United States District Court, M.D. Pennsylvania
October 26, 2005.
DONALD L. SMALL and SMALL & SMALL, INC., Plaintiffs,
CORE EMPLOYER SERVICES, INC. and CNA UNISOURCE, Defendants.
The opinion of the court was delivered by: CHRISTOPHER CONNER, District Judge
Presently before the court for judgment are the breach of
contract and detrimental reliance claims of plaintiffs, Donald L.
Small and Small & Small, Inc. (collectively "Small"). Small, a
Pennsylvania-licensed insurance agent, contends that defendants,
Core Employer Services, Inc. ("Core"), and CNA Unisource ("CNA"),
breached a contract to provide services to Small's clients, and
that Small detrimentally relied on defendants' promises to
provide these services. Small seeks to recover over $450,000 in
damages purportedly attributable to defendants' actions.
During a one-day bench trial, the parties presented
documentation and testimony relating to their business dealings,
to the alleged contract, and to the appropriate method of
calculating damages. The action is now ripe for judgment under
Federal Rule of Civil Procedure 52. Based on the findings that
follow, the court concludes that Core is liable to Small for
breach of contract and detrimental reliance, but that CNA is not
liable to Small on either of the claims. I. Findings of Facts
1. Donald L. Small is a licensed insurance agent and the
principal owner of Small & Small, Inc., a property and casualty
insurance agency located in Stroudsburg, Pennsylvania. (Doc. 84
at 6, 39-40).
2. In 1998, Small, as an authorized agent for CNA, began
offering to his customers, through CNA, professional employer
organization ("PEO") services, including workers' compensation,
human resource administration, health insurance products, 401-K
plans, and payroll services. (Doc. 84 at 7, 42-43, 48; Trial Ex.
3. Between 1998 and 2002 Small placed approximately twelve
business clients representing over 400 employees with CNA's PEO
services, and received as compensation a percentage of the
administrative fee charged by CNA to these clients. (Doc. 84 at
4. Small received passive income for placing his PEO clients
with CNA in the amount of approximately $50,000 per year. (Doc.
84 at 8, 37-38).
5. Small also received peripheral business from his PEO clients
via the sale of additional insurance policies to his clients'
employees. (Doc. 84 at 84-85).
6. In January 2002, Small received a telephone call from a CNA
employee who stated that CNA would be discontinuing its PEO
services. (Doc. 84 at 10).
7. Shortly thereafter Small received a letter from CNA dated
January 31, 2002, stating that CNA would be exiting the PEO
business effective March 31, 2002. (Doc. 84 at 10-11; Trial Ex.
1). 8. The letter from CNA also provided, in relevant part, that:
We are also exploring alternative arrangements in an
attempt to minimize any inconvenience to current PEO
clients, and will be providing further information on
our progress in the coming days. In the meantime you
will need to work with your clients to secure
replacement employee benefits and workers'
compensation insurance coverage by March 31, 2002.
(Trial Ex. 1).
9. Small's clients also received a letter from CNA, dated
February 1, 2002, notifying them of CNA's exit from the PEO
business and advising them that they should secure replacement
employee benefit and workers' compensation insurance coverage by
March 31, 2002. (Doc. 84 at 11-12; Trial Ex. 2).
10. Shortly after receiving the CNA letter, Small contacted Ed
Costello ("Costello") of H.R. Logic regarding the possible
placement of Small's PEO clients with H.R. Logic. (Doc. 84 at
11. H.R. Logic was a national PEO service company similar to
CNA; it had fifteen years of PEO experience and was backed by
several large investors. (Doc. 84 at 198).
12. Costello was familiar with Small's PEO clients because he
had worked for CNA and he had helped Small place those clients
with CNA. (Doc. 84 at 13-14, 197, 200).
13. Small provided to Costello all information necessary for a
review of the PEO accounts, and received from Costello price
estimates for H.R. Logic replacement PEO services, including underwriter-approved workers'
compensation services. (Doc. 84 at 14-15, 84, 200-06).
14. Under the proposed agreement with H.R. Logic, Small's
compensation was similar to that which he received from CNA.
(Doc. 84 at 207).
15. Small provided to his clients several alternatives to CNA's
PEO services, including buying individual policies and services,
buying non-PEO services from CNA and supplementing them with
services from elsewhere, or transferring the accounts to H.R.
Logic. (Doc. 84 at 15).
16. All of Small's clients opted to transfer to H.R. Logic
services, and Small and Costello prepared paperwork to transition
Small's PEO accounts to H.R. Logic. (Doc. 84 at 49, 50, 56, 84).
17. On February 14, 2002, the presidents of CNA and Core
established a conference call with Small and other CNA agents
around the country to discuss the possible transfer of PEO
services from CNA to Core. (Doc. 84 at 16-18, 63, 78, 170).
18. During the conference call, Core presented itself as a
"simplified solution" to the problem of CNA exiting the PEO
business; the transition to Core was represented as "seamless"
due to an understanding between CNA and Core that protected the
pricing established under preexisting CNA-PEO contracts, and
allowed Core to service the clients with a full panoply of PEO
services, with the exception of payroll services which CNA would
continue to provide. (Doc. 84 at 18, 171-72). 19. During the conference call, Ed Rawles ("Rawles"), President
of Core, stated that he would meet with any CNA agents and their
clients who wanted to learn more about the Core option. (Doc. 84
at 22, 93-94, 169, 172-173).
20. Small and a few other agents expressed to CNA's Vice
President of Sales, Bill Leahy ("Leahy"), a desire to meet with
Rawles regarding the Core option. (Doc. 84 at 22, 93-94, 169,
21. The "seamless transition" offered by Core presented the
best alternative service to Small because: (i) enrollment in a
new PEO plan normally causes disruptions for the client,
including on-site visits to the client's place of business and
discussions with each of the client's employee's; (ii) the
agreement between CNA and Core would allow Small's clients to
receive the same pricing and coverage; and (iii) the paperwork
necessary for a transition would be minimal and the files were
already set-up at Core for the transfer. (Doc. 84 at 18, 68,
22. There was no substantive difference between CNA's PEO
services and those being offered by Core. (Doc. 84 at 18-19).
23. Around the time of the conference call, Small received a
letter from Core dated February 14, 2002, indicating that Core
and CNA had entered into an agreement for Core to serve as the
"alternative" to CNA's PEO services. (Doc. 84 at 16, 47; Trial
24. The letter states that Core is "able to offer a relatively
seamless transition from CNA and [to] protect [Small's] revenue
stream." (Trial Ex. 3). 25. The letter states that Core will continue to provide the
same CNA payroll processing and billing services utilizing the
same CNA technicians and at the same CNA rates, and that
"basically, all current terms and conditions" that Small and his
clients had with CNA would "remain as is." (Trial Ex. 3).
26. The letter states that Core's workers' compensation carrier
was "A" rated, and that it had "agreed to accept the vast
majority of accounts `as is'." (Trial Ex. 3; Doc. 84 at 29).
27. The letter states that Core is negotiating with an
insurance company to provide health coverage, and assures that,
even if those negotiations fail, "[t]here will be no break in
coverage and client employees will have a variety of plans and
provider networks to select from." (Trial Ex. 3).
28. The letter states that Small's commission structure will
remain the same, and that he will be paid twenty-five dollars for
each employee who converts to Core and remains through July 1,
2002. (Trial Ex. 3; Doc. 84 at 19).
29. The letter requests that Small have his clients sign an
enclosed subscriber agreement "stating that [the client]
understand[s] the change from CNA and that the terms and
conditions will remain the same except for benefit providers."
(Trial Ex. 3).
30. Core sent a substantially similar letter directly to
Small's PEO clients. (Trial Ex. 5; Doc. 84 at 20-21, 52).
31. On or around February 15, 2002, Small began contacting his
clients to recommend Core as the alternative PEO provider. (Doc.
84 at 20). 32. Small told clients that a transition from CNA to Core would
require very little disruption and that they would receive the
same pricing and payroll from Core as they had from CNA. (Doc. 84
33. All of Small's clients agreed to transition their PEO
services to Core. (Doc. 84 at 20).
34. On February 21, 2002, Rawles convened a meeting at CNA
offices in Philadelphia, open to any CNA agents and their
clients, to answer any questions about the transfer of PEO
accounts to Core. (Doc. 84 at 21, 63-64, 88, 95, 172).
35. Small and Ray Kohl ("Kohl"), the president of one of
Small's largest clients, Apex Fire Protection ("Apex"), were the
only individuals who attended the meeting. (Doc. 84 at 21-22,
36. Leahy facilitated the introductions, but he did not
participate substantively in the meeting and, in fact, was not
present during the majority of it. (Doc. 84 at 22, 93-94, 169,
37. During the meeting Kohl relayed that he was very concerned
about workers compensation insurance; if Apex's workers
compensation policies lapsed on March 31, 2002, his employees
would have to abandon all active job sites. (Doc. 84 at 211).
38. Rawls did not ask for any additional information from Small
or Kohl, but stated that he had reviewed the files of Small's PEO
clients and could transition them to Core in a relatively
"seamless" manner with a minimal amount of paperwork. (Doc. 84 at
22-23, 88-89, 211). 39. No one from CNA offered any monetary or other tangible
consideration to Small for transitioning to Core; the guidance
offered by CNA was merely a recommendation. (Doc. 84 at 67, 70).
40. Although Small did not sign a contract with Core, both he
and Kohl left the meeting believing that the transfer from CNA to
Core was a "done deal" and that Core was taking over Small's PEO
accounts. (Doc. 84 at 46, 53, 173-74, 212-13).
41. Leahy believed that the meeting between Rawles, Small, and
Kohl "successful." (Doc. 84 at 46, 53, 173-74, 212-13).
42. Following the meeting, Small assisted his PEO clients in
filling out the required paperwork and, during the first week of
March, submitted to Core the paperwork for all but one of his
clients. (Doc. 84 at 23-24).
43. Small sent the remaining client's paperwork to Core via
express mail on or about March 23, 2002. (Doc. 84 at 22-23).
44. On March 22, 2002, Small contacted Core to inquire about
certificates of insurance for Apex, to ensure that Apex employees
could continue their work on various construction jobs; Small was
assured that the certificates would be processed expeditiously.
(Doc. 84 at 24-25).
45. Shortly thereafter, a Core representative contacted Small
and requested additional loss information for Apex's workers'
compensation, ostensibly so that Core could process the
certificates. (Doc. 84 at 25-26, 79). 46. Although certain loss information for Apex had been already
provided to Core through CNA, Core requested Apex's loss
experience for several prior years; Small immediately provided
the requested loss information to Core. (Doc. 84 at 26-27).
47. Facing a March 31, 2002, cancellation date, Small was quite
concerned about the last minute nature of Core's request. (Doc.
84 at 80-81).
48. On or about March 24, 2002, Small telephoned Rawles and
reiterated Apex's urgent need for its insurance certificates.
(Doc. 84 at 27-28).
49. Rawles told Small that Core was having difficulty with the
workers' compensation carrier, but assured Small that the matter
would be resolved and that Apex would have its certificates.
(Doc. 84 at 28).
50. Small did not hear from Rawles the following day and once
again telephoned him; Rawles informed Small that he was traveling
to New York to discuss Small's PEO accounts with the workers'
compensation carrier. (Doc. 84 at 28, 82-83).
51. On March 26, 2002, Rawles telephoned Small and stated that
Core was unable to resolve the issues with the workers'
compensation carrier, and that the company would not underwrite
any PEO businesses in New York, New Jersey, or Pennsylvania.
(Doc. 84 at 28, 71-72).
52. All of Small's PEO accounts were in New York, New Jersey,
and Pennsylvania. (Doc. 84 at 28-29). 53. Small immediately contacted his clients and relayed that
Core would not be able to provide the coverage. (Doc. 84 at
54. As a result of Core's inability to provide coverage,
Small's clients were forced to place their workers' compensation
with a new carrier, secure payroll and human resources services,
and obtain new group health insurance. (Doc. 84 at 73).
55. Although Small was able to assist some of his clients with
replacement services before the March 31 deadline including the
procurement of workers' compensation for approximately five of
his clients, for which he received a commission Small lost all
PEO business. (Doc. 84 at 30-31, 74).
56. Small's monetary losses associated with the loss of PEO
business included: prospective commissions from PEO clients,
prospective conversion income offered by Core for clients'
employees transferring to Core, and prospective sales of non-PEO
products and services to PEO clients. (Doc. 84 at 106).
57. Small's loss of prospective commissions from PEO clients is
appropriately calculated using a twelve-month run rate of Small's
commissions from CNA. (Doc. 84 at 120, 124, 145).
58. Small's loss of PEO commissions must be calculated based
upon a percentage of CNA's PEO administration fee. CNA's
administration fee was based upon employee salaries. (Doc. 84 at
59. To calculate properly the loss of PEO commissions: (i)
salaries must be averaged for the entire year, and (ii) the wages
of each company must be increased annually based upon verified
client-employer salaries or, if unavailable, upon the reasonable assumption of a three percent annual salary
increase. (Doc. 84 at 120, 131, 155-58).
60. Small's loss of PEO commissions calculation does not assume
any additional clients, does not provide a set-off for
overlapping workers' compensation commissions, and does not
provide for any increase in Small's commissions. (Doc. 84 at 109,
111-12, 121, 158-59).
61. No variable costs were factored into the damages for the
loss of PEO clients because, historically, Small's costs were
negligible. (Doc. 84 at 112).
62. Small's expert witness, James Gatusso, Jr., testified that,
under generally accepted accounting principles, the standard
period for a commercial loss of earnings analysis is three years.
He also testified that a seven-year period for the assessment of
lost earnings is the general "rule of thumb" in the insurance
industry; however, the court finds this testimony to be highly
speculative and unsupported by the evidence of record. (Doc. 84
at 116-17, 128).
63. Based upon reasonable accounting methods and generally
accepted accounting practices, three years is a proper and
reasonable period of time for the assessment of Small's lost
earnings. (Doc. 84 at 113-16, 166-67).
64. Small proffers a total of $401,954 in lost PEO commissions,
but this sum represents commissions over a six-year period,
rather than a three-year period, and it does not take into
account annual commissions that Small receives related to the
placement of workers' compensation services for his former PEO clients totaling approximately $10,000. (Doc. 84 at 87, 92,
110-11, 118-19, 128-30; Trial Ex. 7).
65. A reasonable and appropriate amount of damages for lost PEO
commissions is $146,418.00, representing three years of losses
with a set-off for overlapping workers' compensation commissions.
(See Trial Ex. 7; Doc. 84 at 87, 92, 110-11).
66. Loss of prospective conversion income is properly
calculated based upon 442 employees working for Small's PEO
clients, and Core's promise to pay twenty-five dollars for each
employee that a CNA agent transitioned to Core; this calculation
results in a net amount of $11,050 attributable to loss of
conversion income. (Doc. 84 at 121-22, 146; Trial Ex. 7).
67. Loss of prospective sales of non-PEO commissions is
calculated based upon Small's historical rate of success in
selling non-PEO products and services to existing clients. (Doc.
84 at 123).
68. Small's PEO business provided a "captive audience" to whom
he could market non-PEO products and services. (Doc. 84 at 122,
69. Although Small proffered a net loss of $63,231 for
commissions related to sales of non-PEO products and services to
the captive audience, this figure is based upon an unreasonable
six-year period of time. (Doc. 84 at 124, Trial Ex. 7).
70. Small's proffered loss of commissions on non-PEO products
and services does not address an appropriate set off for those
products and services sold to former PEO clients who remained with Small as captive
audiences in non-PEO related areas. (See Doc. 84 at 161-62).
71. Small's proffered loss amount represents hypothetical
commissions that are based upon hypothetical sales, and is too
speculative upon which to award damages.
72. Small did not adduce sufficient and concrete evidence upon
which the court could calculate loss of commissions on non-PEO
products and services.
A. Breach of Contract
Under Pennsylvania law,*fn1 a party asserting a breach of
contract claim must demonstrate (1) the existence of a contract
and its essential terms, (2) a breach of a duty imposed by that
contract, and (3) damages arising from the breach. Corestates
Bank, N.A. v. Cutillo, 723 A.2d 1053, 1058 (Pa.Super.Ct.
A contract may be oral, written, or inferred from the acts and
conduct of the parties. Sullivan v. Chartwell Inv. Partners,
LP, 873 A.2d 710, 716 (Pa.Super.Ct. 2005). A valid agreement
may be found where the parties reach a mutual understanding on a
matter, sufficiently delineate the terms of their bargain, and
exchange consideration. RegScan, Inc. v. Con-Way Transp. Serv.,
Inc., 875 A.2d 332, 336 (Pa.Super.Ct. 2005); Weavertown Transp. Leasing, Inc.
v. Moran, 834 A.2d 1169, 1172 (Pa.Super.Ct. 2003); Greene v.
Oliver Realty, Inc., 526 A.2d 1192, 1194 (Pa.Super.Ct. 1987).
Consideration exists when there is a bargained-for exchange: the
conferring of a benefit upon the promisor or causing a detriment
upon the promisee. Weavertown, 834 A.2d at 1172; Cobaugh v.
Klick-Lewis, Inc., 561 A.2d 1248, 1250 (Pa.Super.Ct. 1989);
Cardamone v. Univ. of Pittsburgh, 384 A.2d 1228, 1232
In the matter sub judice, it is clear that a contract for
continued PEO services did not exist between CNA and Small.
Indeed, CNA correspondence advised Small that the company was
"exit[ing] the [PEO] business" and that Small would "need to work
. . . to secure replacement employee benefit and workers'
compensation insurance" for his clients before April 1,
2002.*fn2 (Trial Exs. 1,2). That a contract did not exist is
supported by the testimony of CNA's vice president of marketing,
who stated that it was never CNA's intent to a contract with
Small, but only to advise Small that Core was a potential
replacement for CNA's PEO services. (Doc. 84 at 179-81). Because
there is no evidence that CNA entered into a contract with Small
for further PEO services, judgment will be entered in favor of
CNA and against Small on the breach of contract claim. With regard to Core, however, the court finds that it entered
into a bilateral contract with Small.*fn3 The terms of the
agreement were sufficiently delineated in the correspondence from
Core to Small: Core was to provide payroll processing and billing
services at CNA rates and with "all current terms and
conditions"; Core was to provide health coverage for the clients
with "no break in coverage"; Small was to receive twenty-five
dollars for each PEO employee that he converted to Core who
stayed with Core through June 2002; and Small was to receive the
same commissions with Core that he had received with CNA. (Trial
Ex. 3, 5). The correspondence instructed Small to have his
clients sign a Core subscriber agreement and explain that the
"terms and conditions will remain the same [as they are with CNA]
except for benefit providers." (Trial Ex. 3, 5). Further, the
subscriber agreement itself provided that "[a]ll terms and
conditions of the existing CNA . . . Client Services Agreement
between client and [CNA] including administration fees, State
Unemployment Rates, FICA, and Workers' Compensation Rates remain
as agreed in that Client Services Agreement." (Trial Ex. 5). The terms of the agreement including the then-indefinite
terms of the workers' compensation services*fn4 were
reiterated and acknowledged by Rawles, the President of Core, at
the February 21, 2002, meeting with Small and Kohl, and Rawles
explicitly stated that the accounts were reviewed and acceptable
to Core and that there would be no problem servicing them. (Trial
Exs. 3, 5). Rawles, on behalf of Core, offered to pay Small and
service his CNA accounts if Small would agree to provide his
clients to Core.*fn5 Small expressly accepted these terms,
and performed his end of the agreement by having his clients
complete and submit to Core subscriber agreements, the majority
of which were received by Core the first week of March
2002.*fn6 All were in Core's possession by March 23, 2002.
Core was obligated to service Small's accounts, but breached its
obligation to Small when it informed him that it would not be
able to provide the services for any of his clients.*fn7 This breach on the last days of CNA coverage left Small
scrambling for alternative services, and caused Small to lose all
of his PEO business.
The court concludes, by a preponderance of the evidence, that
Core entered into and breached an agreement with Small for PEO
services. Therefore, the court will enter judgment in favor of
Small and against Core on the breach of contract claim.
B. Detrimental Reliance
Under Pennsylvania law, a claim of detrimental reliance is a
promissory estoppel cause of action. See Rinehimer v. Luzerne
County Cmty. Coll., 539 A.2d 1298, 1306 (Pa.Super.Ct. 1988);
Thermacon Enviro Sys., Inc. v. GMH Assoc. of Am., Inc., 2001 WL
1807890, at *2 (Pa. Com. Pls. 2001).*fn8 Promissory estoppel
allows a party to enforce contract-like promises made
unenforceable as a breach of contract claim by technical defects
or defenses. See Crouse v. Cyclops Indus., 745 A.2d 606, 610
(Pa. 2000); Thompson v. Schriver, 2002 WL 31661603 (Pa. Com.
Pls. 2002); see also MDNet, Inc. v. Pharmacia Corp., 2005
WL 1385906, at *4 (3d Cir 2005).
Pennsylvania has adopted section 90 of the Restatement (Second)
of Contracts for promissory estoppel. See Murphy v. Burke,
311 A.2d 904, 908 (Pa. 1973); Travers v. Cameron County Sch.
Dist., 544 A.2d 547, 550 (Pa. Cmmw. Ct. 1988). This section provides that a promise, which the promisor should
reasonably expect to include action or forebearance of a definite
and substantial character on the part of the promisee, and which
does induce such action or forebearance, is binding if injustice
can be avoided only by the enforcement of the promise. Crouse,
745 A.2d at 610; Thatcher's Drug Store of W. Goshen, Inc. v.
Consol. Supermarkets, Inc., 636 A.2d 156, 160 (Pa. 1994);
Weavertown, 834 A.2d at 1174; Restatement (SECOND) OF CONTRACTS
§ 90 (1981).
In the matter sub judice, Small has failed to make out a
prima facia case of promissory estoppel against CNA.
Representatives from CNA never made promises directly to Small
upon which he detrimentally relied. (Doc. 84 at 181). Although
Core made express representations to Small, CNA did not
promise Small that any transition of his PEO accounts to Core
would be "seamless," tell Small that he must transition his
accounts to Core, or ask Small to refrain from going to another
PEO provider such as H.R. Logic. (Doc. 84 at 178-81). Further,
although Small contends that CNA "recommended" Core as an
alternative provider, a mere recommendation is insufficient to
support a finding of promissory estoppel. See Weavertown,
834 A.2d at 1174 (stating that promissory estoppel cannot be
"loosely" applied). As such, judgment will be entered in favor of
CNA and against Small on the promissory estoppel claim.*fn9 With regard to Core, the court notes that, under Pennsylvania
law, promissory estoppel is inapplicable when the facts of a
given case are sufficient to support a claim for breach of
contract. See Lobar, Inc. v. Lycoming Masonry, Inc.,
876 A.2d 997, 1000 (Pa.Super.Ct. 2005) (holding that promissory estoppel
is inapplicable where "liability can be decided properly and
finally on contractual principles of offer and acceptance")
(quoting Hedden v. Lupinsky, 176 A.2d 406, 408 (Pa. 1962). In
light of the court's ruling in favor of Small in its breach of
contract claim against Core, further analysis is unnecessary.
In a breach of contract or promissory estoppel action, damages
are awarded to compensate the injured party for losses incurred
because of the breach. Empire Prop., Inc. v. Equireal, Inc.,
674 A.2d 297, 304 (Pa. 1996); cf. Green v. Interstate United
Mgmt. Serv. Corp., 748 F.2d 827, 830-31 (3d Cir. 1984) (stating
that the remedy for breach in promissory estoppel case is limited
only "as justice requires"); RESTATEMENT (SECOND) OF CONTRACTS §
90(1) (1981) (same). The purpose of damages is to put the
plaintiff in the position he or she would have been but for the
breach. Pittsburgh Constr. Co. v. Griffith, 834 A.2d 572, 580
(Pa.Super.Ct. 2003). "Recovery will not be precluded simply
because there is some uncertainty as to the precise amount of
damages incurred," however, a plaintiff must still put forth
"evidence which establishes, with a fair degree of probability, a
basis for their assessment." Wujik v. Yorktowne Dental Assoc.,
Inc., 701 A.2d 581, 584 (Pa.Super.Ct. 1997) (citation
omitted). For a loss of profits claim, the amount of loss must be
established with reasonable certainty and the evidence must
reflect that the loss was reasonably foreseeable and a proximate
consequence of the wrong. Advent Sys. Ltd. v. Unisys Corp.,
925 F.2d 670, 680 (3d Cir. 2001); Wilcox v. Regester, 207 A.2d 817,
822 (Pa. 1965); Hahn v. Andrews, 126 A.2d 519, 521
(Pa.Super.Ct. 1956); Dep't of Transp. v. Brozetti, 684 A.2d 658, 666 n.
16 (Pa.Commw.Ct. 1996). For an established business, loss of
profits may be proven by evidence of (1) past profits, (2)
profits made by others or by similar contracts, or (3) expert
testimony that is based upon more than individual opinion or
conjecture. Advent, 925 F.2d at 681.
In the case sub judice, Small introduced credible expert
testimony regarding damages arising from Core's breach of the
agreement. With regard to loss of PEO commissions, the court
finds that the losses proffered are supported by historical
evidence of Small's commissions. However, the relief requested
will be limited to a three year period. The court accepts expert
witnesses testimony that, under generally accepted accounting
principles, the standard period for a loss of profits analysis is
three years. However, the court finds that the suggestion for an
enlargement of this period that the insurance industry uses a
seven year time frame as a "rule of thumb" is based upon
conjecture. Indeed, the expert witness failed to articulate any
reasonable explanation for such an enlargement. Accordingly, the
loss of PEO commissions will be calculated for a three year
period, from 2003 through 2005, and will take into account the
overlapping commissions Small receives for the placement of
workers' compensation services for former PEO clients. This results in a net loss of PEO commissions of
$146,418.00. (See Trial Ex. 7; Doc. 84 at 87, 92, 110-11); see
also Cooke v. Equitable Life Assur. Soc. of U.S.,
732 A.2d 723, 729 (Pa.Super.Ct. 1999).
With respect to the loss of compensation for the transition of
clients from CNA to Core, the court again finds that Small's
proffered expert testimony was credible, and that the evidence
clearly establishes that Small would have been entitled to
$11,050.00 for transitioning his CNA PEO clients to Core. As set
forth in Core's February 14 correspondence, this amount is
derived by multiplying twenty-five dollars by the number of
employees that would have been transitioned to Core but for its
As for Small's claim of loss of premiums from future sales to a
captive audience, the court finds that these damages are too
speculative for an award. Although the contract would have
arguably given Small a captive audience to solicit non-PEO
business, the nature and extent of any additional services cannot
be readily or reasonably determined from the evidence of record.
Accordingly, the court will deny an award of damages for any such
III. Conclusions of Law
1. Plaintiff has failed to prove by a preponderance of the
evidence the elements necessary under Pennsylvania law to succeed
on a claim for breach of contract against CNA. 2. Plaintiff has failed to prove by a preponderance of the
evidence the elements necessary under Pennsylvania law to succeed
on a claim for detrimental reliance against CNA.
3. Plaintiff has proven by a preponderance of the evidence the
elements necessary under Pennsylvania law to succeed on a claim
for breach of contract against Core.
4. Judgment should be entered against Small and for CNA on the
claims of breach of contract and detrimental reliance claims.
5. Judgment should be entered against Core and in favor of
Small on the claim of breach of contract.
6. Small has proven damages by a preponderance of the evidence
in the amount of $157,468.00 attributable to Core's breach of
7. The claims of Small for detrimental reliance against Core
are moot. An appropriate order will issue. ORDER
AND NOW, this 26th day of October, 2005, upon consideration of
the complaint (Doc. 1), and following a bench trial, and for the
reasons set forth in the accompanying memorandum, it is hereby
1. The Clerk of Court is directed to enter JUDGMENT:
a. In favor of plaintiffs Donald L. Small and Small &
Small, Inc., and against defendant Core Employee
Services, Inc. in the amount of $157,468.00.
b. In favor of defendant CNA Unisource and against
plaintiffs Donald L. Small and Small & Small, Inc.
2. The claims of plaintiffs Donald L. Small and Small
& Small, Inc., against Core Employee Services, Inc.,
for detrimental reliance are DISMISSED as moot.
3. The Clerk of Court is directed to CLOSE this case.
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