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Walnut Street Associates, Inc. v. Brokerage Concepts

IN THE SUPERIOR COURT OF PENNSYLVANIA


September 22, 2009

WALNUT STREET ASSOCIATES, INC.,
v.
BROKERAGE CONCEPTS, INC. AND KIMBERLY MACRONE,
APPEAL OF: BROKERAGE CONCEPTS, INC.

Appeal from the Order entered October 31, 2007, Court of Common Pleas, Philadelphia County, Civil Division at August Term, 2005 No. 002626.

The opinion of the court was delivered by: Donohue, J.

BEFORE: ORIE MELVIN, BOWES and DONOHUE, JJ.

OPINION

¶ 1 Appellant, Brokerage Concepts, Inc. ("BCI"), appeals from the October 31, 2007 order denying its post-trial motions for judgment notwithstanding the verdict or a new trial and entering judgment in favor of Appellee, Walnut Street Associates, Inc. ("Walnut Street"). After careful review, we conclude that in accordance with the Restatement (Second) of Torts § 772(a), true statements may not be the basis for a claim of intentional interference with contractual relationships. Accordingly, we reverse and remand for entry of judgment notwithstanding the verdict in favor of BCI.

¶ 2 The relevant facts and procedural history of this case are as follows. Walnut Street provides insurance brokerage services and assists employers in obtaining health insurance benefits for their employees. In the 1980's, Walnut Street was appointed broker of record for Procacci Brothers Sales Corp. ("Procacci"), a self-funded insurer with separate plans for its union and non-union employees. In 1994, at the recommendation of Walnut Street, Procacci retained BCI, a third-party administrator ("TPA") of self-funded employee benefit plans, as TPA for its two self-funded plans. BCI, in turn, paid Walnut Street commissions based on the premiums paid by the Procacci plans.

¶ 3 On March 1, 2005, after BCI refused to meet a proposal to lower its costs, Procacci notified BCI that as of March 16, 2005, it was moving its union plan from BCI to a new and less costly TPA, Loomis Company ("Loomis"). On March 2, 2005, Kimberly Macrone ("Macrone"), a sales representative employed by BCI, wrote a letter to Procacci asking that it reconsider its decision. Among other things, Macrone's letter informed Procacci of the amount of commission Walnut Street earned on the non-union plan. Shortly thereafter, Procacci terminated Walnut Street as its broker of record. On March 10, 2005, BCI stopped payment on a commission check to Walnut Street.

¶ 4 In August 2005, Walnut Street commenced the action underlying this appeal against BCI and Macrone. The complaint contained four counts. The first three sought recovery from BCI for unpaid commissions, while the fourth alleged tortious interference with contractual relations. In November 2006, after BCI paid the disputed commissions, plus interest, the trial court granted summary judgment on Counts I, II and III. Summary judgment on Count IV was denied. The parties proceeded to a jury trial on the tortious interference claim. At the close of evidence, Walnut Street entered a voluntary non-suit with respect to Macrone. On June 29, 2007, the jury entered a verdict in favor of Walnut Street and awarded it $330,000 in compensatory damages. BCI filed post-trial motions for judgment notwithstanding the verdict ("JNOV") or in the alternative, a new trial. The trial court denied both motions, and entered judgment in favor of Walnut Street and against BCI.

¶ 5 On appeal, BCI raises the following two issues and sub-issues:

I. Whether the trial court should have directed a judgment in [BCI's] favor because:

A. the statements in BCI's letter to Procacci causing [Walnut Street's] termination were true, and therefore could not serve as the basis for a tortious interference claim under Pennsylvania law, or, in the alternative, under the law of New Jersey, which has the most significant relationship to this issue;*fn1

B. the imposition of tortious interference liability for the making of truthful statements is unconstitutional under the First Amendment and the Pennsylvania Constitution, where no countervailing state interests have been identified;

C. BCI's conduct was privileged either under the competition privilege or under the business interest privilege; or

D. [Walnut Street] provided no evidence of lost profits but only of lost revenues, and the revenue evidence itself was so insufficient as to render the damages claim purely speculative, with the result that [Walnut Street] failed to prove an essential element of his claim?

II. Whether the trial court should have granted BCI's motion for a new trial because of prejudicial error with respect to one or more of six jury instructions, as follows:

A. the failure to give a charge that a plaintiff cannot ground his cause of action upon his own fraud;

B. the failure to instruct the jury on the meaning of "wrongful means," an essential element of BCI's competition privilege defense;

C. the similar failure to define the term "proper means," essential to BCI's business interest privilege defense;

D. the giving of an erroneous charge to the jury defining lost profits as consisting solely of lost revenues, without regard to the need to subtract out the costs of producing those revenues;

E. the failure to instruct the jury that damages for lost profits must be proved to a reasonable certainty and cannot be speculative; or

F. the failure to instruct the jury that truthful statements cannot be the basis for tortious interference liability?

Appellant's Brief at 3-4.

¶ 6 Under our applicable standard of review, we will reverse a trial court's denial of a motion for JNOV or a new trial only if we find an abuse of discretion or an error of law that controlled the outcome of the case. Hutchinson v. Penske Truck Leasing Co., 876 A.2d 978, 984 (Pa. Super. 2005), affirmed, 592 Pa. 38, 922 A.2d 890 (2007). When, as here, the issue raised on appeal presents a question of law, our standard of review is de novo and our scope of review is plenary. See Dooner v. DiDonato, ---Pa. ---, 971 A.2d 1187, 1193 (2009).

¶ 7 In its first claim on appeal, BCI argues that the trial court erred in denying its post-trial motion for JNOV because the allegedly interfering statements made to Procacci were truthful and thus may not serve as a basis for a claim for tortious interference with contractual relationships. Appellant's Brief at 19. For the reasons that follow, we agree and reverse the trial court's order.

¶ 8 The tort of intentional interference with existing contractual relationships is governed by section 766 of the Restatement (Second) of Torts, which our Supreme Court adopted in Adler, Barish, Daniels, Levins & Creskoff v. Epstein, 482 Pa. 416, 393 A.2d 1175 (1978), appeal dismissed and cert. denied, 442 U.S. 907 (1979).*fn2 Section 766 provides as follows:

One who intentionally and improperly interferes with the performance of a contract (except a contract to marry) between another and a third person by inducing or otherwise causing the third person not to perform the contract, is subject to liability to the other for the pecuniary loss resulting to the other from the failure of the third person to perform the contract.

Rest. 2d Torts § 766 (1979); see also York Group v. Yorktown Caskets, Inc., 924 A.2d 1234, 1249-50 (Pa. Super. 2007); Reading Radio, Inc. v. Fink, et al., 833 A.2d 199, 211 (Pa. Super. 2003), appeal denied, 577 Pa. 723, 847 A.2d 1287 (2004); Triffin v. Janssen, 626 A.2d 571, 574 (Pa. Super. 1993), appeal denied, 536 Pa. 646, 639 A.2d 32 (1994). The necessary elements of the cause of action are (1) the existence of a contractual relationship between the complainant and a third party; (2) an intent on the part of the defendant to harm the plaintiff by interfering with that contractual relationship; (3) the absence of privilege or justification on the part of the defendant; and (4) the occasioning of actual damage as a result of defendant's conduct. Phillips v. Selig, 959 A.2d 420, 429 (Pa. Super. 2008), appeal denied, 967 A.2d 960 (2009); Small v. Juniata College, 682 A.2d 350, 354 (Pa. Super. 1996), appeal denied, 689 A.2d 235 (1997); Triffin, 626 A.2d at 574.

¶ 9 The record on appeal in this case contains sufficient evidence to support the jury's findings with regard to the first, second, and fourth elements of the tort, and our focus here is on the third element (absence of privilege or justification). The third element requires proof that the defendant's actions were improper under the circumstances presented, which is generally determined through consideration of the factors listed in Restatement (Second) of Torts section 767:

In determining whether an actor's conduct in intentionally interfering with a contract ... is improper or not, consideration is given to the following factors: (a) the nature of the actor's conduct; (b) the actor's motive; (c) the interests of the others with which the actor's conduct interferes; (d) the interests sought to be advanced by the actor; (e) the social interests in protecting the freedom of action of the actor and the contractual interests of the other; (f) the proximity or remoteness of the actor's conduct to the interference; and (g) the relations between the parties.

Restatement (Second) of Torts § 767 (1979); see, e.g., Adler Barish, 482 Pa. at 433, 393 A.2d at 1184; Phillips, 959 A.2d at 429-30; Triffin, 626 A.2d at 574. Comment b to section 767 makes clear that under certain circumstances, "the conduct should be permitted without liability, despite its effect of harm to another," and thus the decision "depends upon a judgment and choice of values in each situation." Restatement (Second) of Torts § 767 cmt. b (1979).

¶ 10 In addition to the analysis of the factors listed in section 767, sections 768 through 773 of the Restatement (Second) set forth specific circumstances in which interference with contractual relationships is not improper.*fn3 Relevant to this case is section 772, including in particular subsection 772(a):

One who intentionally causes a third person not to perform a contract or not to enter into a prospective contractual relation with another does not interfere improperly with the other's contractual relation, by giving the third person

(a) truthful information, or

(b) honest advice within the scope of a request for the advice.

Restatement (Second) of Torts § 772 (1979) (emphasis added). With regard to subsection 772(a), comment b explains that:

There is of course no liability for interference with a contract or with a prospective contractual relation on the part of one who merely gives truthful information to another. The interference in this instance is clearly not improper. This is true even though the facts are marshaled in such a way that they speak for themselves and the person to whom the information is given immediately recognizes them as a reason for breaking his contract or refusing to deal with another. It is also true whether or not the information is requested.

Restatement (Second) of Torts § 772 cmt. b (1979).

¶ 11 In this case, both parties agree that the statements made by Macrone to Procacci regarding Walnut Street's earned commission on the Procacci non-union plan contained only truthful information. See Appellant's Brief at 11; Appellee's Brief at 5. At trial, Jeffrey Wallner, Walnut Street's principal, conceded that Macrone's statements regarding the amount of commission Walnut Street earned on Proccaci's non-union plan were correct. N.T., 6/28/07, at 151. The evidence further demonstrated that this disclosure by Macrone of the amount of Walnut Street's commission led Procacci to terminate Walnut Street as its broker of record. Id. at 175. Accordingly, if Pennsylvania follows Restatement section 772(a), then the trial court erred in not granting JNOV to BCI because Macrone's truthful statements to Procacci were not improper as a matter of law and thus could not serve as the basis for a tortious interference claim.*fn4

¶ 12 Our Supreme Court has never addressed the applicability of section 772(a) in a published decision. More generally, however, it has made clear that with respect to intentional interference claims, Pennsylvania is a "Restatement state" and that accordingly it has "repeatedly looked to the Restatement as authority for the elements of a cause of action for intentional interference with existing contract relations." Adler Barish, 482 Pa. at 430 n.13, 393 A.2d at 1182 n.13. Moreover, in Menefee v. Columbia Broadcasting Sys., 458 Pa. 46, 329 A.2d 216, (1974), our Supreme Court adopted what is now section 772(b) of the Restatement (Second),*fn5 which states that providing "honest advice within the scope of a request for the advice" does not constitute an improper interference. Id. at 56, 329 A.2d at 221.

¶ 13 This Court has recognized section 772(a) in two decided cases. In Yaindl, an employee sued his former employer for interfering with a prospective employment relationship. This Court evaluated this claim as one sounding in tortious interference with a prospective contractual relationship,*fn6 and concluded that the trial court erred in granting summary judgment to the former employer because issues of material fact remained regarding whether it knowingly made certain misrepresentations to the employee's prospective employer. After setting forth the potential misrepresentations, this Court noted that the jury could also determine that the information conveyed to the prospective employer was true -- in which case no cause of action would lie by application of section 772(a):

Of course, were the jury to conclude that [the former employer] imparted only truthful information to [the prospective employer], [the former employer's] interference would not be improper. Restatement (Second) of Torts s 772 (1979).

Id. at 623 n.12 (emphasis added).

¶ 14 Similarly, in Geyer v. Steinbronn, 506 A.2d 901 (Pa. Super. 1986), an employee sued his former employer for interfering with a prospective employment relationship. In affirming the judgment entered on a jury verdict in favor of the employee, this Court cited to section 772(a) in connection with the former employer's contention that all of the information given to the prospective employer was thought to be truthful at the time it was conveyed. Id. at 910. While implying that section 772(a) would have applied if the statements at issue were true, we nevertheless concluded that sufficient evidence existed for the jury to find that the former employer's statements were not true, and that in fact considerable evidence existed to support a finding that the former employer knew that some of its statements were false. Id.

¶ 15 When dealing with an issue not previously addressed by our Supreme Court, it is this Court's job to predict how our Supreme Court would reason and resolve the issue. See, e.g., Lehn's Court Mgmt. LLC v. My Mouna, Inc., 837 A.2d 504, 507 (Pa. Super. 2003). Based upon our Supreme Court's directive in Adler Barish that this Commonwealth follows the Restatement in connection with intentional interference claims as well as its adoption of section 772(b) in Menefee, we predict that it will adopt section 772(a) if and when it addresses the issue. We also note that this Court has adopted and applied related Restatement (Second) sections 768, 769, and 773 (see footnote 3 supra), and has previously cited section 772(a) with approval in both Yaindl and Geyer. Finally, the courts of sister jurisdictions have nearly universally adopted section 772(a) of the Restatement (Second).*fn7

¶ 16 Walnut Street contends that our decision in Collincini v. Honeywell, Inc., 601 A.2d 292(Pa. Super. 1992), appeal denied, 530 Pa. 651, 608 A.2d 27, cert. denied, 506 U.S. 869 (1992), compels the opposite conclusion. We disagree. In Collincini, an employee (Collincini) sued his former employer, Honeywell, Inc. ("Honeywell"), for intentional interference with contractual relations. Collincini alleged that his termination by his current employer, American Technical Services, Inc. ("ATS"), resulted from letters sent by Honeywell to ATS claiming that Collincini was wrongfully using proprietary information and engaging in unfair competition with Honeywell's customers, and threatening to sue ATS if it did not end Collincini's practices immediately. A jury found in Collincini's favor on his intentional interference with contract claim and awarded him compensatory and punitive damages.

¶ 17 On appeal, Honeywell contended that its conduct could not be tortious because, inter alia, its statements to ATS were true. This Court ruled in favor of Collincini, noting that while "[t]ruth is an absolute defense to defamation; it is not a defense to intentional interference with contractual relations." Id. at 296 (emphasis in original). In reviewing the record on appeal, however, this Court concluded that the evidence of record provided a sound basis for the jury's conclusion that the information conveyed by Honeywell to ATS was false: "Evidence admitted at trial indicated that Honeywell knew at the time the first letter was written that it had no cause of action against Collincini or ATS." Id. at 295-96. We further concluded that "while Honeywell's list of contract renewals lost to ATS might be factually correct, its characterization of the information Collincini relied on to obtain those contracts as proprietary or trade secrets is false as a matter of law." Id. at 296. Collincini's knowledge of customers' contract renewal dates constituted only "general knowledge, skill and experience" in the field for the type of service provided by Honeywell and ATS, and thus were not as a matter of law protectable proprietary information. Id. at 296 n.4.

¶ 18 We decline to follow Collincini in the present appeal for two reasons. First, our statement in Collincini that truth is "not a defense to intentional interference with contractual relations" was obiter dictum,*fn8 since in deciding the case we relied primarily on the fact that there was sufficient evidence of record to permit the jury to conclude that Honeywell's statements to ATS were false, bothas a matter of fact and as a matter of law. Second, we did not cite to any authority in support of the statement, and we neither acknowledged nor discussed the potential applicability of Restatement (Second) section 772(a) or our prior decisions in this area (Yaindl and Geyer). We decline Walnut Street's suggestion that in Collincini we rejected the adoption of section 772(a) sub silentio.

¶ 19 For these reasons, we adopt Restatement (Second) section 772(a). As such, Macrone's truthful statements to Proccaci were not improper as a matter of law and thus could not form the basis for a tortious interference with contract claim. BCI was entitled to JNOV as a matter of law, and we therefore we reverse the trial court's order and remand for entry of JNOV in favor of BCI.

¶ 20 Order reversed. Case remanded with instructions.


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