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PSC Info Group v. Lason

February 3, 2010


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


Plaintiff, PSC Info Group ("PSC"), brings this action against defendants Bay Area Credit Services ("BACS"), HOV Services, Ltd. ("HOV"), and Lason, Inc. ("Lason"), for breach of contract and tortious interference with contractual relations. Defendants have collectively moved pursuant to Fed. R. Civ. P. 56(b) for summary judgment on all claims. Defendants argue that:

(1) PSC's breach of contract claims against BACS are time-barred under the six-month limitations period stated in the contract between PSC and BACS; (2) HOV is not liable for breach of contract because PSC has failed to produce any evidence of the requisite criteria for piercing the corporate veil; (3) HOV's interference with the contract was privileged as a result of its parent/subsidiary relationship with BACS; and (4) Lason cannot be held liable for tortious interference because it was unaware of the contract between PSC and BACS.*fn1 I will grant summary judgment on all claims except for (1) that portion of PSC's breach of contract claim against BACS that reflects breaches between November 10, 2007, and May 31, 2008; and (2) PSC's tortious interference claim against HOV.

I. Factual Background

PSC is a document processing company that contracts with other businesses to print, sort, and mail debt collection notices. (Pl.'s Mem. of Law in Opp'n to Defs.' Mot. to Dismiss*fn2 ("Pl.'s Mem.") 1.) On May 31, 2006, PSC entered into a written one-year contract with BACS, a debt collection firm affiliated with HOV,*fn3 to process, print, and mail BACS' collection letters. (Pl.'s Reply in Opp'n to Defs.' Mot. Summ. J. ("Pl.'s Reply") Ex. I; Defs.' Mot. Summ. J. ("Defs.' Mot.") Ex. E ("PSC Contract").) Under the terms of this contract, PSC was to create standard templates for BACS' regular mailings. (PSC Contract ¶ I(a).) BACS would then send data files to PSC containing information that PSC would place into the templates, creating individual letters to be sent. (Id. ¶ I.) PSC would then mail these letters to their intended recipients. (Id. ¶ I(e).) The contract also stated that PSC was to be the "exclusive agent for the purposes described" in the contract. (Id. ¶ I.)

According to the contract, the monthly volume to be processed and mailed was "projected initially to be 400,000 [units] per month." (Id. ¶ V.) PSC would charge BACS a per-unit rate that was to vary according to the volume that BACS sent each month. (Id. ¶ V; Pl.'s Reply Ex. I, at 3.) If BACS failed to reach the projected volume of 400,000 units per month within 120 days of the commencement of processing, PSC reserved the right to prospectively alter the per-unit charge. (PSC Contract ¶ V.) The contract was to be automatically renewed on a year-to-year basis unless either party provided the other with notice of termination. (Id. ¶ IV(a).) The contract also contained a provision requiring that any action arising out of the agreement between the parties was to be filed within six months of the accrual of the underlying claim. (Id. ¶ XII.)*fn4

The contractual relationship between PSC and BACS was marked early on by conflict. According to Jesse Singh, BACS' Vice-President of Information Technologies (Defs.' Statement ¶ 18), BACS sent "letter samples" to PSC in May and June 2006, but PSC failed to format some of those letters in its system and return its own samples for BACS' approval until September or October. (Singh Dep. 109.) Each party blames the other for this delay. (See id. at 114-15; Greco Dep.*fn5 35-36.) In the meantime, BACS continued to use other document processing suppliers in addition to PSC, despite the exclusivity provision in the contract. (See Singh Dep. 117-18.)

There were also disputes over billing practices. Defendants claim that PSC regularly made billing errors in PSC's favor, which PSC would then correct when BACS challenged the invoices. (See id. at 141-42.) According to PSC, the initial bills were correct but BACS insisted on applying the "preprinted duplex printing" rate despite the fact that the services PSC performed involved the more expensive "variable duplex printing" method, which was normally billed at a higher rate. (See Kaster Dep.*fn6 58-62.) In addition, on October 26, 2006, PSC notified BACS that it would raise its per-unit processing rates, effective December 1, 2006, as a result of an increase in the price of raw materials such as paper. (See Defs.' Mot. Ex. G.) According to defendants, this rate increase violated the terms of the contract. (See Defs.' Mem. 1.) In addition, according to an internal email by a PSC employee, by January 17, 2007, BACS had amassed a large outstanding balance on its account with PSC, of which over $50,000 was more than 31 days past due. (Defs.' Mot. Ex. J.)

After the end of the 120-day contractual "ramp-up" period, BACS continued to send well under 400,000 documents per month to PSC for processing, causing concern among members of PSC management. (See Kaster Dep. 67.) In an email dated December 13, 2006, Stephanie Kaster, a PSC employee, told Singh that she was "receiving a lot of concern from [her] senior team and need[ed] some immediate assistance." (Defs.' Mot. Ex. H.) Kaster later testified in a deposition that this portion of the email referred to the continued low volume of work that BACS was sending PSC. (Kaster Dep. 68-69.) The volume of work peaked in January 2007 at 158,884 units and then went into a relatively steady decline. (Defs.' Mot. Ex. P; Greco Dep. 47.)

On around February 26, 2007, either HOV or its wholly-owned subsidiary, HOV, LLC,*fn7 acquired Lason, a company that also performs document processing and mailing services. (Compare Cogburn Dep.*fn8 7 ("I believe it was HOV Services Limited [that] acquired Lason") with Reynolds Dep.*fn9 8-9 (testifying that Lason was acquired by Rustic Canyon II, which in turn was acquired on approximately the same day by HOV, LLC, a separate company from HOV, Ltd.).)*fn10 Lason is a competitor of PSC. (Greco Dep. 40-41.)

Following the Lason acquisition, corporate officers of HOV, LLC, and HOV, Ltd., held "integration meetings" in order to determine whether any services that HOV and its subsidiaries had previously bought from outside vendors could be performed more cost-effectively "in-house." (Cogburn Dep. 58-69.) As a result of the integration analysis, BACS began using Lason for its mailing services sometime before June 30, 2007. (See Cogburn Dep. 69; Singh Dep. 45-46; Defs.' Mot. Ex. N (Lason invoices).) None of the defendants explicitly notified PSC of this decision. (Greco Dep. 72, 75.)

PSC management noticed sometime in May 2007 that BACS had failed to meet the projected volume stated in the contract and that its volume of mailings had been "trending down and becoming sort of non-existent." (Id. at 34.) That month, Joseph Greco, the CEO of PSC, spoke on the telephone to Singh and asked how the parties could continue their business relationship and whether there were any problems with PSC's service. (Singh Dep. 139-40; Greco Dep. 35-40, 43-46.) Greco also inquired as to why PSC had not become BACS' exclusive provider of document processing. (Greco Dep. 39.) According to Greco, Singh spoke about concerns he had with PSC's service and confirmed that BACS had not fully "covert[ed]" from other vendors but did not discuss the Lason merger. (Greco Dep. 39-41; Singh Dep. 140.) Greco testified that Singh's responses "didn't resonate, didn't sort of make sense." (Greco Dep. 35.) As a result, Greco "knew [PSC was] getting played by them [BACS] at that point" and was "convinced that they [BACS] weren't going to live up to the terms of the agreement." (Id. at 35, 43.) "[S]hortly thereafter a decision was made to pursue enforcing of the contract." (Id. at 40.) In February 2007 BACS provided PSC with 103,030 pieces of mail to service. In March 2007 the volume decreased to 60, 772. In May 2007 the volume further decreased to 29, 220 pieces of mail. By July, the volume had decreased to 10,515, approximately 10% of the volume in February when Lason was acquired. (See Pl.'s Mem. 4; Defs.' Statement ¶ 41.) Defendants concede that BACS altogether stopped sending documents to PSC for processing in July 2007. (See Singh Dep. 139; Defs.' Mot. Ex. O.)

On September 5, 2007, Mike Hennessy, the Director of Information Technology for PSC, sent an internal email to Greco and Kaster discussing BACS' cessation of business and noting that BACS had failed since July to respond to PSC's multiple attempts at communication. (Defs.' Mot. Ex. O.) The email speculated that BACS had transitioned to another vendor and raised the possibility of "go[ing] after" BACS based on the contract. (Id.) Greco confirmed that the memo meant that, as of September 5, 2007, he had decided to pursue legal remedies against BACS because it was "quite obvious" that they were in breach of the agreement. (Greco Dep. 44.) The undisputed evidence shows that as of September 5, 2007, PSC had not received a single collection letter for processing in over two months from BACS even though PSC believed that the agreement required BACS to deliver at least 400,000 pieces per month. (See Pl.'s Mem. 4.)

There is no record of any further communication between the parties between September 2007 and February 15, 2008, when counsel for PSC contacted the president of BACS, informing BACS that it was in default of its "contractual and quasi contractual obligations under Pennsylvania law" as a result of its failure to send 400,000 letters per month for processing to PSC. (See Defs.' Mot. Ex. R; Pl.'s Reply Ex. G.) In response, in-house counsel for BACS sent a letter, dated February 26, 2008, to PSC's counsel, contesting PSC's allegations of default and notifying PSC that "BACS intends to terminate the Agreement at the end of this current term" (Defs.' Mot. Ex. S, at 3; Pl.'s Resp. Ex. H, at 4), which was on May 31, 2008 (see PSC Contract ¶ IV(b)).

PSC filed suit in this court on May 10, 2008. Count I of PSC's complaint alleged that HOV and Lason tortiously interfered with the contract between PSC and BACS. Count II alleged that BACS breached the contract between PSC and BACS. Count II also sought to pierce the corporate veil in order to hold HOV and Lason liable for breach of contract. On defendants' motion, the court dismissed PSC's breach of contract claim against Lason. PSC Info Group v. Lason, Inc., No. 08-2176, 2008 WL 4660943, at *8 (E.D. Pa. Oct. 21, 2008). Defendants now move for summary judgment on the remaining claims.

II. Standard of Review

A motion for summary judgment must be granted "if the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c)(2). The moving party bears the initial burden of demonstrating that there is no genuine issue of material fact. See Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Once the moving party has met this initial burden, the nonmoving party must "come forward with 'specific facts showing that there is a genuine issue for trial.'" Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) (quoting and adding emphasis to Fed. R. Civ. P. 56(e)). "Facts that could alter the outcome are 'material,' and disputes are 'genuine' if evidence exists from which a rational person could conclude that the position of the person with the burden of proof on the disputed issue is correct." Ideal Dairy Farms, Inc. v. John Labatt, Ltd., 90 F.3d 737, 743 (3d Cir. 1996) (citation and internal quotation marks omitted). The non-movant must present concrete evidence supporting each essential element of its claim. Celotex, 477 U.S. at 322-23.

In evaluating a motion for summary judgment, "[t]he evidence of the non-movant is to be believed, and all justifiable inferences are to be drawn in [the non-movant's] favor." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986). "Summary judgment may not be granted . . . if there is a disagreement over what inferences can be reasonably drawn from the facts even if the facts are undisputed." Ideal Dairy Farms, 90 F.3d at 744 (citation and internal quotation marks omitted). However, "an inference based upon a speculation or conjecture does not create a material factual dispute sufficient to defeat entry of summary judgment." Robertson v. Allied Signal, Inc., 914 F.2d 360, 382 n.12 (3d Cir. 1990). The non-movant must show more than "[t]he mere existence of a scintilla of evidence" for elements on which he bears the burden of production. Anderson, 477 U.S. at 252. Thus, "[w]here the record taken as a whole could not lead a rational trier of fact to find for the non-moving party, there is no 'genuine issue for trial.'" Matsushita, 475 U.S. at 587.

III. Discussion

Defendants move for summary judgment on all of PSC's remaining claims. I conclude that PSC's breach of contract claims against BACS are time-barred to the extent that they reflect breaches that occurred over six months before PSC filed this action. To the extent that BACS may have breached the contract by using other vendors after November 10, 2007, however, PSC's claims for such breaches are not time-barred. I further conclude that PSC has waived its veil-piercing arguments against HOV. Finally, although there is a genuine issue of material fact as to whether HOV tortiously interfered in the contract between BACS and PSC, which a jury must resolve, there is no genuine issue of material fact from which a reasonable jury could find that Lason tortiously interfered with that contract. As a result, I will grant defendants' motion for summary judgment as to the breach of contract claim against HOV and the tortious interference claim against Lason. I will also grant in part defendants' motion for summary judgment as to the breach of contract claim against BACS and will deny the motion as to the tortious interference claim against HOV.

A. Contractual Claims Against BACS

1. Contractual Obligations

PSC alleges that BACS breached the agreement in two ways: (1) by failing to supply PSC with the contractually required volume of processing work, and (2) by failing to make PSC its "exclusive vendor" for document processing as required by the agreement. Defendants acknowledge that the agreement contained a requirement that BACS use PSC as its exclusive provider of mailing processing services. (Defs.' Mem. 3.) However, defendants argue that the contract did not include a minimum volume requirement. I agree. ...

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