Judge Joseph Weis wrote for the majority. The panel reversed and remanded for a new trial on TeleChem's misrepresentation counterclaim.
Judge Kent Jordan dissented. "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," he wrote, "I necessarily conclude that Pediatrix has waived that challenge by failing to move for judgment."