## Facts

- Buyers contracted to purchase an island near St. Thomas for $21 million and a separate St. Thomas property for $2.5 million from the sellers.
- Buyers paid a $1 million deposit into escrow and later paid an additional $500,000 to extend the closing date (total deposits: $1.5 million).
- The agreements required the buyers to pay the remaining price at closing and required the sellers to deliver clear, marketable title at closing; the contracts allocated deposits based on which side defaulted without the other’s fault.
- The transaction did not close: the sellers did not cure title problems by closing, and the buyers did not tender the remaining purchase price.
- Sellers issued default notices; buyers demanded return of the deposits.
- Buyers sued for contract and tort theories (including fraud, negligent misrepresentation, conversion, and unjust enrichment); sellers counterclaimed for breach and fraud based on alleged misrepresentations about buyers’ ability to close.
- A jury found both sides breached and awarded (among other items) deposit-related relief to a buyer, fraud damages against the escrow agent/attorney, and damages to the sellers on misrepresentation theories.
- Post-trial, the district court eliminated the buyer’s contract damages award on the ground that neither side satisfied the concurrent conditions, while applying the gist-of-the-action doctrine to bar various tort claims; multiple parties appealed.

## Issues

1. Whether a buyer who paid deposits is entitled to restitution when both parties failed to perform concurrent closing conditions (payment vs. delivery of marketable title).
2. Whether, under Virgin Islands law, the gist-of-the-action doctrine bars tort claims (fraud, negligent misrepresentation, conversion) that are tied to contractual duties and negotiations in a real-estate/escrow transaction.

## Decision

- The Third Circuit held that the closing obligations were concurrent conditions, and because neither side performed, traditional contract (expectation) damages were unavailable.
- The court held the buyer who paid the deposits was entitled to restitution of the full $1.5 million from the sellers.
- The court held the gist-of-the-action doctrine barred all tort claims asserted by both sides because the alleged duties and misrepresentations were inseparable from the contractual relationship and undertakings.
- The court remanded for further proceedings consistent with its restitution ruling.

## Legal Principles

- When contractual duties are concurrent conditions and neither party performs, expectation damages for breach may be unavailable because neither party can establish entitlement to performance at closing.
- Even where expectation damages are unavailable due to nonoccurrence of a condition, a party who conferred a benefit (such as deposits) may obtain restitution to prevent the other party’s retention of that benefit without the bargained-for exchange.
- The gist-of-the-action doctrine bars tort claims that arise solely from a contract, where the alleged breached duties are created by the contract, or where the tort theory duplicates a contract claim or depends entirely on contractual terms.
- Fraud or misrepresentation theories tied to contractual negotiations and performance, rather than an independent duty imposed by law, are treated as contractual in nature and are barred as tort claims under the doctrine.

## Conclusion

The Third Circuit concluded that mutual nonperformance of concurrent closing conditions foreclosed contract damages but required restitution of the buyers’ deposits, and it applied the gist-of-the-action doctrine broadly to eliminate tort remedies where the asserted wrongs were grounded in contractual duties and bargaining.


Addie v. Kjaer, 737 F.3d 854 (3d Cir. 2013)