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January 30, 1967

John J. McLEAN

The opinion of the court was delivered by: LORD, JR.


 JOHN W. LORD, Jr., District Judge.

 After a trial before the Court without a jury, upon pleadings and proof, the Court makes the following:


 1. Plaintiff is Phoenix Mutual Life Insurance Company, a corporation duly incorporated under the laws of the State of Connecticut with its principal place of business there.

 2. Defendant, John J. McLean, an individual, is a citizen of Pennsylvania residing in this District at 390 Rittenhouse Street, Norristown, Pennsylvania.

 3. The amount in controversy exceeds $10,000 exclusive of interest and costs.

 4. From June 3, 1952 until November 11, 1962, defendant was manager of one of plaintiff's Philadelphia agencies, the Keystone Agency (hereafter sometimes referred to simply as the agency). He had been employed by Phoenix on March 16, 1948 and had served as an agent and then as a field supervisor prior to being designated as the Keystone Agency manager.

 5. McLean had no written contract with Phoenix as agency manager, but his appointment was confirmed by two letters dated June 3, 1952 (P-33, D-5).

 6. As agency manager, McLean had the duty to supervise the business of the agency, to oversee the agents and employees of that office, to see that the agency made proper requests for funds from Phoenix's home office, to see that funds received from the home office were properly disbursed to meet Phoenix's obligations to the personnel of the agency and to others, and to see that moneys due Phoenix submitted by others to McLean or to the agency were properly delivered to Phoenix.

  7. In the letter setting forth his appointment as agency manager, McLean's compensation was set at $10,000 per year and the letter states also: "Just as soon as the earnings under the standard formulas of the manager's contract equal or exceed the amount which we are paying to you, you will be compensated accordingly." (P-33).

 8. McLean was paid a salary as long as the incentive formula of compensation used by Phoenix to compensate its managers produced an amount lower than the salary. Within a few years after his appointment, the incentive formula of compensation produced higher rates of compensation for McLean and he was thereafter compensated as the Keystone Agency Manager under that formula with which he was thoroughly familiar.

 9. All expenses of operating and staffing the agency were paid by plaintiff including rent, telephone, supplies, salaries of office employees and secretarial staff.

 10. On November 13, 1958 and June 8, 1961, McLean, acting as the manager of the Keystone Agency of Phoenix Mutual, using stationery of that company and indicating, by his signature as "Manager", that he was acting in his capacity as the employee of that company, prepared written agreements under the terms of which Bernard I. Waters, a Keystone agent, agreed to make payments on account of the cost of office space and secretarial assistance he was receiving at the agency. (P-37, P-38).

 11. Bernard I. Waters and McLean signed the letter agreements and Waters made payments to McLean during 1958 through 1962, under the terms of those agreements, totalling $5,287.70 (P-39).

 12. The payments from Waters to defendant were made to defendant by Waters at defendant's suggestion and request.

 13. The document prepared by McLean for the signature of himself and Waters, dated June 8, 1961 (P-38) states, inter alia, that Waters will "have the full time use of a Secretary, whose salary will be paid for by the Agency * * *. We will absorb two additional salary increases for your Secretary as they may be justified * * *. In return for the above, it is agreed that your new paid premium production, through the Keystone Agency, will not be less than $45,000 annually, and you will reimburse this Agency to the extent of $1,000 each year * * *".

 14. At no time did McLean advise Phoenix that he intended to receive payments from Waters nor did he advise Phoenix that he had received the payments from Waters described above.

 15. McLean had never made any arrangement with any other agent under the terms of which he received and kept payments from an agent on account of services provided for the agent, he had no knowledge of any other agency manager ever having made any such an arrangement with an agent and, until the present case, Phoenix had never heard of any agency manager making any such arrangement with an agent.

 16. McLean's compensation was at all relevant times calculated under an incentive formula which included, among its many variable factors, a calculation under which his salary grew higher arithmetically as the expenses of the Keystone Agency grew lower; this, of course, does not mean that the reduction of agency expenses necessarily increased McLean's salary since the incurring of expenses successfully directed at increasing the productivity of the business of the agency increased McLean's salary through other factors in the incentive formula calculation.

 17. At all relevant times Phoenix paid the expenses of the Keystone Agency including rental and secretarial salaries. At no time did McLean directly pay any sums for any such purposes and it may not be concluded that McLean indirectly paid any part of those expenses simply because his compensation was calculated on a formula which produced a debit from the expenses of the agency. On the contrary, the agency's expenses, properly directed, produced countervailing credits.

  18. McLean has at all times received and kept all compensation from Phoenix which reflected all the increments based upon the favorable calculations made under the incentive formula of compensation for agency managers.

 19. McLean has retained the payments of $5,287.70 made by Waters to him.

 20. At no time was McLean authorized by plaintiff to keep the payments made to him by Waters.

 21. McLean's defense that he is entitled to keep the money he collected from Waters because the cost of the services provided to Waters under the incentive formula of compensating managers lowered McLean's annual compensation is rejected under all the facts of this case.

 22. At no time was any additional space rented for Waters nor was any new secretary hired for him. Any services or facilities received by Waters did not, and could not have, in any event, adversely affect McLean's compensation under the incentive formula.

 23. From time to time, it was the obligation of the agency to make formal request to the home office for payment for services, commissions and for salary to which employees and contractees of plaintiff working through the agency were entitled. As agency manager, it was McLean's obligation to see that requests for such payment were made only for those persons who were in fact employees or contractees of the agency and who were in fact entitled to the sums of money requested.

 24. As agency manager, it was McLean's obligation to make certain that the agency handled incoming checks so that they were delivered to the named payees, including the salesmen and agents of the agency.

 25. The requests for payment of agents at the Keystone Agency who were being financed by Phoenix were made on Financing Factor Forms customarily used by Phoenix and its agencies, including the Keystone Agency. There was such a form for each agent being financed and that form shuttled back and forth between the home office and the agency.

 26. A summary of Phoenix's procedure in issuing checks for payment of the Keystone agents during the period 1958 through 1962 is as follows: When a Financing Factor Form was received at Phoenix's home office, from the Keystone Agency, the form passed through the Agency Department. If McLean had approved the issuance of financing checks through the transmission of the Financing Factor Form to Phoenix's home office, then the Agency Department at the Home office authorized the Treasury Department, at the home office, to issue the requested checks and it did so. The Financing Factor Form and checks were thereafter sent to the Keystone Agency. Every financing check sent by Phoenix's home office to the Keystone Agency, payable to a supposed agent, was sent only because the home office had received from the Keystone Agency a Financing Factor Form bearing the certification by McLean that the agent was entitled to the payment. The Financing Factor Form was never sent from the Keystone Agency to the home office without the specific authorization of McLean to do so. The financing checks were sent to supposed agents only because his Financing Factor Form was received in the home office. The home office maintained no records which would have precipitated the issuance of a financing check for an agent if McLean as the agency manager had not directed the submission of the Financing Factor Form to the home office with its figures as to the agent's production. The home office's notice of termination of an agent's employment came from the agency through a notice of termination forwarded by the agency manager and through the cessation of any transmission to it by the agency manager of the Financing Factor Form relating to the particular agent.

 27. Although the home office would never initiate the issuance of a financing check to an agent, it did exercise authority to terminate the issuance of such checks even though the agency manager may have certified a request to the home office for the issuance of such checks. The home office, however, applied a different criteria in making its decision. Whereas the agency manager was certifying that the agent was still working for Phoenix and satisfying the agency manager's standards, the home office applied an actuarially computed standard of what total production to date had been achieved by the financed agent. If and when that total production level fell below a specified standard, the home office would not approve further financing payments notwithstanding the agency manager's transmission to the home office of the Financing Factor Form of the agent. 28. On or about the times specified in the following list, the agency, acting through McLean or his expressed authorization, requested payment for the following persons from Phoenix's home office and the checks were sent by Phoenix's home office to the agency: Month Checks Issued Name of Payee (Number of Checks) Total of Checks Herbert R. Belber July 1958 (1) $ 138.00 James O. Currie Nov. 1960 (3) 319.09 Riccardo L. Garofalo June 1960 to Aug. 1960 (4) 576.89 Don L. Heller May 1961 (1) 212.15 Mayer L. Kersun Sept. 1961 (2) 316.72 Richard J. Parker Dec. 1960 (1) 198.45 Lawrence D. Roseman June to July 1962 (4) 563.45 Eugene J. Sharpe Aug. to Oct. 1962 (4) 631.65 Norton Simons Dec. 1961 to Mar. 1962 (8) 1,181.36 Martin P. Webb Nov. 1961 to Mar. 1962 (7) 620.21 (35) $4,757.97


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