Category: Breach of Contract

Pennsylvania Supreme Court Rules Proving Dishonest Purpose or Motive is Not Necessary to Prevail on Bad Faith Insurance Claims

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In a recent landmark decision, the Pennsylvania Supreme Court recognized that insurance policyholders do not need to demonstrate an insurance company’s dishonest purpose or motive to prevail on bad faith claims against their providers.

In Rancosky v. Washington National Insurance Company, No. 28 WAP 2016, 2017 WL 4296351 (Pa. 2017), the plaintiffs were husband and wife, Matthew and LeAnn Rancosky, who purchased a “cancer insurance policy” for Mrs. Rancosky as a supplement to her primary employer-based health insurance. To pay for this policy, Mrs. Rancosky’s employer automatically deducted bi-weekly payments from her paycheck. Most importantly, her policy contained a waiver-of-premium provision which excused premium payments if she became disabled due to cancer. During Mrs. Rancosky’s employment, she was diagnosed with ovarian cancer. She subsequently aimed to invoke the policy provision when she could no longer work due to disability resulting from her disease. After submitting a physician’s statement and waiver-of-premiums forms, Mrs. Rancosky believed her premiums had been waived and ceased making payments. Defendant later conducted a policy audit two years later and, upon discovery of the plaintiff’s ceased payments, deemed her policy to have lapsed. They subsequently denied her claim for further benefits. Mrs. Rancosky sought reconsideration of their decision alleging inconsistent filings and erroneous information stated by her physician.

Upon the provider’s denial of her request for reconsideration, Plaintiffs brought suit against Defendant for breach of contract and bad faith under the Pennsylvania bad faith statute, 42 Pa.C.S.§8371. To prevail on a claim under this statute in Pennsylvania, the policy holder must satisfy a two-part test, presenting clear and convincing evidence that: (1) that the insurer did not have a reasonable basis for denying benefits under the policy; and (2) that the insurer knew of or recklessly disregarded its lack of a reasonable basis. The court in Rancosky ultimately ratified this test in its verdict, and ruled that policyholders no longer need to demonstrate an insurer’s motive of self-interest or ill-will to prevail on a bad faith claim. The court stated that this requirement creates an unduly high threshold for policyholders to meet and expanded the reach of the statute to provide greater opportunity for policyholders to prevail on their claims.

For more information, call our business lawyers in Philadelphia at Sidkoff, Pincus & Green at 215-574-0600 or contact us online.

Letters And Phone Calls Regarding Intent To Not Follow Agreement

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Enough To Find Anticipatory Breach Of Contract

In General Diversifield, Inc. v. Poole Truck Line, Inc., 1991 WL 53673 (E.D. Pa 1991) General Diversified (“Diversified”), a motor carrier broker, sued Poole Truck Lines (“Poole”), a motor carrier of freight, for Poole’s anticipatory breach of contract, because of its intent to not provide transportation of solid waste for a Diversified customer, as required in an agreement between Diversified and Poole.

Four days after signing the agreement, the Regional Sales Manager of Poole discovered that one of Poole’s main competitors was hauling waste for Diversified at a higher rate than Poole had agreed to (allowing the competitor to make more money than Poole). After complaining about the price difference, Poole’s Manager sent a letter to Diversified stating that they were left with “no other choice than to cancel our agreement” and “the atmosphere is not just one in which I nor Poole can do business.” Poole’s Manager also contacted Diversified customer that Poole was to do work for under the agreement, and informed them “the deal was off” and “Poole would not haul [the customer’s waste] on behalf of [Diversified].”

The District Court for the Eastern District of Pennsylvania held that these facts were sufficient to prove anticipatory breach of the agreement by Poole. The Court explained that between the letter and the phone conversation by Poole’s Manager, Poole made the decision not to haul under the terms of the agreement prior to the date on which performance was due, and communicated this to Diversified unequivocally. To make Diversified whole, the Court awarded damages to Diversified in the amount of its lost profits on loads hauled for its customer in the time Poole was to be hauling such loads.

For more information, call our business lawyers in Philadelphia at Sidkoff, Pincus & Green at 215-574-0600 or contact us online.

Agreements to Arbitrate

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The Third Circuit recently decided a case in which the District Court had vacated an arbitration award after finding that the parties to the contract at issue had not agreed to arbitration. In Aliments Krispy Kernels, Inc. v. Nichols Farms, the plaintiff, Aliments had attempted to confirm an arbitration award related to the sale of pistachios. The contract dispute centered on a brokered deal between the buyer, Aliments, and the seller, Nichols.

Upon denial of Aliments’ credit application, Nichols requested payment before delivering the pistachios, instead of thirty days from delivery. Aliments claimed that advance payment is inconsistent with the parties’ previous practices and with industry standards and eventually bought pistachios from another vendor at a higher price. Aliments then initiated arbitration proceedings to recover the difference in cost and was awarded $222,100.

When Nichols refused to pay, Aliments brought the case before the District Court seeking enforcement of the arbitration award. The court found there was a lack of evidence as to an agreement or sales confirmation between the parties and agreed with Nichols that it did not agree to arbitrate, accordingly granting Nichols’ petition to vacate the award. Aliments appealed to the Third Circuit, which examined the legal standard applied by the District Court and whether the parties entered into an agreement to arbitrate as a matter of law.

The Third Circuit stated that its previous applications of the standard requiring an express and unequivocal agreement to arbitrate were confusing and outdated. Instead, the Third Circuit instructed that when determining if a party is compelled to submit to arbitration, the courts should decide whether there was a valid agreement between the parties to arbitrate by applying ordinary state law principles governing the formation of contracts.

The Third Circuit concluded that the District Court properly used the express and unequivocal standard in deciding whether to confirm the arbitration award only to the extent that there were no genuine issues of material fact regarding the formation of the contract. However, it disagreed with the lower court’s finding that there were no genuine issues of material fact; specifically, that there was no evidence that an agreement or sales confirmation was entered and that there was no evidence that Nichols intended to arbitrate.

The Third Circuit stated that there are remaining issues of fact such as – among several other issues – whether a binding contract was created before Nichols received Aliments’ credit application. Therefore, the case was vacated and remanded for further proceedings due to the Court’s finding that multiple issues of material fact are in existence.

Philadelphia Business Lawyers at Sidkoff, Pincus & Green Represent Parties in Breach of Contract Disputes

At Sidkoff, Pincus & Green, our Philadelphia business lawyers handle even the most complicated breach of contract disputes. Call us at 215-574-0600 or contact us online today to arrange a confidential consultation in our Philadelphia offices.

Philadelphia Business Lawyers: Written Contracts

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Written Contracts May be Modified by Subsequent Oral Agreement

It is the well-settled law of Pennsylvania that a written contract may be modified by a subsequent oral agreement by either words or conduct; and an oral modification of a written contract may be implied from a course of conduct, including acquiesce in the modification through a course of conduct consistent with acceptance.

In Muchow v. Schaffner, 119 A.2d 568 (Pa. Super. Ct. 1956), Plaintiff and Defendant entered into a written contract in which Plaintiff was to construct a building for Defendant that met certain specifications. After the agreement was executed, Plaintiff realized he could not build the building as specified in the agreement because the ground would not support it. Plaintiff called Defendant and a conversation took place in which Defendant agreed orally to the new specifications that contradicted what was written in the written contract. It was proven at trial that Defendant knew the extra work would not have to be done but for the oral agreement. When the building was finished it was materially different from the original agreement and Defendant refused to pay Plaintiff, and relied on the parol evidence rule. The Court sided with the Plaintiff and found the parol evidence rule did not bar the evidence of the oral agreement.

Furthermore, a written contract may be modified by a new contract implied from conduct or an express oral agreement, even where there is a provision expressly prohibiting non-written modifications, and a party’s conduct in accepting an oral or implied modification of a written contract can result in a waiver of language requiring all modifications to be written. First Nat’l Bank of Pa. v. Lincoln Nat’l Life Ins. Co., 824 F.2d 277, 280 (3d Cir. 1987).

For more information, call our Philadelphia  business lawyers at Sidkoff, Pincus & Green at 215-574-0600 or contact us online.

Philadelphia Business Lawyers: Prompt Payment Law Decision

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Prompt Payment Law Does Not Always Mandate Bad Faith Awards

In an important decision regarding public contracts, The Supreme Court of Pennsylvania reversed a Commonwealth decision automatically awarding attorney fees and a one percent penalty to contractors whose payments were breached in bad faith. The city of Allentown, Pennsylvania (Allentown) contracted A. Scott Enterprises (Scott) to complete a paving project.

After contaminated soil was discovered at the job site, the project was delayed. Allentown and Scott could not come to an agreement over the additional fees incurred because of the project’s delay and the contaminated soil. Scott then filed suit to recover losses on the delayed project. They were awarded $927,299. The jury found that the city breached its contract and acted in bad faith by refusing to pay Scott for the delays and damaged contract.

Though Scott received damages, they were not awarded attorney fees, the monthly one percent penalty, or interest. Scott then took the case to the Commonwealth Court which held that when the jury found that Allentown acted in bad faith, fees and penalties were mandated by law.

Allentown took the case to the Pennsylvania Supreme Court, arguing that the use of “may” in the Prompt Payment Law indicates that the award of attorney fees and penalties is subject to review on a case by case basis. That said, in most cases, public owners found to act in bad faith are required to pay public contractor’s attorney fees and penalties.

Does This Ruling Permit Exceptions?

Allentown has to take the case to trial court, where they may still be required to pay Scott penalties. The Supreme Court decision simply opened the door for exceptions to the rule.

Only in rare cases, very good reasons will exempt owners from paying out those awards. The Procurement Code will most likely prevail in most cases, requiring owners to pay their contractors on time and as agreed upon.

Philadelphia Business Lawyers at Sidkoff, Pincus & Green, P.C. Tackle Tough Business Litigation

Philadelphia business lawyers at Sidkoff, Pincus & Green represent clients in a variety of business disputes. We handle cases involving OSHA investigations, wrongful termination, discrimination, overtime pay disputes, trademark infringement, business torts, and FTC cases. Call our Center City Philadelphia offices at 215-574-0600 or complete our online contact form to discuss your case.

Philadelphia Business Lawyers: Rainbow Apparel Legal Fees Lawsuit

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Recently, the named partner of a small law firm, Michael Kimm, and co-plaintiff Rainbow Apparel, brought a lawsuit against KCC Trading, Inc. and several individual defendants, alleging that defendants failed to pay them rightfully earned legal fees. The trial court dismissed Kimm’s case, and the appellate court affirmed, on grounds that requiring clients to pay their attorney to sue themselves constitutes as unlawful fee shifting.

KCC and Rainbow Apparel had entered into a multi-million-dollar business venture together. KCC was to supply the financing for Rainbow’s business ventures. In October 2009, KCC retained Kimm’s law firm. They agreed upon a rate of $400 per hour for work performed by Kimm himself, and $250 an hour for work performed by Kimm’s associates. In addition to these fees set forth in the retainer agreement, KCC also agreed to pay the Kimm Law Firm $15,000 a month on a rolling basis, beginning on October 15, 2009. The contract setting forth the fee arrangement also included indemnification and termination clauses.

KCC fired Kimm in April 2010. Kimm then sent KCC the billing statements from October 2009 through March 2010, which totaled nearly $50,000. Then, several months later, Kimm sent KCC a second bill, charging the company over thirty thousand dollars for hours expended litigating against KCC to collect the unpaid legal fees.

An Unenforceable Clause

Kimm sued KCC on grounds that they had breached their contract. They also sued for quantum meruit (reasonable value of services), payment on the basis of account stated, and unjust enrichment. Kimm moved for summary judgment, but the trial court denied his motion. The trial court judge dismissed Kimm’s claim for the $30,000 incurred as a result of the fee litigation. The court reasoned that the indemnification clause was unenforceable because it violated public policy. The trial court also reduced the $50,000 sought by Kimm, finding that the bill was unreasonably high.

Kimm appealed, but the appellate court affirmed the trial court’s dismissal regarding the $30,000 fee. The court noted that requiring clients to pay their attorney to sue themselves constitutes unlawful fee shifting. The appellate court also upheld the reduction of the $50,000 fee as unreasonable.

Philadelphia Business Lawyers at Sidkoff, Pincus & Green Have Experience Litigating Indemnification Clauses and Breach of Contract

If you are involved in a contractual dispute, the Philadelphia business lawyers at Sidkoff, Pincus & Green has the experience to handle your case swiftly and effectively. To schedule a consultation with one of our reputable attorneys, call us at 215-574-0600 or contact us online today.

Philadelphia Employment Lawyers: Non-Solicitation Verdict Upheld

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Recently, a Pennsylvania appellate court upheld a $6.9 million verdict for an insurance brokerage firm that sued several former employees who violated their non-solicitation contracts. The employees allegedly tried to lure clients to a competing agency.

Things began when two executives at Balmer began considering launching a new Philadelphia office for competing firm Frank Crystal & Co. (“FCC”). Just one month after these discussions began, the Philadelphia FCC branch opened with three Balmer employees at the helm. The Balmer employees purportedly worked on transitioning to their new positions while on agency phones, computers, and time. One employee allegedly compiled a list of Balmer clients and other trade secrets. Ultimately, the Philadelphia branch of FCC solicited at least twenty-four Balmer clients. One of these clients had been with Balmer for over 25 years and was one of the agency’s biggest.

Balmer sued both FCC and the former employees, seeking damages for breach of fiduciary duty, tortious interference, unfair competition, conspiracy, and other violations. A Chester County judge awarded Balmer $2.4 million in compensatory damages and $4.5 million in punitive damages.

An Undeniable Breach in Contract

The defendants appealed to the Superior Court, urging that the punitive damages be struck, as there was no evidence of outrageous conduct. The court did not agree, finding ample evidence to support the punitive damages. Specifically, the court noted that FCC knew about the Balmer executives’ non-solicitation contracts, yet courted them anyway. Furthermore, the employees had provided FCC with privileged, protected information about Balmer clients.

The court relied on an earlier case wherein a radio station manager solicited members of his sales staff to join him in his move to a competing station. They also persuaded an advertising client to follow them to their new employer. Even though the two cases are distinguishable in that one deals with a covenant not to compete, and the other deals with non-solicitation contracts, the conduct was similar in both.

In ruling against FCC, the court found that when a company hires the entire marketing and sales staff from one agency, the sole purpose is clearly to induce clients of that agency to keep their accounts with with the sales force that is switching agencies. FCC Philadelphia earned approximately $300,000 its first year, all from Balmer Agency clients. The court upheld the punitive damage award.

Philadelphia Employment Lawyers at Sidkoff, Pincus & Green Counsel on Non-Solicitation Contracts, Non-Compete Agreements

Whether you are trying to craft a solid employment contract, or whether you need an experienced, aggressive team of litigators to handle a claim of breach of contract, the highly regarded Philadelphia employment lawyers at Sidkoff, Pincus & Green are prepared. We take pride in developing successful relationships with our clients. Contact us online or call our offices at 215-574-0600 to speak with a Philadelphia business lawyer.

Philadelphia Business Litigation Lawyers: NJ Court Upholds Arbitration Award

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A New Jersey federal court recently ruled that corporate officers could be bound by an arbitration agreement that was only signed in the name of the company. The court reasoned that the individual officers were alter egos of the corporation, and successors-in-interest to their company. Significantly, because the officers had relied on the arbitration agreement to assert a counterclaim during arbitration, the court determined that they could not now escape being bound by its terms.

New World Solutions, Inc. (NWS) was formed in 2007 to provide IT services to another corporation, Asta. NWS was solely owned by Neal and Coyne, who also served as directors. Two years after formation, NWS and Asta entered into a contract for the provision of services. But after NWS paid Asta four million dollars, Asta terminated the agreement, alleging that NWS submitted inflated invoices, created a malfunctioning replacement unit, and provided essentially useless network monitoring services.

Asta commenced arbitration proceedings against NWS. The relevant provision in the services agreement specified that disputes “between the Parties” would be resolved in accordance with the Commercial Arbitration Rules of the American Arbitration Association. Although NWS was represented by counsel at the outset, at some point, Coyne, one of the directors, assumed representation and filed the counterclaim in arbitration. A separate arbitration was initiated against Neal and Coyne individually.

In addition to finding that Coyne and Neal were bound by the arbitration agreement, the arbitrator also determined that they had used NWS to defraud Asta out of hundreds of thousands if not millions of dollars. The principals were held liable for damages in excess of three million dollars. They appealed, and a New Jersey District Court confirmed the arbitration award in full on a motion for summary judgment.

The Importance of This Ruling in Business Litigation

 A threshold issue the court had to address was whether it could assert jurisdiction over Neal and Coyne because they were not named parties to the arbitration agreement. The court determined that pursuant to the Federal Arbitration Act, the court should determine whether a dispute is to be arbitrated, unless the parties agree otherwise. The court ultimately confirmed the award even though Neal and Coyne refused to participate in the proceedings.

Philadelphia Business Litigation Lawyers at Sidkoff, Pincus & Green, P.C. Provide Competent Counsel in Arbitration

This decision serves as an important reminder that corporate officers can be bound by arbitration agreements signed in the name of their principal. If you need counsel for arbitration, the Philadelphia business litigation lawyers at Sidkoff, Pincus & Green are prepared to help. With offices conveniently located in Philadelphia, we proudly serve businesses located in Pennsylvania and South Jersey. To schedule a consultation, call us at 215-574-0600 or contact us online today.

Philadelphia Business Lawyers: Breach of Contract and Insurance Fraud Claims Preempted by ERISA

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In Butler v. Liberty Mutual, the Third Circuit ruled that The Employee Retirement Income Security Act of 1974 (“ERISA”) preempts state law claims like breach of contract and insurance fraud involving employee benefit plans. No. 16-1316, 2016 WL 3346067, at *1 (3d Cir. June 16, 2016). In this case, Plaintiff Andre Butler suffered an injury while employed at Home Depot in 2011. Plaintiff subsequently filed for short-term disability benefits with Defendant, Liberty Life Assurance Company of Boston, from which he received benefits for a limited period of time. The policy was sponsored by Home Depot. After Defendant determined Plaintiff was ineligible to continue receiving support, it denied Plaintiff further benefits. Plaintiff proceeded to file a workers’ compensation suit which ultimately dismissed before filing suit alleging that his denial of benefits was insurance fraud and a breach of contract. After the suit was dismissed in the District Court, Plaintiff appealed to the Third Circuit.

The Third Circuit affirmed the District Court’s ruling to Dismiss Plaintiff’s Complaint due to the fact that Plaintiff’s claims for breach of contract and fraud fall within the scope of ERISA preemption because they relate to an ERISA-governed benefits plans.

For more information, call Philadelphia business lawyers at Sidkoff, Pincus & Green at 215-574-0600 or contact us online.

Philadelphia Business Lawyers: NJ Court Declares Car Dealer’s Arbitration Clause Unenforceable

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The Appellate Division has recently ruled that the arbitration provisions in a New Jersey used car dealer’s sales contract were too confusing to enforce. The dealer had moved to dismiss a customer’s complaint and compel arbitration, despite claims that the dealer had violated the New Jersey Consumer Fraud Act, committed a breach of warranty, and other infractions. However, the court denied the motion on grounds that the documents included three different arbitration clauses with several “hopelessly confusing” contradictory provisions.

The court was concerned that an average consumer who signed one of these sales agreements would have no idea what essential terms they were signing. Consumers would not know how to file a demand for arbitration, within what timeframe and where to file it, or what it would cost. Another concern was conflicting, contradictory requirements. Conflicting statutes of limitations were incorporated, and the document set forth contradictory provisions as to whether the American Arbitration Association or some other forum must be used.

In another contradiction, one clause stated that consumers must provide written notice of a dispute to the dealership 30 days before filing arbitration, but another clause stated that there was no waiting period. The dealer, Federal Auto Brokers, conceded that such contradictory provisions may void an agreement to arbitrate.

In short, arbitration is an agreement between two parties to attempt to resolve a dispute outside of the court system. Parties agree on a neutral third party to serve as arbitrator, and that person acts as both judge and jury. The rules of arbitration are typically a matter of contract between the parties. Arbitration can be either binding or non-binding, depending on the provisions in the contract. The primary benefit of arbitration is that it enables parties to resolve disputes quickly and easily, whereas lawsuits in the judicial system can last for years.

Philadelphia Business Lawyers at Sidkoff, Pincus & Green, P.C. Counsel Businesses and Individuals on Contracts and Frequently is involved in Contract Litigation

If you need assistance negotiating, drafting, or reviewing business contracts – or are involved in litigation related to a contract – the experienced Philadelphia business lawyers at Sidkoff, Pincus & Green can help. To schedule a consultation, call us at 215-574-0600 or contact us online today. With offices located in Philadelphia, we represent clients throughout Pennsylvania and South Jersey.