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FRASER v. NATIONWIDE MUT. INS. CO.

March 27, 2001

RICHARD FRASER, ET AL., PLAINTIFF,
v.
NATIONWIDE MUTUAL INSURANCE CO., ET AL., DEFENDANT.



The opinion of the court was delivered by: Anita B. Brody, District Judge.

    MEMORANDUM AND ORDER

INTRODUCTION

Plaintiffs Richard Fraser, d/b/a R.A. Fraser Agency ("Fraser") and his wife, Deborah Fraser, filed this action against defendants Nationwide Mutual Insurance Company, Nationwide General Insurance Company, Nationwide Property & Casualty Insurance Company, Nationwide Variable Life Insurance Company, and Colonial Insurance Company of Wisconsin (hereinafter referred to collectively as "Nationwide" or "defendants") in December of 1998 pursuant to federal and Pennsylvania state law. In their Second Amended Complaint, Plaintiffs assert the following theories of recovery based upon the defendants' alleged wrongful conduct: violation of federal and Pennsylvania wiretapping statutes (concerning in transit communication) (Counts I-II); violation of federal and Pennsylvania wiretapping statutes (concerning stored communication) (Counts III-IV); violation of the Article 1 §§ 7 and 20 of Pennsylvania Constitution (Count V); wrongful discharge (Count VI); breach of implied covenant of good faith and fair dealing (Count VII); defamation (Count VIII); breach of contract (Count IX); violation of the Pennsylvania Wage Payment and Collection Law (Count XI); and violation of Pennsylvania Commissioned Sales Representative Act (Count XII). Plaintiffs also seek a declaratory judgment with respect to contractual obligations under Count X of the Second Amended Complaint. Now before me is defendants' motion for summary judgment on all Counts.

This is one of the few cases that has required a court to interpret the wiretapping acts in the context of recent electronic communication technology. Here, there is a claim that the federal and state wiretapping acts, the Wiretap Act and the Stored Communications Act, cover retrieval of a person's e-mail from post-transmission storage. Because I have determined that these Acts protect only communication in the course of transmission, I will grant summary judgment on this claim. As for the other outstanding claims, I will also grant summary judgment. Nationwide, as a private actor, is not subject to Pennsylvania State Constitutional requirements under Article 1; Fraser has not presented a claim for wrongful discharge under the narrow public policy exception to at-will employment; Fraser may not challenge Nationwide's decision to cancel his Agent's Agreement or the Review Board process under a claim for breach of the implied covenant of good faith and fair dealing; and Fraser has not presented a claim for breach of contract under the Agent's Agreement.

PROCEDURAL BACKGROUND

Plaintiff initiated this action by filing a Complaint on December 28, 1998. On April 9, 1999, plaintiff filed an Amended Complaint. Pursuant to my initial Scheduling Order, all discovery was to be completed by October 1, 1999. On December 10, 1999, I granted an extension of the deadline for discovery until June 30, 2000. On January 24, 2000, I granted plaintiff leave to amend the complaint for a second time. On January 31, 2000, Plaintiff filed a Second Amended Complaint. On June 13, 2000, I granted a second extension of the deadline for discovery until August 15, 2000. On August 31, 2000, defendants timely filed their motion for summary judgment. By a series of stipulations and orders, plaintiffs' time to respond to summary judgment was extended until November 3, 2000. On November 2, 2000, plaintiff filed two motions to compel discovery*fn1, a motion to mark defendants' counterclaim `dismissed with prejudice', a motion to vacate the protective order previously entered with regard to "Client A", and a motion for leave to file a Third Amended Complaint. By the latter motion, Fraser seeks to drop six causes of action, add a new cause of action, modify the allegations supporting the claims remaining, and dismiss Mrs. Fraser as a party plaintiff.*fn2

On November 3, 2000, plaintiff filed a response to summary judgment in which plaintiff presumed that I would grant the motion for leave to file a Third Amended Complaint. On January 26, 2001, I informed the parties on the record that I would rule on summary judgment before considering plaintiff's subsequent motions. See docket entry #95 for minute entry. On January 29, 2001, I ordered plaintiff's response stricken as non-responsive and allowed plaintiff until February 9, 2001 to file a response to summary judgment. I granted defendants ten days to reply.

On February 9, 2001, plaintiff filed a new response to summary judgment in which he, again, presumed that I would grant his motion to file a Third Amended Complaint.*fn3 Plaintiff's response did not address defendants' summary judgment motion with respect to Counts VIII (defamation), X (request for a declaratory judgment), XI (Pennsylvania Wage Payment and Collection Law), or XII (Pennsylvania Commissioned Sales Representative Act) of the Second Amended Complaint. Summary judgment on these four counts is, therefore, granted for plaintiffs' failure to respond.

FACTUAL SUMMARY*fn4

The Agent's Agreement states that "the parties agree that the purpose of this Agreement will be best served by your acting as an independent contractor. Therefore, it is agreed that you are an independent contractor for all purposes." Id. Upon assuming this status, Fraser obtained considerable freedom as to when, how and where he operated his agency. Fraser was committed under the agreement to represent Nationwide exclusively in the sale and service of insurance. Such exclusive representation is defined in the Agreement to mean "that you will not solicit or write policies of insurance in companies other than those parties to this Agreement, either directly or indirectly, without written consent of these Companies." Id. at 2.

The agreement further states that the agent or Nationwide have "the right to cancel this Agreement at any time" upon written notice. Id. at 2. The provision on cancellation of the agreement includes a statement that "the Agent shall have access to the Agents Administrative Review Board, and its procedures, as it may exist from time to time." Id. The agreement provides for payment of earned deferred compensation upon "qualified cancellation" of the agreement.*fn5 However, the agent forfeits his right to deferred compensation under paragraph 11(f) of the Agreement if, among other things, he accepts employment with a competitor of Nationwide within one year of cancellation and within a twenty-five mile radius of the agent's business location at the time of cancellation.

On January 23, 1990, Fraser entered into an Agency Office Automation Lease Agreement with Nationwide whereby Fraser leased computer hardware and software from Nationwide for use in the automation of his office and insurance business. The lease agreement explicitly stated in the Preface that the Agency Office Automation ("AOA") system "will remain the property of [Nationwide]." Defendant's Motion for Summary Judgment ("Defendant's Motion"), Ex. C. All enhancements or software necessary to operate the system were to be provided by Nationwide, and Nationwide assumed responsibility for all system maintenance and repairs. See id. at 2. Anytime that someone logged on to the AOA system, a notice appeared on the screen that said:

"Please note: for everyone's mutual protection, AOL SYSTEM*fn6 use, including electronic e-mail, MAY BE MONITORED to protect against unauthorized use."

Appendix, Vol. 1 at 201. Fraser was charged a monthly fee for use of the system and was responsible for any damage to the hardware caused by negligence. The lease automatically renewed annually, unless notice to cancel was given by either party, and it automatically terminated upon cancellation of the Agent's Agreement. The lease agreement signed by Fraser remained in effect until his Agent's Agreement was cancelled in September, 1998.

Nationwide produced a handbook called the Agency Compensation and Security Handbook ("CASH").*fn7 The handbook explicitly states that it is not part of the contractual agreement between Nationwide and its agents. Towards the front of the CASH book, the following language appears:

"The contents of the Handbook are presented as a matter of information only. The only contractual matters are those expressed in your Agent's Agreement and specifically incorporated by reference made within that contract . . . The language used in this handbook, is not intended to create nor is it to be construed to constitute a contract between Nationwide and any or all of its employees, agents or officers."

Defendant's Motion, Ex. G.

In June of 1996, Fraser and other Nationwide agents met to form a Pennsylvania chapter of the Nationwide Insurance Independent Contractors Association ("NIICA"). NIICA had previously been in existence for some years in other states. Nationwide refused to officially acknowledge NIICA. At the second meeting of the Pennsylvania chapter of NIICA, Fraser was elected to an office of the chapter. He was also asked to create and write a chapter newsletter, which became known as The Pennsylvania View.

One of NIICA's overarching goals is to preserve and defend the status of the Nationwide exclusive career agent as independent contractors. Members of NIICA sought increased state regulation of the insurance industry to protect their independence and maintain control over their work. For example, from 1996-1998, NIICA lobbied state legislators to obtain passage of "just cause" legislation that would insure that agent contracts could not be terminated without "just cause". They also sought remedies to prevent Nationwide from engaging in business practices that, in the agents' independent judgment, were illegal. The Pennsylvania View publicly criticized these practices.

In the Fall of 1996, Fraser raised some of the business practices believed to be illegal with Nationwide's Office of Ethics. Thereafter, Fraser initiated a complaint with respect to these practices with the Pennsylvania Insurance Department and the Pennsylvania Legislature. The agents' ongoing efforts to report these practices resulted in media publicity. Nationwide was aware that Fraser and other NIICA members were reporting business practices to state authorities. In April of 1998, Nationwide entered into a series of consent orders with the Pennsylvania Insurance Department, by which Nationwide paid a fine and agreed to cease the business practices about which Fraser had complained. The Pennsylvania View publicized Nationwide's concessions under the consent order.

Nationwide was also aware of NIICA's ongoing lobbying efforts to obtain "just cause" legislation. On January 26, 1998, Nationwide's Vice President of Government Relations described the situation with NIICA in an interoffice memo as "significantly accelerating and deteriorating." Appendix, Vol. 1 at 51. In July of 1998, the Pennsylvania Insurance Department expressed an official opinion against the proposed "just cause" legislation. The proposed legislation ultimately failed in state legislature's Summer session of 1998.

In August, 1998, Nationwide drafted a warning memo headed "Inappropriate Communication" to Fraser. Appendix Vol. 1 at 141. The memo stated that Nationwide was aware of Fraser's communications with the Pennsylvania Insurance Department and the State Attorney General. Citing examples of such communications, the memo asserted that many of these communications included "false statements or unsupported allegations that Nationwide has or intends to violate the law," and that they "have had a damaging effect on the business operations and reputation of Nationwide and its agents." Id. The letter also stated that:

"Nationwide recognizes and respects your right as a citizen to communicate with government agencies and the public. However, you do not have the right to make false statements or accuse Nationwide of wrongdoing, unless your allegations are reasonably supported by the facts and the law. Such actions will not be tolerated, and if they occur in the future, Nationwide intends to exercise its legal rights, which could include legal proceedings in addition to canceling your Agent's Agreement."

Id. This memo was intended as a warning. It was in fact never sent to Fraser. A general warning letter about "inappropriate communications" with state insurance departments, the media, and legislatures was issued to the entire agency force on August 12, 1998. Appendix, Vol. 1 at 143.

These events occurred in the context of Nationwide's implementation of new business policies in 1998, to which Fraser and other agents were opposed. The policy changes were related to Nationwide's new publicized growth plan to establish "multiple distribution channels." Under the new plan, policyholders could buy insurance directly, rather than through an agent. See Appendix Vol. 4 at 825. The agents feared that the new policies would undermine their work and their independence.

By late July, 1998, the Pennsylvania chapter of NIICA, including Fraser, decided to make Nationwide's management in Columbus aware of the agents' opposition to the plan. NIICA members asked Fraser to prepare a letter to competitors of Nationwide to solicit interest in acquiring the policyholders of the approximately two hundred NIICA members in Pennsylvania. In drafting the letter, the agents' did not intend to actually separate from Nationwide, but to send a warning that they would leave if Nationwide did not cease the objectionable policies. This letter was ultimately sent to at least one competitor.

Roy Bowerman, Nationwide's Pennsylvania Sales Officer, learned of the proposed letter drafted by Fraser to Nationwide's competitors from a NIICA member and asked for a copy of it. Pennsylvania NIICA's leadership decided to make it available after first removing the NIICA letterhead. NIICA members informed Nationwide that the letter was intended merely as a pressure tactic. A NIICA agent faxed the letter to Bowerman on July 31, 1998, and the letter ultimately reached Richard Crabtree, a top-ranking executive of Nationwide. Copies were also sent to other top executives. The warning memo to all agents regarding "inappropriate communications" was sent soon after these events, on August 12, 1998. A copy of the letter to Nationwide's competitors drafted by Fraser was also given to Cynthia Tolsma, Pennsylvania State Officer and Vice President of Nationwide. This copy was not anonymous. It contained both NIICA and Fraser's names.

Nationwide did not know whether or not this letter drafted by Fraser had actually been sent to Nationwide's competitors. On August 27, 1998, Nationwide's director of electronic communications in Columbus, Gregory Ricker, in the presence of Nationwide's assistant general counsel, Randall Orr, searched Nationwide's electronic file server for e-mail communication indicating whether or not the letter had been sent. Ricker opened the stored e-mail of Fraser and other agents. Ricker ultimately found an exchange of e-mails from August 25, 1998 between Fraser and Lon McAllister, an agent of Nationwide at the time, indicating that the letter had been sent to at least one competitor. See Appendix, Vol. 1 at 196-97. This e-mail was retrieved from McAllister's file of already received and discarded messages stored on the server. See Appendix at 368-70 (deposition testimony of Randall Orr). The messages retrieved from Nationwide's storage site had already been sent by Fraser and received by McAllister.*fn8

On September 2, 1998, Nationwide cancelled Fraser's Agent's Agreement. Thereafter, in accordance with the terms of the AOA Lease Agreement, Nationwide secured its computer hardware and software property leased by Fraser. Pursuant to the Agent's Agreement, Fraser immediately appealed the cancellation to the Review Board and a hearing was set for September 16, 1998. The Review Board was composed of two agents and two management representatives. A witness for management represented Nationwide's position that, under the Agent's Agreement, Nationwide had the right to terminate its relationship with Fraser for any reason or no reason at all, and that, nevertheless, Fraser's breach of loyalty to the company provided them with a good reason to terminate him. See Appendix Vol. 1 at 186-93. Fraser argued to the Review Board that he was terminated in retaliation for his NIICA activities. After hearing management's and Fraser's position on his termination, the Board split two to two on whether to uphold the termination.

Fraser's appeal was then referred to Cynthia Tolsma. Tolsma received the Review Board's split decision in a report. The report listed some of the points raised by the Board in arriving at the split decision. The points raised include:

"the agent made a personal choice admitting that he did send a letter to Erie Insurance"
"the agent admits that he used very bad judgment in taking this action"
"the action appeared to be prompted by the environment that existed among the agent force . . . and was originally aimed at sending a ...

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