The opinion of the court was delivered by: Savage, J.
In their virtually identical two-count amended complaints, the plaintiffs, Oscar Smith, Jr. and Greg Burris, individually and on behalf of their respective agencies, assert causes of action for "discrimination in contracting" in violation of 42 U.S.C. § 1981 and for breach of contract under Pennsylvania law.*fn1 They claim that the defendants, The Allstate Corporation and The Allstate Insurance Company (collectively, "Allstate"), terminated their agency agreements because they were African Americans. They also contend that Allstate breached their contracts when it did not provide them with contractually mandated reviews that would have enabled them to explain and remediate deficiencies that Allstate relied upon as the grounds for terminating their agency relationships.
Plaintiffs, who had each signed exclusive agency agreements with Allstate to sell Allstate products, contend that after they built their businesses under the agency relationship, Allstate established customer satisfaction standards that set them up to fail. When the plaintiffs did not meet these standards, Allstate terminated the agreements and, according to the plaintiffs, forced them to sell their books of business to Allstate-approved agents at below-market rates.
Moving for summary judgment, Allstate argues that the plaintiffs have not produced any evidence of purposeful racial discrimination or of a breach of contract. Thus, it contends it is entitled to judgment as a matter of law.
After carefully reviewing the record and drawing all inferences in favor of the plaintiffs, we conclude that a reasonable jury could not conclude that Allstate purposefully terminated the plaintiffs' agency agreements because they were African Americans, but could find that Allstate breached the agreements. Therefore, we shall grant the summary judgment motion in part and deny it in part.
In June of 2000, Allstate changed its business model for selling its insurance products. It terminated its employer-employee relationships with its incumbent agents in favor of an independent contractor program. The agents, who were Allstate employees at the time, were given three options: (1) become independent contractors, entering into an Allstate Exclusive Agency Agreement ("agency agreement") to sell exclusively Allstate products; (2) become temporary independent contractors while arranging to sell the existing books of business they had generated as Allstate employees; or, (3) accept a severance package and relinquish their interest in the existing businesses.
Smith and Burris opted to become independent contractors. They each signed an Allstate R3001A Exclusive Agency Agreement, agreeing to sell exclusively Allstate products. The agreement, which superseded all "prior employment, agency, or other agreement[s]" between Allstate and the agency, authorized the agency to sell Allstate products as an independent contractor.*fn2 It provided that Allstate owned all business produced during the term of the agreement.*fn3
Pertinent to this litigation, the agency agreed to "meet certain business objectives established by [Allstate] in the areas of profitability, growth, retention, customer satisfaction and customer service"*fn4 Additionally, the Exclusive Agent Independent Contract Manuals were expressly incorporated into the agreement.*fn5
The agreement was terminable for cause, by mutual agreement, or
unilaterally by either party upon ninety-days notice.*fn6
The agreement would automatically terminate upon the
occurrence of certain enumerated events,*fn7 none of
which are applicable here.
The plaintiffs claim that they achieved "exemplary
results."*fn8 Smith built and maintained a book of
business that generated approximately $3,000,000 per year in insurance
premiums; and, Burris, approximately $1,000,000 per year.*fn9
Customer retention rates for both agencies were at or above
the national and regional averages over a ten-year period. Smith
averaged a ninety-two percent retention rate, and Burris had an
eighty-seven percent retention rate average.*fn10
Allstate formally evaluated each of its agencies and produced an annual Agency Status Review, which compared the agency's performance against Allstate's expected results for that agency based on a number of factors, including the agency's productivity, retention, and profitability. Before 2007, Allstate measured customer satisfaction primarily by retention rates. In 2007, Allstate implemented the Agency Loyalty Index ("ALI") to gauge customer satisfaction by using questionnaires mailed to each agency's clients. In March 2009, Allstate informed its agents that it would factor the ALI into its calculation of the expected results analysis done the preceding year. When it added the ALI, Allstate began phasing out the Agency Status Review in favor of the Expected Results Portal, an internet-based review system that incorporated the annual formal conversation between the agent and his/her Field Sales Leaders.*fn11 In other words, it replaced the paper report with a digital one.
The Agency Status Review and the Expected Results Portal provided a formal evaluation of the agency by providing feedback concerning the agency's actual business results and the overall business relationship with Allstate. The primary focus of the review was a comparison of the agency's actual results to the goals that Allstate had set. The Expected Results Portal was implemented to provide agents with greater access to the current measurement categories, the expected results, the agency's current results, and an on-pace indicator.*fn12
Based upon the 2009 ALI survey, both the Burris and the Smith agencies scored below the benchmark established by Allstate. Both agencies received letters from Allstate warning them that "failure to achieve a score of 60 or higher in the 2010 survey could jeopardize [their] relationship[s] with Allstate."*fn13 To boost the responses to the surveys, Smith hired a telemarketing vendor to contact his customers to explain the ALI survey and the need to respond to it. Burris and an employee called each customer to encourage them to respond to the survey.*fn14 Despite these efforts, Burris and Smith again failed to score sixty or higher on the 2010 ALI. They attribute the negative customer feedback to Allstate's increasing premiums, not to their lack of customer service. They complain that the surveys failed to adjust for demographics, including the ethnic and racial make-up of the customer bases. They argue that the low scores were not an accurate measurement of their overall performances, especially in light of their high retention rates.
Citing the low ALI scores, Allstate terminated the Smith and Burris agency agreements on February 21, 2011 and August 30, 2011, respectively.*fn15 Once Allstate terminated the agreements, the only options Smith and Burris had were to sell their books of business to an Allstate-approved buyer or accept a severance and forfeit their books to Allstate. They contend they were compelled to sell their books at below-market rates.
Smith and Burris, African Americans, claim that their agencies were the only Pennsylvania agencies whose agreements were terminated because of low ALI scores. They assert that Allstate's decision to terminate the agreements in each case was race based, and the agreements were terminated because they were African Americans. They also contend that Allstate set them up to fall ...