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Romero v. Allstate Insurance Co.

United States District Court, E.D. Pennsylvania

September 5, 2017

GENE R. ROMERO, Plaintiffs,
v.
ALLSTATE INSURANCE COMPANY, et al., Defendants.

          MEMORANDUM

          KEARNEY, J.

         An employee signing a release of all claims against his employer in exchange for consideration cannot both later sue his employer for pre-release conduct and keep the consideration paid to him for the release. He must pay back, or "tender-back", the consideration he accepted for the release or the law will require a finding he ratified the release by keeping the consideration. This principle is relatively straightforward when the release defines the dollar amount paid in exchange for the release: for example, pay back the $1, 000 for the release before you can proceed. A more difficult issue arises when the employee adduces evidence he either did not receive consideration for his release or, due to its intangible nature, he cannot tender it back. We today face this difficult issue. The employee genuinely disputes the amount of consideration for his release but still wants to pursue his breach of contract and breach of fiduciary duty claims if we invalidate his release. In this unique situation, we need the jury to decide the consideration to be tendered back to the former employer before the employee recovers any money. The jury is well equipped, as in any contract dispute, to balance competing claims and, if warranted, set-off recovery to the former employee by the amount of consideration they find he received for his release. Consistent with bedrock contract principles, the employee will not receive both the consideration and the recovery for breach of contract or breach of fiduciary duty. But absent a contract penalty in the release or other clear evidence of the consideration paid for the release, we cannot dismiss claims for failing to tender back an unknown amount of consideration. In the accompanying Order, we deny the former employer's motion for summary judgment seeking to dismiss claims for breach of contract and breach of fiduciary duty as there are several genuine issues of material fact.

         I. Background [1]

         Insurance agents formerly employed by Allstate are challenging its November 1999 Preparing for the Future Group Reorganization Program (the "Program") through which Allstate terminated the employment contracts of its employee agents by June 30, 2000. Allstate offered the agents four options: the "Exclusive Agent ("EA") Option"; "Sale Option"; "Enhanced Severance Option"; and "Base Severance Option."[2] There is no dispute the first three options required the agents to sign a release and waiver ("Release") of all claims against Allstate.[3]Allstate contends agents received substantial consideration in exchange for signing the Release. For those who selected the EA Option, Allstate provided a conversion bonus of at least $5, 000; a "new, transferable" economic interest in the agent's book of business which could be sold after two years as an EA; and debt forgiveness.[4] For those who selected the Sale Option, Allstate provided a conversion bonus of at least $5, 000; a "new, transferable" economic interest in the agent's book of business which could be sold after thirty days as an EA with the agent retaining the sale proceeds; and debt forgiveness.[5] Agents dispute these terms constitute consideration for signing the Release, contending Allstate offered the $5, 000 bonus to help agents transition to the independent contractor role and in exchange for entering the EA contract, not the Release; Allstate did not offer the economic interest in the book of business in exchange for entering the Release; and some agents testified they could not remember whether their agencies owed money to Allstate.[6]

         On August 1, 2001, twenty-seven agents from around the country selected this District in which to file suit in 2001 asserting federal question jurisdiction under the Employment Retirement Income Security Act ("ERISA") and the Age Discrimination in Employment Act ("ADEA"). The agents also sued for damages for breach of their employment contracts and breach of fiduciary duty under a wide variety of state laws. Allstate argued, among other things, the agents released their claims and then ratified the Releases by failing to tender-back the consideration paid to them in exchange for the Releases.

         In 2004, Senior Judge Fullam ordered the tender back of the consideration for the Releases but did not describe how, or for what amount, the agents should tender. As Judge Pappert described in his March 17, 2016 Opinion, the parties received no further guidance.[7]

         After years of litigation in this Court and our court of appeals, the parties again addressed Allstate's ratification-of-the-Release defense in 2015. By this time, the Clerk of Court reassigned the case to Senior Judge Buckwalter. Judge Buckwalter addressed Allstate's ratification defense to the agents' state law claims. On November 12, 2015, Judge Buckwalter granted Allstate's motion to dismiss the state law claims in the Third Amended Complaint.[8] Judge Buckwalter held the doctrines of tender-back and ratification barred the state law claims because the agents failed to timely offer or return any consideration received in exchange for signing the Release.[9] Judge Buckwalter found the agents never offered tender-back and could not find grounds for the agents' delay in tendering back the consideration.

         Upon reassignment following Judge Buckwalter's retirement, Judge Pappert granted the agents' motion for reconsideration of Judge Buckwalter's November 12, 2015 dismissal of the state law claims.[10] Judge Pappert, relying on cases from a variety of states, found the tender-back rule as applied in this unique procedural quagmire created a "consideration conundrum" depriving the agents of their ability to tender back or offer to tender back consideration because there is no way to determine, or reach agreement among the parties, as to the amount the agents must tender back to Allstate. Judge Pappert detailed the history of the "consideration conundrum" issue raised by the agents at the beginning of this litigation in 2001. Although he found the agents inexplicably failed to explain the history of their "consideration conundrum" argument to Judge Buckwalter, normally a ground for denying a motion for reconsideration, Judge Pappert found "[t]he record shows that when faced with a court order in 2004 requiring [agents] to tender back consideration, [agents] sought guidance on how to do so in order to satisfy their legal obligations. The subsequent procedural twists in this case thwarted their efforts, leaving [agents] unable to tender back consideration and avoid ratification of the Release."[11]

         Judge Pappert held the agents' offer of tender back is sufficient to avoid ratification and tender-back and a specific award of tender-back will set-off damages awarded to the agents if the Releases they signed are found invalid. A week after granting reconsideration, Judge Pappert vacated his order after finding he must recuse. The Clerk of Court then randomly reassigned this case to our docket with the agents' pending motion for reconsideration of Judge Buckwalter's November 12, 2015 Order.

         Following a trial scheduling conference on the nine related cases involving approximately 500 plaintiffs, we granted the agents leave to file a consolidated amended complaint through one lead counsel.[12] On May 3, 2016, we entered an order denying as moot the agents' motion for reconsideration of Judge Buckwalter's November 12, 2015 Order (the same motion granted by Judge Pappert), granting leave to all parties to timely renew good faith arguments based on any grounds addressed by Judge Buckwalter and Judge Pappert.[13]

         Approximately 500 former Allstate employee-agents filed a Consolidated Amended Complaint on May 20, 2016.[14] They alleged the tender-back doctrine does not preclude them from challenging the Release, including a substantial part of the purported consideration received were intangible benefits not capable of being returned to Allstate.[15] Allstate moved to dismiss arguing, among other things, the breach of contract and breach of fiduciary duty claims should be dismissed based on ratification absent a timely tender-back of the consideration paid for the Release.[16] We denied Allstate's motion to dismiss the state law claims without prejudice to resolve the issue after resolving the common federal questions under ERISA and ADEA.[17]

         The parties recently finished litigating the common federal questions in our Court. On June 16, 2017, we organized the remaining individualized trial issues beginning with the claims of eight Plaintiff-citizens of this District.[18] All eight Plaintiffs signed the Release. We are now preparing for the jury trial on the individual issues arising from the eight agents' claims seeking a declaration as to the invalidity of the Release and for damages for breach of contract and breach of fiduciary duty along with Allstate's defenses including ratification of a Release signed by the agents.

         II. Analysis [19]

         Allstate now moves for summary judgment on the breach of contract and breach of fiduciary duty claims of the eight agents residing in this District scheduled for trial in the First Quarter 2018. Allstate makes three arguments: by failing to tender back consideration, the agents ratified the Release; there is no merit to the agents' argument it is impossible to tender back; and, Judge Buckwalter's November 12, 2015 decision dismissing the state law claims plead in the Third Amended Complaint is law of the case. We find fact issues surrounding tender-back preclude summary judgment.

         A. Fact issues on whether the eight agents could have or did fail to tender back the consideration paid for the Releases precludes summary judgment.

         Allstate first argues the eight agents never returned, or offered to return, the consideration paid to them and, consequently, ratified the Release barring as a matter of Pennsylvania law their state law claims for breach of contract and breach of fiduciary duty. The agents oppose summary judgment arguing exceptions to Pennsylvania's tender-back rule apply here because it is impossible to restore the parties to the status quo ante and because Allstate refused to accept the return of any consideration; Allstate has not been deprived of the benefit of its bargain because the Release does not bar agents from filing suit; Allstate's unclean hands bars the ratification doctrine; agents disavowed the Release from the beginning of this litigation; and, Allstate waived its ratification defense.

         Under the doctrine of ratification, "a promise can be enforced even though the underlying contract is voidable if it is ratified by the promisor."[20] "Tender back is a related concept, which provides that if the promisor does not return the consideration received under the contract this is effectively ratification."[21]

         Courts recognize an exception to the tender-back rule where it is impractical or impossible to tender back. Given the multiple state laws involved in Judge Buckwalter's and Judge Pappert's review, they did not need to specifically address Pennsylvania law. Judge Pappert correctly found several courts have applied other state laws on the "impractical or impossible" exception to the tender back rule.[22]

         We must now address whether the eight agents can argue the consideration conundrum creates issues of fact. The parties do not dispute Pennsylvania law applies to these issues. Instead, Allstate argues the Pennsylvania case law cited by the agents is inapposite because the cases were decided in the context of specific performance on the sale of real estate, rescission, or dismissal of federal claims, and none involved ratification.

         Allstate is seemingly correct as to the present absence of Pennsylvania appellate guidance in this unique context of ratifying a release by failing to tender-back the consideration at or before filing suit. But this absence is a distinction without a difference particularly in light of developing case law and the procedural uncertainty faced by the agents after the 2004 decision directing them to tender back an unknown sum in an unknown manner. As in the cases cited by Judge Pappert, we see no reason (and Allstate offers none) as to why we should require pre-suit set-off through tender-back in this contractual context especially when the set-off obligation and certainly the amount of set-off is vigorously disputed. Allstate's theory may make some sense in a simple transaction involving a defined dollar ...


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