Category: Business Law

By Gary Green Esquire, CEO of Sidkoff, Pincus & Green P.C.

Sidkoff, Pincus & Green P.C. often represents minority shareholders (i.e., owning less than 50 percent), partners, and Members of a limited liability company who are bullied by a person or people who have control over the entity. Many times, the controlling owners take steps to freeze out the weaker owners who have no self-help power to force the entity to treat them fairly. This takes the form of depriving the minority owner of knowledge of the entity’s finances, payments to the majority owners of undeserved compensation and perquisites, not giving the minority owners timely information, and keeping them out of the loop. Often, the majority owners try to make life so miserable for the minority owners that they would sell their interests to the majority owners for a fraction of their fair market value, and when that failed, the majority owners would fabricate reasons to fire the minority owners and banish them from the business.

Contractual Agreements and Legal Tension

There frequently is a shareholder’s agreement, a partnership agreement, or an operating agreement that purports to authorize the harsh behavior and tactics of the majority owners. On the other hand, the law of torts and the requirements of fiduciary duty provide remedies for abusive behavior by majority owners. If the case were to be limited to the terms of the contract, the minority owners often would not be able to litigate the torts and breaches of fiduciary duty. Until a 2025 Pennsylvania Superior Court decision, the majority owners would raise a defense known as the “gist of the action” doctrine. This doctrine said that if the tort and fiduciary duty claims arose out of clauses in the agreement, the court would find that the gist of the action was breach of contract, and the other claims would be precluded, and would thus never be presented to the jury. Obviously, if the minority owner was stuck with a one-sided agreement, the odds in favor of the majority owner winning the case would rise.

The Swatt Decision

The Superior Court ruling in Swatt v. Nottingham Vill., 2025 PA Super 138, 342 A.3d 23, 51-52, held that the gist of the action doctrine is dead in Pennsylvania. 

Swatt, an authoritative, en banc decision, overruled the body of prior case law that frequently dismissed tort claims based on the gist of the action doctrine. Therefore, Swatt is a seismic change in law. Swatt debunked and repudiated the gist of the action doctrine, and no longer would it be proper for courts to dismiss claims where a Complaint pled a cause of action that was not found to be the “gist of the action”. Swatt instructs Pennsylvania courts to discard and end the judicial practice of dismissing tort claims whenever a court found there were contractual remedies available for the wrongful acts. In Swatt, the Superior Court held that the gist of the action doctrine is not a proper legal concept. Judicial decisions that dismissed claims based on the gist of the action doctrine are no longer precedential. Swatt has resulted in a seismic change in law.

Distinguishing “Gist of the Action” and “Cause of Action”

In Swatt, the  Superior Court illuminated the distinction between “gist of the action”, (the wrongful conduct creating the grounds for the suit) and “cause of action (the nature of the injury), a distinction which Swatt uses to explain how so many courts were led into error by dismissing tort claims because there was a contractual provision that provided a remedy for the same wrongful act that also gave rise to the tort claim:

Critically, “gist of the action” was a legal term of art during the common-law-pleading era. The foremost treatise on common-law pleading from the mid-1800s teaches that the word “gist” was originally synonymous with “ground.” Stephen, ON PRINCIPLES OF PLEADING IN CIVIL ACTIONS § 59, at 103 (2d. U.S. Ed, Chicago Press, 1901). Additionally, in the 1800s, there were important “distinction[s] between the ‘right of action,’ the ‘ cause of action,’ the ‘ground of action,’ and the ‘subject of action.'” Id.

Stephen defines the “ground of the action” as “the act of the offending party, by means of which the injury is inflicted.” Id. at 105. “It is the unlawful conduct, or conduct which might . . . be lawful, but which is rendered unlawful by the character of the intent or object of the act . . ..” Id. Thus, the defendant’s intent “constitutes an important element of the gist of the action.” Id. n.4. (citing Morgan v. Andrews, 107 Mich. 33, 64 N.W. 869, 871 (Mich. 1895). In short, the ground/gist of the action was the defendant’s unlawful act upon which the plaintiff’s cause (or causes of action) would lie.

Indeed, the Supreme Court of Pennsylvania used the phrases as synonyms in one of the earliest decisions containing the phrase “gist of the action.” See Griffith v. Ogle, 1 Binn. 172, 1806 WL 1009, at *3 (Pa. 1806) (stating, “The old writ of conspiracy charges a conspiracy in the defendants; and that conspiracy is the ground of the action. In the present action, likewise, the conspiracy is the gist of the action, although it may be necessary to show some act in execution of it.”) (original emphasis removed; emphasis added).

Furthermore, “the cause of action” meant only the injury (or injuries) that a plaintiff suffered from a defendant’s unlawful conduct. “Cause of action” was frequently “confused with the unlawful conduct which gives rise to the injury, [i.e.,] the ground [**42] of the action; but the cause of the action designates the nature of the injury” Stephen § 59 at 104. Therefore, a single ground/gist of the action might produce multiple injuries, that is, multiple causes of action. See id at 105. Together, the “ground/gist of the action” and “cause of action” were known as the “subject of the action,” a phrase “almost as comprehensive as the word ‘transaction,’ . . .” Id.

(Emphasis in the original; footnotes omitted)

Relationship to Bruno v. Erie Insurance

Swatt then discussed why the Supreme Court’s decision in Bruno v. Erie Insurance Co., 630 Pa. 79, 106 A.3d   48 (Pa. 2014) did not actually adopt the gist of the action as a “doctrine’ recognized by Pennsylvania law, stating, that the Supreme Cort in Bruno did not review whether gist of the action was the law in Pennsylvania because whether the choice between tort and contract remedies was not before the Justices. They only decided whether a tort claim could exist when the parties had a contract. Moreover, Bruno did not reconsider the long-standing right of plaintiffs to elect their remedy at common law, anytime one unlawful act breaches both a contract and a general duty under tort law. 

Practical Impact of Swatt

In summary, Swatt means that an abused minority owner may pursue both tort and contract claims when the facts support both. Because the Rules of Civil Procedure allow plaintiffs to plead alternative causes of action, courts must evaluate each contract and tort claim individually and while a double recovery for the same injury is prohibited, multiple claims alleging breach of contract and violation of a duty under tort law may all proceed to trial without the court eliminating the tort claim because the injury could also result in a claim under the contract. As a result of Swatt’s ruling that abolished the gist of the action defense, plaintiffs are not forced to prematurely elect between tort or contract remedies or causes of action when the nature of the duty that was breached implicates both tort and contract principles.

If you are dealing with shareholder disputes or other complex business conflicts, contact Sidkoff, Pincus & Green P.C., Philadelphia’s oldest employment law firm. Take the first step toward protecting your interests. Call 215-574-0600 or contact us online to schedule a consultation. Located in Philadelphia, we serve clients in New Jersey and Pennsylvania.