A former maintenance mechanic for East Penn Manufacturing Co. filed a lawsuit against the company, claiming that he was wrongfully terminated after allegedly damaging a laptop computer that belonged to the company. The employee attempted to establish a connection between his termination and a previous work-related injury, suggesting that he was discriminated against for the disabling injury. According to the U.S. Court of Appeals for the Third Circuit, there was insufficient evidence to establish a link between his termination and the injury.
After injuring his left knee in a work-related injury in 2012, the plaintiff underwent surgery to fix the problem. He was out of work and on disability leave for approximately eight months. He received Workers’ Compensation benefits during this time. He started to experience pain in the same knee in 2013, and submitted a claim for Workers’ Compensation benefits, but his claim was denied. After undergoing a second surgery in 2014, he was out of work again for several months. When he recovered, he was able to return to his position and collect the same salary.
According to the plaintiff, when he returned to work, he was disciplined for taking too much time off after the second surgery. A personnel director at East Penn scheduled a disciplinary meeting and explained the company’s policy regarding sick days and absences. Several months later, he was accused of throwing an object, which damaged a company-owned laptop. A personnel director confronted him about the incident, but he denied it. He was suspended pending an investigation, and ultimately fired.
The District Court ruled that no reasonable jury would find a link between the plaintiff’s firing and his workplace injury. However, the plaintiff argued that he presented enough evidence to support the claim that he was fired because of his injury, and that the district court set too high a standard for proving a prima facie case.
Earlier this month, the Third Circuit affirmed the lower court’s summary judgment. According to the Third Circuit, East Penn had a legitimate reason for terminating the plaintiff, who failed to provide sufficient evidence to support his claim. The company had a written statement from another East Penn employee who witnessed the plaintiff throw the object that damaged the laptop computer. The Court ruled that summary judgment, based on the lack of causal link, was appropriate.
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The Pennsylvania Superior Court ruled in September that companies that are registered to conduct business in Pennsylvania may now be sued in the Pennsylvania state courts. Murray v. Am. LaFrance, LLC, 2018 Pa. Super. 267 (Pa. Super. 2018). This includes foreign-based corporations who are registered to do business in Pennsylvania. Murray follows a June 28, 2018 Superior Court decision, Webb-Benjamin, LLC v. International Rug Group, LLC, which also granted personal jurisdiction over foreign-based businesses.
In this context, “foreign corporation” refers to a company that is registered to do business in a different jurisdiction or state than that which it is incorporated in.
The ruling followed a case involving a group of New York firefighters who had experienced hearing loss as a result of excessive occupational noise exposure from fire engine sirens. The firefighters sued Federal Signal Corporation, a foreign corporation registered in Pennsylvania.
In support of its ruling, the Superior Court examined Bors v. Johnson & Johnson, an Eastern District of Pennsylvania case which held that “consent remains a valid form of establishing personal jurisdiction under the Pennsylvania registration statute after Daimler.” Daimler was a 2014 Supreme Court case which held that a normally a foreign corporation must be “at home” in a state before the state court can exercise personal jurisdiction over it. However, the Supreme Court in Daimler did not address whether a business can consent to a state court’s jurisdiction based on the state’s business registration requirements.
The Bors court found that Pennsylvania’s statue informs the registrant about the jurisdictional effect of registering to do business in the state. As a result, by consenting to register, a corporation submits to jurisdiction for all purposes.
Unless and until Murray and Webb-Benjamin are appealed, and a higher court reverses the Superior Court’s rulings, foreign corporations registering to conduct business in Pennsylvania will considered consenting to personal jurisdiction.
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In Downs v. Andrews, The Third Circuit held that the gist of the action doctrine barred plaintiff from bringing a fraud claim. 639 Fed.Appx. 816 (2016). Plaintiffs brought suit for fraud in connection with Defendants’ failure to deliver mortgage notes to Plaintiff. Plaintiff purchased $740,000 of mortgage notes from Defendants. Upon payment, Defendant only delivered a portion of the mortgage notes totaling $399,000. Subsequently, Plaintiff brought suit alleging that the Defendants acted fraudulently because they believe that Defendant never owned the purchased mortgages.
The gist of the action doctrine prevents plaintiffs from recovering damages twice for the same actions. The gist of the action doctrine bars tort claims “based on a party’s actions undertaken in the course of carrying out a contractual agreement.” Further, the gist of the action requires the court to determine if the duty breached is one based in contract or one established by “larger societal policies embodied in the law of torts.”
In this matter, the Court found that the duty breached was one established by contract. The Court narrowly interpreted the duty as the obligation to deliver the purchased notes in accordance with the contract. Therefore, the Court affirmed the lower court’s dismissal of Plaintiffs’ fraud claim.
In Medical Diagnostic Laboratories, LLC. v. Independence Blue Cross, Medical Diagnostic Laboratories, LLC, (“MDL”) alleged that Independence Blue Cross (“IBC”) violated antitrust laws and was engaging in unfair competition by tortuously interfering its existing and proposed business relationships. WL 4899441 *1 (E.D. Pa. October 9, 2018). IBC filed a Motion to Dismiss that alleged MDL failed to state a claim. The Eastern District of Pennsylvania denied the motion and allowed MDL to proceed to discovery. After discovery, IBC filed a Motion for Summary Judgment which was granted. In its suit, MDL alleged that IBC had threatened doctors within its network to stop using MDL. MDL further alleged that several doctors that preferred using MDL’s laboratory to perform testing no longer did so after they received threats from IBC.
In Pennsylvania, to state a claim for tortious interference with a prospective contractual relationship, the plaintiff must prove: “(1) a prospective contract between the plaintiff and a third party; (2) a purposeful act by the defendant taken with the specific intent to harm the existing relation or prevent a prospective relation from occurring; (3) the absence of privilege or justification on the part of the defendant; (4) actual legal damage because of the defendant’s conduct and (5) reasonable likelihood that the relationship would have occurred but for the defendant’s interference.” Medical Diagnostic Laboratories, LLC., WL4899441 at *3; Brokerage Concepts, Inc. v. U.S. Healthcare, Inc.,140 F.3d 494, 530 (3d Cir. 1998); Ira G. Steffy & Son, Inc. v. Citizens Bank of Pa., 7 A.3d 278, 288–89 (Pa. Super. Ct. 2010).
The Court found no evidence in the record that MDL established prospective contractual relations with any of the providers it identified, nor any evidence that IBC specifically threatened any of these providers. Since MDL failed to establish the requisite prospective contractual relationships with any of the doctors which it alleged IBC threatened, MDL could not prove all the elements of its tortious interference claim. Upon failing to prove all the elements necessary to show that IBC was tortuously interfering with MDL’s prospective business relationships, with doctors in IBC’s coverage plan, MDL asserted that IBC’s tortious interference was really aimed towards prospective clients, not the doctors. The Court noted that for tortious interference to be present in this situation, the prospective contract needed to involve physician relationships not prospective clients. Therefore the Court granted IBC’s Motion for Summary Judgment since MDL failed to prove the requisite elements under their tortious interference claim.
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In Walnut Street Associates, Inc. v. Brokerage Concepts, Inc., the Supreme Court of Pennsylvania held that the disclosure of truthful information regarding an employee does not constitute tortious interference. 20 A.3d 468 (Pa. 2011). In this matter, Plaintiff, Walnut Street Associates (“WSA”), provided insurance brokerage services and provided clients with health insurance benefits for their employees. Defendants, Brokerage Concepts, Inc. (“BCI”), were the third-party administrator of the employee benefit plan of Plaintiff’s client, Procacci Brothers Sales Corp. (“Procacci”). The issue in question arose when Procacci requested that BCI lower their service costs. When BCI informed Procacci that they would not meet the requested cost, Procacci decided to leave BCI and to hire a new insurance administrator. Upon hearing the news of Procacci’s departure, BCI contacted Procacci and informed them that they could not lower the costs because BCI was required to pay WSA a certain percentage of the proceeds from Procacci. Procacci was not aware that WSA was receiving such a high percentage, and thus, terminated their contract with WSA. WSA brought suit against BCI for tortious interference with contractual relations for their disclosure of WSA compensation under the contract.
In Pennsylvania, in order to succeed on a claim for tortious interference, the plaintiff must establish that (1) a contract or a prospective contract existed between the plaintiff and a third-party; (2) purposeful action by the defendant with the intent to harm the relationship between the parties to the contract; (3) The defendant’s action was improper; and (4) actual damages resulted from defendant’s interference.
In this matter, the Court was faced with determining whether BCI’s actions constituted tortious interference. There was no dispute that there was a contractual relationship between WSA and Procacci, and BCI interfered with that relationship, but in order to satisfy the elements of the claim, WSA had to establish that BCI’s actions were improper. In analyzing whether the actions by BCI were improper, the Supreme Court affirmed the Superior Court’s decision to adopt Section 772(a) of the Restatement (Second) of Torts, which provides 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.” Furthermore, this disclosure of truthful information was not considered tortious even if the third-party requested the information or not. For this reason, the Supreme Court affirmed the Superior Court’s reasoning and ruled in favor of BCI.
In Livi v. HyattHotelsCorp., No. 17-3646, 2018 WL 4944823 (3d Cir. 2018) the Third Circuit Court of Appeals affirmed the grant of summary judgment in favor of Hyatt Hotels in a Pennsylvania Minimum Wage Act (“PMWA”) and Pennsylvania Wage Payment and Collection Law (“WPCL”) action. Plaintiff, a banquet server for Hyatt, filed a class action complaint on behalf of herself and similarly situated individuals alleging that she worked more than 40 hours but was not paid overtime and that she was entitled to contractual service charge which Hyatt retained.
Under Pennsylvania law, service establishments (including hotels) are not required to pay overtime to employees working more than 40 hours per week if they are exempt from the overtime requirement under 34 Pa. Code § 231.43(f). An employer may be exempt if the “regular rate of pay of the employee is in excess of 1 ½ times the minimum hourly rate applicable” or “more than half of the employee’s compensation for a representative period, not less than 1 month, represents commissions on goods or services.” Plaintiff fell within both exemptions because the Court found her regular rate of pay at Hyatt was more than 1 ½ times the minimum wage and the service charges Hyatt paid her comprised more than half her compensation.
However, Plaintiff argued that Hyatt was not exempt from the overtime requirement because the service charges do not “represent commissions on goods or services” under the Pa. Code. The Court reasoned that although the relevant Pennsylvania statutes do not define “commission” and the Pennsylvania Supreme Court had no guidance on the issue, it was appropriate for the Court to look to Pennsylvania’s intermediate appellate court for assistance. The Court then explained that Pennsylvania’s Commonwealth Court instructed that “when the PMWA substantially parallels the federal Fair Labor Standards Act (“FLSA”), Pennsylvania courts look to federal courts’ interpretation of the parallel FLSA provision for guidance. Looking then to the FLSA’s overtime exemption, the Court agreed with the District Court that banquet service charges represent commissions. Therefore, the District Court appropriately awarded summary judgment to Hyatt.
Although the cause of actions of abuse of process and wrongful use of civil proceedings may seem to be one in the same, there are significant differences between them. The common law cause of action for abuse of process is defined as the use of legal process against another “‘primarily to accomplish a purpose for which it is not designed.’” Rosen v. American Bank of Rolla, 627, 426 Pa. Super. 376, 627 A.2d 190, 192 (Pa. Super. 1993). Wrongful use of civil proceedings (or more commonly known as the “Dragonetti Act”) covers a different tort. Its provisions are:
Elements of action. A person who takes part in the procurement, initiation or continuation of civil proceedings against another is subject to liability to the other for wrongful use of civil proceedings:
he acts in a grossly negligent manner or without probable cause and primarily for a purpose other than that of securing the proper discovery, joinder of parties or adjudication of the claim in which the proceedings are based; and
the proceedings have terminated in favor of the person against whom they are brought.
42 Pa.C.S. § 8351 et. seq.
Under the Dragonetti Act, the parties liable include the lawyer, the law firm prosecuting the case, the law firm’s client, and if applicable, the owner of a corporate client. The Dragonetti Act, including its provisions that allows actions to be brought against lawyers who file suits or prolong proceedings in violation of the Act was recently found to be valid by the Pennsylvania Supreme Court. SeeVillani v. Seibert, 639 Pa. 58, 83, 159 A.3d 478, 492 (2017).
The difference between the Dragonetti Act and abuse of process causes of action are well known in Pennsylvania jurisprudence. An action for abuse of process differs from a Dragonetti action (i.e., abuse of process is that the gist of an action for the improper use of process after it has been issued, that is, a perversion of it. Malicious use of civil process has to do with the wrongful initiation of such process.” Rosen, supra., 627 A.2d at 192. When civil proceedings are filed or prosecuted with a malicious motive and lacking probable cause, 42 Pa.C.S.A. § 8351(a)(1)-(2) is violated. A successful cause of action under the Dragonetti Act has three elements: (1) the proceedings were decided in favor of the defendant; (2) the lawyer, the law firm, and the client caused those proceedings to be instituted against the defendant without probable cause; and 3) the proceedings were instituted primarily for an improper cause. See Di Loreto v. Costigan, 600 F. Supp. 2d 671 (E.D. Pa. 2009) (Discussing cases).
The Dragonetti Act provides that a plaintiff is entitled to recover for (1) the harm normally resulting from any dispossession or interference with the advantageous use of his land, chattels or other things, suffered by him during the course of the proceedings; (2) the expense, including any reasonable attorney’s fees, that he has reasonably incurred in defending himself against the proceedings; (3) any specific pecuniary loss that has resulted from the proceedings; and (4) punitive damages according to law in appropriate cases.
Non-compete agreements incident to an employment relationship are common place in Pennsylvania. Non-compete agreements prevent employees from working for competitors, but the restriction must be reasonable in both the duration and the geographic area. See Socko v. Mid-Atl. Sys. of CPA, Inc., 633 Pa. 555, 569, 126 A.3d 1266, 1274 (2015). Since some businesses stretch nationwide or even worldwide, some non-competes attempt to prevent an employee from working for any competitor anywhere. However, the geographic restriction should be determined by the employee’s duties or sales territory, not the employer’s overall market. SeeBoldt Machinery & Tools v. Wallace, 366 A.2d 902, 909 (Pa 1976).
Usually when an employer’s geographic restriction is too broad, the court will modify the restriction to better fit the employee’s duties or territory. Sidco Paper v. Aaron, 351 A.2d 250, 254 (Pa. 1976). Despite this, some over broad geographic restrictions may be determined to be void and will not be modified. Adhesives Research v. Newsom, No. 15-0326, 2015 WL 1638557 (M.D.Pa. April 13, 2015).
In Adhesives Research v. Newsom, the former employee’s sales territory included the western half of the United States, but the non-compete included a restriction anywhere employer’s products were sold worldwide. The Court refused to tailor the agreement to create a reasonable geographic location. The Court explained that when an employer utilizes an overly broad geographic restriction, although a specific geographic location could easily be determined based on the employee’s duties, the agreement should be found void with no modification.
In Tyco Fire Products, L.P. v. Fuchs, the Superior Court of Pennsylvania held that Tyco Fire Products, L.P.’s (“Tyco”) non-compete agreement was enforceable against its former employee (“Fuchs”). 2017, WL 5509889 (Pa. Super. 2017). Tyco designs, manufactures, and distributes fire protection products such as chemical water and other fire preventative measures. Fuchs worked as a senior sales manager for Tyco for approximately ten years. During his time at Tyco, Fuchs signed a Confidentially Agreement and a Non-Competition Agreement (the non-compete agreement). This non-compete agreement stated that Fuchs may not “employ, engage, or enter into employment” with any competing business in the Northeast (including 11 states) for a period of 12 months. After his resignation in 2016, Fuchs began work at Reliable Automatic Sprinkler Company, Inc. which engages in the same type of business as Tyco. While employed at Reliable, Fuchs contacted former Tyco customers and engaged in business inside of the restricted zone of the non-compete.
When analyzing a non-compete agreement, the court will determine if the agreement is “incident to an employment relationship between the parties; the restrictions imposed by the covenant are reasonably necessary for the protection of the employer; and the restrictions imposed are reasonably limited in duration and geographic extent.” Fuchs argued that Tyco’s non-compete agreement was unreasonably broad in both duration and geographic location.
The Court rejected Fuchs’ argument and found that the Tyco Agreement was enforceable under the required analysis. The Court ruled that the agreement was incidental to an employment relationship because of his actual employment as a sales manager for Tyco. Secondly, the Court ruled that Tyco’s agreement was reasonably necessary to protect Tyco’s legitimate business interests. In ruling on this issue, the Court looked to the fact that Reliable was in the same business as Tyco and Fuchs’ contact with the Tyco customers during his time at Reliable clearly show that there was a need to protect legitimate business interests. Lastly, and most importantly, the Court found that the 12-month (1 year) limitation was well within the reasonable limitations period and the 11-state geographic restriction was reasonable because Fuchs’ had conducted business in all restricted states during his time at Tyco. Thus, the Court ruled in favor of Tyco and affirmed the trial court’s decision.
In Wolfington Body Company, Inc. v. O’Neill, the Pennsylvania Superior Court found in favor of the employee, Defendant O’Neill, holding that the covenant not to compete, which Wolfington Body Company made O’Neill sign as a condition of his employment agreement, was unduly restrictive and overly broad. Wolfington Body Company, Inc. v. O’Neill, 2018 WL 2011398 (Pa. Super. 2018).
O’Neill began working for Wolfington Body Company in the fall of 2013 as a commercial vehicle sales person. Once hired, Wolfington required O’Neill to sign an Employment Agreement which contained several restrictive covenants including Non-Compete and Non-Solicitation Covenants. These covenants included language which restricted where O’Neill could work once he left Wolfington, and how long he must wait before working in the bus sales industry again. The covenant restricted O’Neill from working in any state which Wolfington is conducting or has conducted business. This restriction functionally prohibited O’Neill from working in the 35 states in which Wolfington has or had done business. In addition, the covenant not to compete prohibited O’Neill from working for two years in the bus sales industry after he left Wolfington. In the fall of 2016, O’Neill left Woflington and began working for another company in the bus sales industry. Wofington brought a suit alleging that O’Neill violated the restrictive covenants of his Employment Agreement, specifically that the O’Neill had access to Wolfington’s confidential, proprietary, or trade secretes which are legitimate business interests worthy of protection. O’Neill t testified that based on his long employment history in the bus sales industry, he had compiled information including a customer base, and price estimates for building busses. However, O’Neill asserted that he returned all confidential information to Wolfington before ending his employment.
In analyzing whether to enforce a restrictive covenant, the Court looks to see if, “… it must be reasonably related to the protection of a legitimate business interest… including trade secretes or confidential information, unique or extraordinary skills, customer good will, and investments in an employee specialized training program. In contrast, a post-employment covenant that merely seeks to eliminate competition per se to give the employer an economic advantage is generally not enforceable.” For a restrictive covenant to be enforceable, there must be the presence of a legitimate protectable business interest. Once it is established that a legitimate protectable business interest is present, the court applies a balancing test weighing the employer’s protectable business interest against the employee’s interest in earning a living. Then the court balances the employer and employee interests against the interest of the public.
Here, the Court found that the information necessary to enable an experienced sales person to perform their job are readily available in the public domain, therefore the information retained by O’Neill was of no secret value or of any peculiar importance to Wolfington. Additionally, the definition of confidential information set forth in the employment agreement was overly broad and included any information that O’Neill may have learned while working for Wolfington thus, the restrictive covenant was not reasonably tailored to protect Wolfington’s business interests. For a restrictive covenant to be enforced there must be the existence of legitimate business interest, and the restrictive covenant must be reasonably tailored to protect the employer’s interests. Wolfington failed to establish that the restrictive covenant was reasonably tailored, even if there were legitimate business interests at stake worth protecting. Since neither of these two necessary factors are present, the Court found in favor of O’Neill.