author: NEALON, J,

text:
    Citadel Broadcasting Co. v. Gratz

      C.P. of Lackawanna County,
    no. 2001-EQ-60021.

      John J. Myers and Joseph G. Ferguson, for plaintiff.

      J. Timothy Hinton, for defendants.
    May 1, 2001
   NEALON, J,

Plaintiff, Citadel Broadcasting Company, which owns and operates 11 radio stations in northeastern Pennsylvania seeks a preliminary injunction barring its former account executive, defendant Florence Gratz, from continuing her employment with Citadel’s local competitor, defendant Shamrock Communications Inc., pending a full hearing on the merits of Citadel’s request for a permanent injunction. Since the noncompetition agreement at issue was not executed at the inception of Gratz’s employment, nor was it supported by adequate consideration, Citadel is not entitled to temporarily restrict Gratz’s vocational opportunities in the radio industry based upon the restrictive covenant. Moreover, inasmuch as Citadel has not established that Gratz has misappropriated Citadel’s trade secrets or confidential information during her employment with Shamrock, Citadel’s alternative request for injunctive relief predicated upon the nondisclosure agreement will likewise be denied.

I. PROCEDURAL HISTORY

On April 10, 2001, Citadel filed an equity complaint against Gratz and Shamrock asserting that Gratz is in breach of a noncompetition agreement and further charging that Gratz and Shamrock have intentionally interfered with Citadel’s contractual relations and prospective economic advantages. (See plaintiff’s complaint, ¶¶24-39.) On April 1,2001, Citadel filed a motion for a preliminary injunction pursuant to Pa.R.C.P. 1531 and secured a rule to show cause why Gratz should not be temporarily enjoined from working as a sales account executive with Shamrock. The rule was made returnable for a hearing on April 18,2001, at which time testimony was received from Paul Ehlis, Florence Gratz and James Morris and various exhibits were introduced into evidence.

At the conclusion of the hearing, Citadel’s request to file a supplemental brief on or before April 23, 2001, was granted with the proviso that Gratz and Shamrock would be allowed to submit their responsive brief by April 30, 2001. Upon the filing of the parties’ memoranda of law, this matter was submitted for a decision. The factual findings set forth below are based upon the testimony and evidence which have been found to be competent, credible and probative.

II. FINDINGS OF FACT

(1) Citadel owns and operates approximately 300 radio stations in more than 40 markets throughout the United States, including WMGS-FM, WEMR-FM, WXBE-FM, WXAR-FM, WBHT-FM, WBSX-FM, WBHD-FM, WARM-AM, WAZL-AM, WJKN-AM, and WEMR-AM in the five-county region (Lackawanna, Luzerne, Columbia, Monroe and Wyoming) compromising the northeastern Pennsylvania market.

(2) Shamrock also owns and operates radio stations in the same northeastern Pennsylvania market and is a direct competitor of Citadel in that five-county region.

(3) On November 19,1992, Gratz began employment as an account executive with WARM Broadcasting Company Inc. (a.k.a Susquehanna Pfaltzgraff Company, a radio division) which owned and operated WARM-AM, WMGS-FM and WBHT-FM radio stations in northeastern Pennsylvania. (See plaintiff’s motion for preliminary injunction, ¶4; defendants’ answer to plaintiff’s motion for preliminary injunction, ¶4.)

(4) On June 24,1996, Gratz executed an employment agreement with WARM Broadcasting Company Inc. which included a covenant not to compete by virtue of which Gratz “agree[d] for a period of six months from [her] date of termination not to work in the capacity of a salesperson, sales manager or in any position involving the sales of advertising time... for any radio station, TV station, cable system or other electronic media in the Wilkes-Barre/Scranton area . . . .” (See plaintiff’s exhibit no. 8.)

(5) On November 14, 1996, WARM Broadcasting Company Inc. executed an “asset purchase agreement” with Tele-Media Broadcasting Company whereby TeleMedia agreed to purchase the assets of WARM. Contemporaneously with the execution of the “asset purchase agreement,” Tele-Media and WARM entered into a local marketing agreement in which Tele-Media agreed to operate WARM-AM, WBHT-FM, WKQV-AM, WKQVFM, and WMGS-FM radio stations pending the approval of the WARM/Tele-Media sale by the Federal Communications Commission. (See plaintiff’s exhibit no. 1; defendants’ exhibit no. 2.)

(6) Tele-Media subsequently executed a “single station radio blanket license agreement” with Broadcast Music Inc., to operate WMGS-FM beginning December 1,1996. (See defendants’ exhibit no. 4.)

(7) Commencing December 1, 1996, the salaries and remuneration for former WARM sales personnel, including Jerry Paparelli, Carl Krupa and James E. Morris were paid by Tele-Media rather than WARM. After Mr. Paparelli, Mr. Krupa and Mr. Morris declined to execute a noncompetition agreement with Tele-Media on December 10, 1996, their employment with Tele-Media was terminated immediately. Mr. Paparelli, Mr. Krupa and Mr. Morris received W-2 wage statements from TeleMedia confirming that they had been paid wages and compensation by Tele-Media prior to December 10,1996. (See defendants’ exhibit nos. 7-9.)

(8) On December 9,1996, Tele-Media presented Gratz with a compensation agreement reflecting her commission structure as an account executive with Tele-Media, and Gratz signed the compensation agreement on that date. The Tele-Media/Gratz compensation agreement executed by Gratz did not increase or improve her previous level of remuneration. (See defendants’ exhibit no. 10.)

(9) On December 10,1996, Gratz executed an “agreement respecting noncompetition and trade secrets” with Tele-Media with respect to the operations of radio stations WARM-AM, WMGS-FM, WBHT-FM, WKQVAM, and WKQV-FM. The preamble to that agreement memorializes the fact that “[Gratz] is seeking continued employment with [Tele-Media].” (See plaintiff’s exhibit no. 2, p. 1; defendants’ exhibit no. 1, p. 1.) (emphasis added) Pursuant to the noncompetition clause of that agreement, Gratz agreed that upon her termination from employment with Tele-Media, “she will not thereafter for a period of six months render any services of a nature substantially similar to the services rendered by [Gratz] to [Tele-Media] over the facilities of any other radio station licensed to serve or operation [sic] within any community within the metropolitan survey area of [TeleMedia’s] stations.” Gratz further acknowledged that upon her termination from employment, “she will not at any time thereafter divulge or disclose to any person, partnership or corporation any trade secrets, including, but not limited to programming formulas or formatics, programming strategies or sales formulas and strategies or business affairs of [Tele-Media].” (Id.)

(10) At the time that Gratz signed the “agreement respecting noncompetition and trade secrets” on December 10, 1996, she did not receive any promotion, salary increase or other employee benefit from Tele-Media in exchange for her execution of the restrictive covenant.

(11) Effective March 28, 1997, Tele-Media formally merged with Citadel by virtue of Citadel’s purchase of Tele-Media’s issued and outstanding shares of capital stock. (See plaintiff’s exhibit nos. 3-4; defendants’ exhibit no. 3.)

(12) On July 9,1997, a certificate of merger was filed with the office of the Secretary of State of the state of Delaware memorializing the merger of Tele-Media and Citadel. (See plaintiff’s exhibit no. 4.)

(13) On August 5, 1997, Gratz executed a “confidentiality agreement” with Citadel in which she agreed that following her termination of employment, she would not “disclose or otherwise make available confidential information to any person..., or use or appropriate such information to my own advantage or for the benefit of any person or entity other than Citadel.” The “confidentiality agreement” defines the phrase “confidential information” as including any information or material which “(i) is not generally known to the public or within the media business community; (ii) was acquired or learned by [Gratz] as a result of and during [her] employment with Citadel; and (iii) relates to the business or affairs of Citadel.” (See defendants’ exhibit no. 6.)

(14) As a senior account executive with Citadel, Gratz was responsible for generating $660,000 in net advertising revenue each year, and in that capacity, she received the “Citadel stellar seller” award and the “salesperson of the month” award for eight months of the year. (See plaintiff’s exhibit no. 7.)

(15) In 1999, Citadel provided Gratz with a noncom-petition agreement for her signature, but she declined to execute it.

(16) In light of her dissatisfaction with her work environment and rate of compensation at Citadel, Gratz decided to leave the employ of Citadel. On March 22,2001, she hand-delivered a letter of resignation to Citadel’s general sales manager confirming that she was resigning her position as an account manager effective April 5, 2001. (See plaintiff’s exhibit no. 5.)

(17) Upon its receipt of Gratz’s letter of resignation on March 22, 2001, Citadel terminated Gratz’s employment immediately. On March 24,2001, counsel for Citadel forwarded a letter to Shamrock’s general manager indicating that “Citadel has learned that Shamrock has offered Ms. Gratz employment within the Wilkes-Barre/ Scranton metropolitan survey area” and admonishing Shamrock not to “permit her to act in a sales or customer account representative capacity for the next six months” in light of the “agreement respecting competition and trade secrets” executed by Gratz on September 10,1996. (See plaintiff’s exhibit no. 6.)

(19) On March 26, 2001, Gratz commenced employment with Shamrock as an account executive.

(20) During her employment with Shamrock, Gratz has solicited two accounts (Pocono Raceway and La-z-Boy Furniture) of the 40 clients that she serviced for Citadel, but has only persuaded one of those former clients, Pocono Raceway, to pinchase advertising with Shamrock. Although Pocono Raceway has purchased advertising with Shamrock, it has not discontinued its advertising relationship with Citadel.

(21) While employed with Citadel, Gratz gained access to qualitative and quantitative ratings information and demographic data which are generally available throughout the radio industry and are not proprietary information of Citadel. With regard to any knowledge that Gratz acquired concerning Citadel’s advertising rates, Citadel has not proven that Gratz has utilized any such information while in Shamrock’s employ.

(22) Citadel cannot identify any accounts that Gratz has misappropriated from Citadel to Shamrock {i.e., clients which have left Citadel for Shamrock), nor can Citadel establish any reduction in advertising revenue that it has experienced as a result of Gratz’s employment with Shamrock.

(23) Gratz is a single parent of three children and her sole source of income is her current employment with Shamrock.

III. LEGAL DISCUSSION

(A) Standard of Review

To secure injunctive relief, the movant must generally establish that: (1) an injunction is necessary to prevent immediate and irreparable harm which cannot be compensated by damages; (2) greater injury will result from refusing the injunction than from granting it; (3) the injunction will restore the parties to the status quo as it existed immediately before the allegedly wrongful conduct; (4) the alleged wrong is manifest and the injunction is reasonably suited to abate it; and (5) the moving party’s right to relief is clear. Limerick Auto Body Inc. v. Limerick Collision Center Inc., 769 A.2d 1175 (Pa. Super. 2001); Troianiello v. Leggat, 99 Lacka. Jur. 156, 168 (1998).

However, distinct burdens of proof govern requests for preliminary injunctions as opposed to applications for permanent injunctions. Chester v. Chester Redevelopment Auth., 686 A.2d 30, 35 (Pa. Commw. 1996), app. denied, 548 Pa. 650, 695 A.2d 787 (1997); Dorton v. Sperling, 101 Lacka. Jur. 246, 249 (1999). Since a preliminary injunction merely serves as a temporary remedy pending a full hearing on the merits, In re Appeal of Little Britian, 651 A.2d 606, 611 (Pa. Commw. 1994), app. denied, 541 Pa. 645, 663 A.2d 696 (1995), the criteria for the issuance of a preliminary injunction are less demanding than that applicable to requests for a permanent injunction. LARA Inc. v. Dorney Park Coaster Co. Inc., 116 Pa. Commw. 548, 553, 542 A.2d 220, 223 (1998), app. denied, 522 Pa. 580, 559 A.2d 40 (1989); Com. v. Sea-Sea’s Inc., 101 Lacka. Jur. 353, 363 (2000); Troianiello, 99 Lacka. Jur. at 168-69. For example, aparty seeking a preliminary injunction is not necessarily required to establish the absence of an adequate remedy at law. Chester, 686 A.2d at 35; Dorton, 101 Lacka. Jur. at 250. Furthermore, “unlike a party seeking a permanent injunction, a party ‘seeking a preliminary injunction is not required to establish his or her claim absolutely.’ ” Boyle v. PIAA, 676 A.2d 695, 699 (Pa. Commw. 1996), app. denied, 546 Pa. 684, 686 A.2d 1313 (1996); Sea-Sea’s, supra. Rather, in demonstrating that the “right to relief is clear,” a party requesting a preliminary injunction need only establish a reasonable likelihood of success on the merits. Sheridan Broadcasting Networks Inc. v. NBN Broadcasting Inc., 693 A.2d 989, 992 (Pa. Super. 1997); Troianiello, supra.

Consequently, in order to obtain a preliminary injunction, the movant must demonstrate that: (1) the right to relief is clear, but not necessarily absolute; (2) the need for relief is immediate; and (3) the harm will be irreparable if the injunction is not granted. Golden Triangle News Inc. v. Corbett, 689 A.2d 974, 978 (Pa. Commw. 1997); Dorton, supra. Notwithstanding the lesser standard of proof, a preliminary injunction remains “an extraordinary remedy to be utilized only where the plaintiff has established a clear right to relief.” Limerick Auto Body Inc., supra at 1179; A.M. Skier Agency Inc. v. Gold, 747 A.2d 936, 942 (Pa. Super. 2000).

(B) Covenant Not To Compete

Citadel contends that the noncompetition agreement which Gratz executed with Tele-Media on December 9, 1996, bars her from working as an accountant executive or salesperson with Shamrock. Restrictive covenants are enforceable under Pennsylvania law if they are: (1) ancillary or incident to the acceptance of employment; (2) supported by adequate consideration; (3) reasonably limited in temporal and geographic scope; and (4) judiciously designed to safeguard a legitimate interest of the former employer. Thermo-Guard Inc. v. Cochran, 408 Pa. Super. 54, 64-66, 596 A.2d 188, 193-94 (1991); Pilot Air Freight Corp. v. Sandair Inc., 118 F. Supp.2d 557, 563 (E.D. Pa. 2000). Covenants not to compete are generally disfavored by Pennsylvania courts, Hayes v. Altman, 438 Pa. 451, 454, 266 A.2d 269, 271 (1970); National Business Services Inc. v. Wright, 2 F. Supp.2d 701, 707 (E.D. Pa. 1998), and are strictly construed against the party seeking to enforce them. Hess v. Gebhard & Co. Inc., 769 A.2d 1186, 1192 (Pa. Super. 2001); Lackawanna Medical Group v. Feldman, 100 Lacka. Jur. 65, 69 (1998), app. dismissed, no. 383 MDA 99 (Pa. Super. 1999). Post-employment restrictive covenants are subject to a more stringent test of reasonableness than noncompetition clauses which are ancillary to the sale of a business. Scobell Inc. v. Schade, 455 Pa. Super. 414, 420, 688 A.2d 715, 718 (1997); Graphic Management Assoc. Inc. v. Hatt, 1998 WL 159035, *13 (E.D. Pa. 1998). Thus, “in determining whether to enforce a post-employment restrictive covenant, we must balance the interest the employer seeks to protect against the important interest of the employee in being able to earn a living in his [/her] chosen profession.” Hess, supra; Advanced Fox Antenna Inc. v. Csaszar, 1999 WL 54567, *2 (E.D. Pa. 1999) (quoting Thermo-Guard Inc., supra).

Gratz and Shamrock maintain that the noncompetition agreement which Gratz executed on December 10,1996, is unenforceable since it was signed after she began employment with Tele-Media on December 1, 1996, and was not supported by new or additional consideration. As we have previously observed:

“To be valid, the noncompetition clause must be consummated contemporaneously with the exchange of consideration. Capital Bakers Inc. v. Townsend, 426 Pa. 188, 190-91, 231 A.2d 292, 293-94 (1967); Records Center Inc. v. Comprehensive Management Inc., 363 Pa. Super. 79, 85, 525 A.2d 433, 435 (1987). If a covenant not-to-compete is executed at the inception of the employment, the consideration supporting the restrictive covenant is the job itself. See e.g., Barb-Lee Mobile Frame Co. v. Hoot, 416 Pa. 222, 225-26, 206 A.2d 59, 61 (1965). However, when the noncompetition clause is injected into an existing employment relationship, it is enforceable only if the employee received some corresponding benefit or change in status. For example, if a restrictive covenant entered into after the start of employment is coupled with a promotion, Records Center Inc., supra at 85, 525 A.2d at 435-36, ‘a cash payment, a guarantee of certain job benefits, including a favorable change in the employer’s automobile reimbursement policy and a guaranteed severance benefit in the event of termination,’ Davis & Warde Inc. v. Tripodi, 420 Pa. Super. 450, 456, 616 A.2d 1384, 1388 (1992), a transformation in employment classification from ‘a trainee on a strictly provisional basis’ to a full-time employee with greater earnings, Modern Laundry & Dry Cleaning Co. v. Farrer, 370 Pa. Super. 288, 293-94, 536 A.2d 409, 411-12 (1988), a stock purchase agreement, Wainwright’s Travel Service Inc. v. Schmolk, 347 Pa. Super. 199, 203, 500 A.2d 476, 478 (1985), or increased commissions and long-term disability benefits, Gordon Wahls Co. v. Linde, 306 Pa. Super. 64, 67, 452 A.2d 4, 6 (1982), adequate consideration exists. In the absence of such new or additional consideration, the covenant not-to-compete is unenforceable. Maintenance Specialties Inc. v. Gottus, 455 Pa. 327, 330, 314 A.2d 279, 281 (1974); Insulation Corp. of America v. Brobston, 46 Pa. Super. 520, 529, 667 A.2d 729, 733 (1995).” Dorton, 101 Lacka. Jur. at 251.

Moreover, the mere continuation of the employment relationship at the time a noncompetition agreement is signed is “not sufficient consideration for the covenant despite the fact that the employment relationship was terminable at the will of either party.” George W. Kistler Inc. v. O’Brien, 464 Pa. 475, 485, 347 A.2d 311, 316 (1975).

The competent evidence introduced during the injunctive hearing reflected that Tele-Media became the employer of Gratz by no later than December 1,1996. As of that date, former WARM employees were paid their salaries and commissions by Tele-Media and the licensing agreements consummated by Tele-Media vis-a-vis the WARM stations identify Tele-Media as the radio broadcast licensee effective December 1, 1996. In fact, the noncompetition agreement itself refers to Gratz’s “continued employment” with Tele-Media as of December 10, 1996.

Hence, the restrictive covenant which Gratz signed on December 10,1996, is unenforceable unless it was supported by some additional consideration. Based upon the testimonial and documentary evidence produced to date, it is undisputed that Gratz did not receive any promotion, wage increase or other employee benefit in return for her execution of the covenant not to compete. Absent such consideration, the noncompetition clause dated December 10, 1996, cannot serve as a basis for enjoining Gratz from sales employment with Shamrock, and as such, Citadel has not demonstrated that its right to relief is clear.

(C) Disclosure of Confidential Information

In the alternative, Citadel seeks to enjoin Gratz from utilizing any trade secrets, customer lists or confidential information which she acquired during her employment with Citadel and its predecessor, Tele-Media. (See plaintiff’s motion for preliminary injunction, ¶¶6, 8-9, 17,25 (ii).) Trade secrets of an employer, customer good will and specialized training and skills are all legitimate interests protectable through a general restrictive covenant. Thermo-Guard Inc., supra; Vector Security Inc. v. Stewart, 88 F. Supp.2d 395, 400 (E.D. Pa. 2000). However, even in the absence of a restrictive covenant, a former employer can enjoin the competitive use of confidential information obtained as a result of the trust and confidence of previous employment. See Carl A. Colteryahn Dairy Inc. v. Schneider Dairy, 415 Pa. 276, 280, 203 A.2d 469, 471 (1964); West Mountain Poultry Co. v. Gress, 309 Pa. Super. 361, 366, 455 A.2d 651, 653 (1982); Hyman Companies Inc. v. Brozost, 119 F. Supp.2d 499, 504 (E.D. Pa. 2000). “[Wjith or without a covenant addressing the subject of proprietary information, an employer is entitled to protection of its confidential information to the extent that the information is of such character as to be protectable under the common law of unfair competition or agency.” Bell Fuel Corp. v. Cattolico, 375 Pa. Super. 238, 254-55, 544 A.2d 450, 458 (1988), app. denied, 520 Pa. 612, 554 A.2d 505 (1989). In that regard, the right of a businessperson to be protected against unfair competition stemming from usurpation of his or her trade secrets must be balanced against the right of an individual to the unhampered pursuit of the occupation and livelihood for which [s]he is best suited. Renee Beauty Salons Inc. v. Blose-Venable, 438 Pa. Super. 601, 604, 652 A.2d 1345, 1347 (1995); Fidelity Fund Inc. v. Di Santo, 347 Pa. Super. 112, 120, 500 A.2d 431, 436 (1985).

To be entitled to an injunction against the use or disclosure of information, a plaintiff must establish, inter alia, that the information at issue constitutes a trade secret acquired by the defendant while employed in a position of trust and confidence such that it would be inequitable and unjust for the employee to make use of the information to the prejudice of the former employer. SI Handling Systems Inc. v. Heisley, 753 F.2d 1244, 1255 (3d Cir. 1985); Hyman Companies Inc., supra. The employer bears the burden of proving the existence of a trade secret and, among the factors which a court may consider in determining whether information qualifies as confidential, include the extent to which the information is known outside the employer’s business. Christopher M’s Hand Poured Fudge Inc. v. Hennon, 699 A.2d 1272, 1275 (Pa. Super. 1997), app. denied, 553 Pa. 686, 717 A.2d 1026 (1998). Stated otherwise, the information “must be the particular secrets of the complaining employer, not general secrets of the trade in which he is engaged.” Renee Beauty Salons Inc., supra at 607-608, 652 A.2d at 1348-49 (quoting Macbeth-Evans Glass Co. v. Schnelbach, 239 Pa. 76, 85, 86 A. 688, 691 (1913)). Although a nondisclosure covenant does not create a right to protection of customer information, the presence of such a restriction is evidence of the confidential nature of the data involved. Morgan's Home Equipment Corp. v. Martucci, 390 Pa. 618, 625 n.5, 136 A.2d 838, 834 n.5 (1957); Bell Fuel Corp., supra at 259-60, 544 A.2d at 461.

During the course of her employment with Citadel, Gratz executed a confidentiality agreement in which she acknowledged that she would not appropriate any proprietary information regarding Citadel’s marketing and programming plans and strategies which were not generally known within the media industry. (See defendants’ exhibit no. 6.) However, Citadel concedes that the qualitative and quantitative ratings information employed by sales personnel is generally known or available throughout the radio broadcasting business such that it would not constitute a trade secret. The names of Citadel’s advertising customers which Gratz has retained via her memory are likewise not considered confidential or proprietary information under Pennsylvania law. See Carl A. Colteryahn Dairy Inc., supra at 280-82, 203 A.2d at 471-72 (salesman could not be enjoined from soliciting customers whose names he had retained in his mental processes); Renee Beauty Salons Inc., supra at 609-10, 652 A.2d at 1349-50 (lower court erred by enjoining former salon employees from contacting salon customers since the names and styling preferences of those former customers could not constitute protected information). Furthermore, with regard to pricing information and advertising rates, Citadel has not established that Gratz is utilizing any such data in attempting to attract advertising accounts to Shamrock. Citadel’s lack of proof in that respect is significant since “an individual may solicit a former employer’s customers and divert business from a former employer, so long as no confidential information is used.” Multitherm Corp. v. Fuhr, 1991 WL 146233, *20 (E.D. Pa. 1991) (citing Spring Steels Inc. v. Molloy, 400 Pa. 354, 359, 162 A.2d 370, 372-73 (1960)).

For a preliminary injunction to issue, Citadel must demonstrate that its right to relief is clear. The competent evidence introduced during the rule returnable hearing did not remotely establish that Gratz has been misappropriating classified information during her employment with Shamrock. Accordingly, Citadel has not satisfied its burden of proof and its request to enj oin Gratz from continuing her employment with Shamrock will be denied.

DECREE NISI

And now, May 1, 2001, upon consideration of the motion for preliminary injunction filed by plaintiff, Citadel Broadcasting Company, and the testimony, evidence and legal authority submitted by the parties, and based upon the reasoning set forth in the foregoing adjudication, it is hereby ordered and decreed that the motion of plaintiff, Citadel Broadcasting Company, for a preliminary injunction is denied.

      . In their answer to the motion for preliminary injunction, Gratz and Shamrock originally averred that “Gratz is employed by the Scranton Times L.P., rather than Shamrock Communications Inc.” (See defendants’ answer to plaintiff’s motion for preliminary injunction, ¶¶11-12,16.) Gratz and Shamrock further posited that since “Gratz is employed by the Scranton Times L.P, defendant Gratz does not require Citadel’s consent or permission to work for a competitor.” (Id. ¶16.) However, at the time of the evidentiary hearing, Gratz and Shamrock stipulated that Gratz is, in fact, employed by Shamrock which is a competitor of Citadel.

      . The parties agree that the covenant not to compete which Gratz signed for WARM on June 24, 1996, is not applicable to Citadel’s request for injunctive relief since Tele-Media simply purchased the assets of WARM without securing a specific assignment of the Gratz restrictive covenant. See All-Pak Inc v. Johnston, 694 A.2d 347, 351-52 (Pa. Super. 1997) (covenants contained in employment contracts are not assignable absent an explicit assignability provision or the consent of the employee to have the restrictive covenant remain in effect).

      . In light of the denial of Citadel’s request for a preliminary injunction based upon the covenant not to compete, we need not decide whether the Tele-Media restrictive covenant may be enforced by Citadel. In All-Pak Inc., the Superior Court discussed the assignability of such a covenant in the context of an asset purchase. Relying upon the more recent ruling in Hess, supra, Citadel has attempted to distinguish the holding in All-Pak Inc., and its application to the case sub judice. See Hess, supra at ¶¶13-16 (recognizing the validity of a restrictive covenant which had been assigned by the former employer who had a continuing interest via the subsequent employer in enforcing the covenant). More recently, a federal district court allowed a coloration which acquired all of the stock of a predecessor company to enforce a restrictive covenant executed by an employee of the original entity based upon the rationale that the employee “should not be deemed to work for a new employer simply because the name of the corporation changed and the corporation’s shares have changed hands.” Siemens Medical Solutions Health Services Corp. v. Carmelengo, 2001 WL 389335, *4 (E.D. Pa. April 12, 2001).

      . As a result of Citadel’s failure to establish that its right to relief is clear, “there is no need for this court to consider the issue of irreparable harm.” Fedorko Properties Inc. v. C.F. Zurn & Associates, 720 A.2d 147, 150 (Pa. Super. 1998). Nevertheless, it should be noted that Citadel has not produced any proof that it has lost any advertising accounts or revenue as a result of Gratz’s employment with Shamrock.


source: Caselaw Access Project

author: WETTICK, J.,

license: Public Domain

text:
    In re Petition of Wilson, Elser, Moskowitz, Edleman & Dicker LLP, for an Order To Take the Deposition of Edward Grattan

      C.P. of Allegheny County,
    no. GD99-12042.

      Patrick M. Livingston, for Edward Grattan.

      Thomas Quinn and Dana M. McCarty, for Joseph Rosa.
    April 23, 2001
   WETTICK, J.,

The subject of this opinion and order of court is a petition by defendants in a New Jersey civil action to compel a non-party witness residing in Pennsylvania to answer questions at a deposition for use in the New Jersey litigation. The issue that I address is whether the witness may invoke the privilege against self-incrimination where the statute of limitations has expired as to any crimes for which he could be prosecuted.

FACTUAL BACKGROUND

The New Jersey litigation for which the testimony is sought is a legal malpractice action in which plaintiffs seek compensatory damages in excess of $ 15 million that they allegedly sustained because of the entry of a guilty plea to criminal charges (theft by deception) in 1993.

In 1992-1993, the individual plaintiffs in the New Jersey malpractice action (“plaintiffs”) were targets of a criminal investigation by the prosecutor of Union County, New Jersey. The company which they owned (AMS) had a franchise/fee agreement with a county authority to dispose of residual and patient care waste. Under this arrangement, AMS was reimbursed for actual costs incurred, including money paid to landfill operators. Plaintiffs had a contract with EMAC, a company operated by Edward Grattan and two other persons. Mr. Grattan’s company transported the waste from a transfer station in New Jersey to a disposal site in Allegheny County.

Plaintiffs were accused of requiring EMAC to pay kickbacks in excess of $700,000 to keep the contract. These payments were accounted for on EMAC’s financial records as rent and shuttle fees. Since the kickbacks were reported as payments for rent and shuttle fees, the county authority was overcharged.

The defendants in the New Jersey malpractice action are lawyers and law firms who represented plaintiffs in their dealings with governmental bodies in connection with the waste collection business. Plaintiffs’ expert in the New Jersey malpractice action will testify that the money which EMAC paid for rent and shuttle charges was for actual services it received; there was nothing illegal in the transaction. Consequently, these payments should have been reported to appropriate governmental bodies.

According to plaintiffs’ expert, the payments were not reported because defendants incorrectly and improperly instructed plaintiffs not to report the payments. If plaintiffs had received proper legal advice, the payments would have been reported and there would not have been any criminal prosecution.

As part of its defense, defendants wish to establish that EMAC’s payments were not for actual services. The theft by deception guilty plea was entered because EMAC was paying kickbacks to retain its contract.

As part of the 1992-1993 criminal investigation, Mr. Grattan, after receiving a grant of immunity, appeared before a Union County Grand Jury on September 15, 1993. Mr. Grattan testified that he made illegal payments to keep the contract (T. 108); it was necessary for him to pay money to the principals of AMS to keep the contract (T. 61); these payments were accounted for as rent and shuttle fees (T. 64); even though these were accounted for on the books in this fashion, these were not legitimate expenses—the payments were not for legitimate needs of the business (T. 65); this accounting method was devised so anyone looking at the books would not be able to tell they were kickbacks (T. 65-66); they were not legitimate fees. (T. 75-76, 78-79.)

On April 16, 1999, defendants obtained a court order from the New Jersey courts granting a commission to compel the deposition of Mr. Grattan. He was deposed in Allegheny County on October 21,1999. At the deposition, he asserted his Fifth Amendment privilege. Thereafter, pursuant to a court order from the New Jersey courts, defendants obtained a transcript of Mr. Grattan’s testimony before the grand jury. Shortly thereafter, plaintiffs, through a motion in limine, obtained a ruling from the New Jersey courts that the testimony was inadmissible at trial, because the plaintiffs were not afforded the opportunity to cross-examine Mr. Grattan when he testified before the grand jury.

Thereafter, on July 21, 2000, defendants obtained a court order from the New Jersey courts granting defendants leave to depose Mr. Grattan for a second time. The court order further provided for a special master to be appointed at defendants’ expense to rule on objections raised at the deposition.

At a second deposition held in Allegheny County on October 17,2000, presided over by a special master, Mr. Grattan again asserted the Fifth Amendment privilege. The special master concluded that it would be a waste of everyone’s time for him to rule on whether Mr. Grattan may invoke the Fifth Amendment privilege because the losing party would challenge his ruling in this court.

DISCUSSION OF LAW

Since the Fifth Amendment privilege against self-incrimination applies to the states, I initially consider rulings of the United States Supreme Court construing the Fifth Amendment.

In this case, there is no possibility that Mr. Grattan can be successfully prosecuted for any conduct described in his grand jury testimony because any criminal activity that occurred prior to his testimony is barred by the statute of limitations. Under federal case law, a person may not assert the Fifth Amendment privilege where there is no possibility that truthful answers to any questions may be used in any way to convict the witness of a crime. A liberal reading of federal case law is set forth in a foot-, note of the concurring opinion of Mr. Justice Marshall in Pillsbury Co. v. Conboy, 103 S.Ct. 608, 618 n.1 (1983):

“A witness is generally entitled to invoke the Fifth Amendment privilege against self-incrimination whenever there is a realistic possibility that his answer to a question can be used in any way to convict him of a crime. It need not be probable that a criminal prosecution will be brought or that the witness’s answer will be introduced in a later prosecution; the witness need only show a realistic possibility that his answer will be used against him. Moreover, the Fifth Amendment forbids not only the compulsion of testimony that would itself be admissible in a criminal prosecution, but also the compulsion of testimony, whether or not itself admissible, that may aid in the development of other incriminating evidence that can be used at trial. See Hoffman v. United States, 341 U.S. 479, 486, 71 S.Ct. 814, 818, 95 L.Ed. 1118 (1951).
“The privilege is inapplicable only ‘if the testimony sought cannot possibly be used as a basis for, or in aid of, a criminal prosecution against the witness. ’ Brown v. Walker, 161 U.S. 591, 597, 16 S.Ct. 644, 647, 40 L.Ed. 819 (1896). It has long been recognized that the court may require a witness to give testimony, including testimony that admits to involvement in a criminal act, when there is no possibility of future criminal charges being brought against the witness. For example, a witness may be compelled to testify concerning his involvement in a crime when he is protectedfrom later prosecution by the Double Jeopardy Clause, e.g., Reina v. United States, 364 U.S. 507, 513, 81 S.Ct. 260, 264, 5 L.Ed.2d 249 (1960) (dictum) by the applicable statute of limitations, see e.g., United States v. Goodman, 289 F.2d 256, 259 (CA4 1961), or by a pardon, see Brown v. Walker, 161 U.S. 591, 599-600, 16 S.Ct. 644, 647-48, 40 L.Ed. 819 (1896).” (emphasis added)

Also see 3 Charles E. Torda, Wharton’s Criminal Procedure (13th ed. 1991) Section 352:

“A witness is not entitled to assert his privilege against self-incrimination in respect of a particular question unless he is liable to prosecution and punishment. A witness is not liable to prosecution and punishment if he has been pardoned, if he has been granted indemnity or special amnesty, or if the pertinent statute of limitations has expired, in which case he may be required to testify.
“A witness who refuses to answer on the ground of privilege must show that the danger of incrimination is real, or that he has reasonable cause to apprehend such danger. The privilege may not be asserted if there is no rational connection between the possible answers to the question and the prosecution for a crime, or if there is merely a remote possibility of such a prosecution.” (footnotes omitted)

Mr. Grattan contends that the Fifth Amendment’s protections are more restrictive than the protections afforded by Article 1, Section 9 of the Pennsylvania Constitution. Mr. Grattan relies on an 1887 opinion of the Supreme Court of Pennsylvania in McFadden v. Reynolds, 11 A. 638 (Pa. 1887).

This was an action for a breach of promise of marriage in which the jury rendered a verdict in the plaintiff’s favor. It appears that under Pennsylvania law, any previous sexual activity of the plaintiff would have barred her right to recover, unless the promise of marriage was made with knowledge of this fact. The defendant called a witness to give testimony as to whether the witness had “carnal knowledge of plaintiff’ on a certain date more than two years previous. The witness declined to answer on the ground that the answer might incriminate him. The trial court ruled that the witness need not answer. On appeal, the Pennsylvania Supreme Court upheld the ruling. The court stated:

“We are not prepared to hold that, where a witness is asked upon the stand to say whether he has committed a crime, he shall be compelled to do so simply because he may, if a prosecution for that crime is subsequently instituted against him, plead the statute of limitations in defense. It seems to us he is protected against criminating himself in such a manner as to subject himself even to a prosecution. Were he compelled to answer the question as a witness, his answer would be sufficient, when testified to by others who heard it, to lay before a magistrate, who could commit him to prison to answer the charge, in default of bail. It would be also sufficient to place before a grand jury, who could find an indictment against him upon mere proof of his extorted answer. He could thereupon be compelled to appear in a criminal court to answer the charge, and would be obliged to employ counsel to defend him. He would necessarily undergo all the expense and trouble, besides suffering the shame, perhaps the ignominy, of defending himself against a criminal accusation made by his own mouth and against himself, because he was coerced to do so by the peremptory order of a court clothed with power to commit him indefinitely to prison for contempt in case of disobedience. At least, he would be obliged to plead the statute of limitations, and, if the crime were infamous, an acquittal on such a plea would be scarcely better than a conviction. We have never held that a witness might be compelled to criminate himself in such circumstances, and with our present views we decline to hold so now. The first assignment of error is therefore dismissed.” Id. at 641.

Mr. Grattan contends that I must follow McFadden because it has never been overruled. However, the Pennsylvania Supreme Court has cited McFadden on only one occasion (Commonwealth v. Lenart, 430 Pa. 144, 242 A.2d 259 (1968)) and on that occasion a majority of the court failed to endorse the reasoning set forth in McFadden. The issue in Commonwealth v. Lenart was whether a witness who refused to answer whether he had paid money to a person to influence a magistrate could invoke the privilege against self-incrimination under the federal and state constitutions. The trial court ordered the witness to testify; the court ruled that the witness could not invoke the privilege because he had been assured by the district attorney that he would not be prosecuted and because the statute of limitations had run against any criminal charges potentially pending against him. The witness refused to comply with the court order and the trial court held him in contempt of court, imposing a fine and a sentence of 60 days imprisonment. The witness appealed.

On appeal, Mr. Justice Musmanno, writing for a plurality of the court, stated that the holding in McFadden is still good law. In response to the Commonwealth’s argument that the overwhelmingly favored rule of today is that the right to remain silent does not attach where the statute of limitations bars any criminal prosecution, he said:

“We do not know that this rule is ‘overwhelmingly favored,’ but even if it does revel in that kind of popularity, we still do not see wherein it is a just rule. How could anyone say with certainty whether evidence will or will not lead to conviction? Who can foresee the results of a jury trial when one cannot predict what will be presented during the trial in the way of cross-examination and surprise witnesses? The rule lauded by the Commonwealth, carried to its ultimate extent, could wipe out entirely the privilege against self-incrimination.” Id. at 149-50, 242 A.2d at 263.

One justice joined in this opinion. Three justices only concurred in the result. In a concurring opinion (in which one justice joined), Mr. Justice O’Brien stated that it was proper for the witness to exercise his privilege against self-incrimination because the statute of limitations may not have been tolled since the witness was out of the state. He wrote the concurring opinion because he did not believe that the court should follow McFadden: “I concur in the result reached by the majority. I do so for the reason that Cassel had reasonable cause to apprehend danger of prosecution from his testimony. I would not at this time reaffirm the holding of McFadden v. Reynolds, [11 A. 638,] 20 W.N.C. 312 (1887), a case that has not withstood the test of time. As stated in 98 C.J.S. Witnesses §438, p. 259: ‘As a general rule, a witness may be compelled to testify with respect to a crime the prosecution of which is barred by the statute of limitations.’ If the witness cannot be convicted of the crime, the fact that he can be prosecuted for it is of only academic interest. What is of general interest is that the witness’ testimony can be vital to obtaining convictions, particularly in these days when the use of confessions has been so curtailed.” Id. at 152, 242 A.2d at 264 (J. O’Brien concurring).

I am not following McFadden v. Reynolds because it is not consistent with rulings of the Pennsylvania appellate courts compelling witnesses who have received a grant of immunity to testify in open court regarding conduct that may be infamous. See e.g., Commonwealth v. Swinehart, supra. The witness with the grant of immunity who is compelled to testify is in the same position as the witness protected by the statute of limitations who is compelled to testify. Consequently, if McFadden were the law of Pennsylvania, Pennsylvania courts would not compel the witness with the grant of immunity to testify because of the danger recognized in McFadden of a prosecution based on the witness’s testimony to which there is a valid defense and the harm that would flow from such a prosecution.

I also decline to follow McFadden because I am not aware of any jurisdiction which extends its privilege against self-incrimination to situations in which all possible criminal prosecution is barred by the statute of limitations. Defendants’ supplemental brief in support of motion to compel at 6 states that no court in the 20th century has adopted the McFadden view. It cites approximately a dozen cases in support of this statement. Mr. Grattan’s counsel does not contest this statement or cite any cases which follow McFadden.

Mr. Grattan also raises the following argument: “I run the risk of being criminally prosecuted for any testimony that I give in 2001 regarding the contract with AMS because my 2001 testimony may differ from my 1993 testimony before the grand jury. Consequently, a prosecutor may use my testimony before the grand jury to convict me of peijury for my testimony in 2001 if my testimony in the 2001 litigation differs from my prior testimony.”

Mr. Grattan cannot be convicted if the testimony that he gave in 1993 was false because the statute of limitations has run for peijury committed in 1993; but he can be convicted if testimony given in 2001 proceedings is false. However, Pennsylvania case law holds that the privilege of self-incrimination does not protect a witness from criminal charges based on a fear of prosecution for peijury where the witness has testified truthfully.

In Commonwealth v. Hawkins, 322 Pa. Super. 199, 469 A.2d 252 (1983), a witness challenged the trial court’s contempt order where he had refused to testify after being granted immxmity, because the assistant district attorney had threatened to prosecute him for peijury if his testimony failed to conform to his prior statement to the police. The Superior Court affirmed the contempt order and judgment of sentence.

In that case, the witness had given a statement to the police concerning an incident that resulted in a criminal prosecution against another person. Prior to the trial of the other person, the witness received a grant of immunity after the witness threatened to invoke the privilege of self-incrimination if questioned under oath. Thereafter, the witness refused to answer questions put to him by the prosecutor because of alleged conversations with the district attorney in which he was told that if his testimony on the witness stand deviated in any way from what he told the police, he would be prosecuted for perjury.

In affirming the trial court, the Superior Court relied on its ruling in In re Grand Jury, April Term, 1977, Wayne County, 251 Pa. Super. 43, 379 A.2d 323 (1977):

“In the instant case, appellant alleges a similar dilemma, which is equally illusory because his testimony could only have been used against him if he committed perjury. In re Grand Jury, April Term, 1977, Wayne County, 251 Pa. Super. 43, 379 A.2d 323 (1977), we held that it was no defense to a contempt finding that the witness believed in good faith that ‘if his memory is not completely accurate, he must refuse to testify, deny all recollection, or face peijury charges[.] ’ Id. at 50, 379 A.2d at 326. The court reasoned that ‘If necessary, he later may use his faulty memory as a shield to peijury charges; he may not use it now as a sword to avoid the special prosecutor’s questions.’ Id. at 51, 379 A.2d at 326. Similarly, in the present case, appellant may later use the truth as a ‘shield’ to peijury charges but he may not use it now as a ‘sword’ to avoid testifying.” 322 Pa. Super. at 205, 469 A.2d at 255. (footnote omitted)

The Superior Court also stated that the witness was protected from false prosecutions for peijury by the ethical standards applicable to prosecutors: While the prosecutor has broad discretion to decide whether or not to prosecute, “it is nevertheless required that he or she ‘refrain from prosecuting a charge that the prosecutor knows is not supported by probable cause[.]’ Rule 3.8 of the American Bar Association Model Rules of Professional Conduct....” 322 Pa. Super. at 206, 469 A.2d at 255.

Mr. Grattan seeks to distinguish Commonwealth v. Hawkins on the ground that there are material inconsistencies in Mr. Grattan’s testimony before the grand jury that create a greater likelihood of a peijury charge based on any testimony that he gives in the present proceedings. I disagree with this characterization of the testimony of Mr. Grattan.

Furthermore, this same argument was made and rejected in In re Grand Jury, April Term, 1977, Wayne County, supra. In that case, the witness contended that he would likely face peijury charges if forced to testify because he did not have a clear recollection of the events. The Superior Court cited In re Grand Jury Proceedings, 539 F.2d 382, 383-84 (5th Cir. 1976), where a witness who had been granted immunity feared that because of his poor memory inconsistent statements might be extracted from him, thus subjecting him to the likelihood of a perjury prosecution. The Fifth Circuit rejected that argument, stating that what was required of the witness was no different from that required of all citizens—he must conduct himself within the law to the best of his ability. This includes the requirement that he testify truthfully before a grand jury, and if criminal charges should emanate from these proceedings, he will have ample opportunity to demonstrate that he answered the questions to the best of his ability. The Pennsylvania Superior Court said that “[i]f necessary, he later may use his faulty memory as a shield to perjury charges; he may not use it now as a sword to avoid the special prosecutor’s questions.” 251 Pa. Super. at 51, 379 A.2d at 326.

Also see Commonwealth v. Nelson, 393 Pa. Super. 611, 621, 574 A.2d 1107, 1112 (1990) (a witness may not claim the Fifth Amendment privilege out of fear that he will be prosecuted for perjury for what he is about to say although he may claim the privilege if his new testimony might suggest that he had peijured himself in testifying on the same subject at a prior proceeding).

For these reasons, I enter the following order of court:

ORDER

On April 23, 2001, upon consideration of the motion to compel, it is hereby ordered that Edward Grattan is to testify at a deposition without asserting the privilege against compulsory self-incrimination.

      . Article 1, Section 9 of the Pennsylvania Constitution provides that a person “cannot be compelled to give evidence against himself.” The Fifth Amendment to the United States Constitution provides that no person “shall be compelled in any criminal case to be a witness against himself.” Since 1964, the protections of the Fifth Amendment have governed state court proceedings. Malloy v. Hogan, 84 S.Ct. 1489 (1964). Consequently, the privilege against self-incrimination is governed by the United States Supreme Court case law construing the Fifth Amendment unless a witness claiming a privilege against self-incrimination can establish that Article 1, Section 9 of the Pennsylvania Constitution provides greater protection. See generally, Commonwealth v. Swinehart, 541 Pa. 500, 664 A.2d 957 (1995).

      . This description is based on the transcript of guilty plea in the Superior Court of New Jersey Law Division: Union County before Honorable Edward W. Beglin Jr. (Accusation no. 93-12-1433) (12/1/ 93) and on the transcript of proceedings, Union County Grand Jury, State of New Jersey v. A.M.S., case no. 92-1369 (9/15/93).


author: SHEPPARD JR., J.,

text:
    Gary Lorenzon Contractors Inc. v. Allstates Mechanical Ltd.

      John P McShea and Anthony J. DiMarino, for plaintiff.

      Adam G. Marcus and Robert J. Hoffman, for defendant.
    May 10, 2001
   SHEPPARD JR., J.,

Defendants, Allstates Mechanical Ltd. and Fidelity Deposit Company of Maryland, have filed preliminary objections to the complaint of plaintiff, Gary Lorenzon Contractors Inc. For the reasons set forth, the court is entering a contemporaneous order overruling the objections.

BACKGROUND

In March 2000, John Walters, then an estimator for Allstates, contacted Lorenzon about bidding for a construction project for the School District of Philadelphia. On April 7,2000, Lorenzon submitted a bid proposal to perform certain demolition, roofing and structural steel work in connection with the project. Three days later, Allstates entered into a contract with the district to act as general contractor for the project. In connection with the contract, Allstates executed and delivered to the district a labor and material payment bond, with Fidelity as surety.

Allstates mailed Lorenzon a proposed subcontract agreement on April 27, 2000 with a proposed cost of $69,000. The subcontract included a forum selection clause requiring that “any and all actions brought by any party... in connection with this agreement” be brought in the Court of Common Pleas of Delaware County “where venue shall be and is hereby established.” (Forum selection clause.) Complaint exhibit B, ¶2. Lorenzon responded on May 4, 2000 by seeking clarification of certain terms in the subcontract, including the required use of American steel and the exclusion of work on a thermal plant penthouse unit from the subcontract’s scope. In spite of the parties’ failure to execute the subcontract, Norman Long, Allstates’ manager for the project, subsequently directed Lorenzon to proceed with its portion of the project. Believing that its interpretation of the subcontract had been accepted, Lorenzon commenced work on the project.

In July 2000, Long left Allstates and was replaced as project manager by Walters. Shortly before August 3, 2000, Walters requested that Lorenzon submit a proposal to provide labor and material for the installation of the structural steel for the thermal plant. On September 18, 2000, Lorenzon submitted a proposal to provide labor only at a cost of $44,000. Lorenzon contends that Walters orally agreed to the thermal plant proposal by instructing Lorenzon to start immediately and assured Lorenzon that Allstates would provide a $44,000 purchase order for this additional work.

Lorenzon asserts that it completed the thermal plant work on September 27, 2000 and submitted an invoice to Allstates for $44,000. Sometime during that week Walters contacted Lorenzon, stating that a mistake in the thermal plant’s steel configuration design required construction modification. Walters allegedly acknowledged that the mistake was not caused by Lorenzon and requested that Lorenzon make the modifications as soon as possible, with a purchase order for the additional steel to be provided by Allstates. According to the complaint, Lorenzon incurred additional expenses of $107,918.33 in materials and labor costs between September 28 and October 25, 2000 in completing the modifications.

Up through October 9,2000, Lorenzon had been paid only $30,071 for its labor and services. On that day, Gary Lorenzon, a principal of Lorenzon, met with Walters and Anthony Maraño, president of Allstates, to discuss how Allstates would pay for the modifications. According to Lorenzon, Allstates agreed to pay for the modifications on a time and material basis, and Maraño reaffirmed that the subcontract did not include work on the thermal plant.

On October 10, 2000, Lorenzon requested payment from Allstates beyond that already made, and, when Allstates agreed, Gary drove to Allstates’ office to pick up a check. Upon his arrival, he was told that Allstates would not pay Lorenzon unless he signed the subcontract. Reluctantly, Gary agreed and signed what he believed to be a copy of the subcontract. The next day, Lorenzon’s counsel wrote to Walters to confirm that the clarifications of Lorenzon’s May 4 letter had been incorporated into the subcontract. Walters responded that this was so.

Lorenzon alleges that Allstates still owes it $203,557.87 and has not made any payments for the modifications. In addition, Allstates allegedly has retained Lorenzon property with a value of $7,000. On this basis, Lorenzon has asserted claims for breach of the oral agreement for the construction of the thermal plant, unjust enrichment, violations of the Pennsylvania Contractor and Subcontractor Payment Act, replevin and breach of suretyship agreement.

DISCUSSION

Defendants argue that the forum selection clause requires that this action be brought in Delaware County and that 12 paragraphs in the complaint include more than one material allegation, in violation of Pa.R.C.P. 1022. This court submits that the objections are without merit.

I. The Forum Selection Clause Does Not Render Venue in Philadelphia Improper

When preliminary objections challenge venue, “the defendant is the moving party and bears the burden of supporting [its] claim” of improper venue. Liggitt v. Liggitt, 253 Pa. Super. 126, 131, 384 A.2d 1261, 1263-64 (1978). See also, Gale v. Mercy Catholic Medical Center Eastwick Inc., Fitzgerald Mercy Division, 698 A.2d 647, 652 (Pa. Super. 1997) (the moving party has the burden of showing that the original choice of venue is improper). Consequently, to prevail, the defendants must show that Philadelphia constitutes improper venue.

Pennsylvania law holds that, where a forum selection clause purports to make an otherwise proper venue improper, “it would be contrary to public policy to allow an agreement made in advance of the dispute to oust said tribunal’s jurisdiction.” Central Contracting Co. v. C.E. Youngdahl & Co., 418 Pa. 122, 132-33, 209 A.2d 810, 815-16 (1965) (citing Rea’s Appeal, 13 W.N.C. 546 (1883)). See also, Healy v. Eastern Bldg. & Loan Ass ’n, 17 Pa. Super. 385, 392 (1901) (an agreement to sue only in New York does not prevent plaintiff from bringing action in a Pennsylvania court). However, this does not mean that an agreement limiting the forum for future dispute resolution is per se invalid:

“The modem and correct mle is that while private parties may not by contract prevent a court from asserting its jurisdiction or change the rales of venue, nevertheless, a court in which venue is proper and which has jurisdiction should decline to proceed with the cause when the parties have freely agreed that litigation shall be conducted in another forum and where such agreement is not unreasonable at the time of litigation. ” Central Contracting, 418 Pa. at 133, 209 A.2d at 816. (emphasis added) See also, Morgan Trailer Mfg. Co. v. Hydraroll Ltd., 759 A.2d 926 (Pa. Super. 2000) (using the test laid out in Central Contracting to determine the validity of a forum selection clause). An agreement on a particular forum is unreasonable:
“[W]here its enforcement would, under all circumstances existing at the time of litigation, seriously impair plaintiff’s ability to pursue its cause of action. . . . Mere inconvenience or additional expense is not the test of unreasonableness if the plaintiff received under the contract consideration for its agreement to litigate in a specified forum. ... If the agreed upon forum is available to plaintiff and said forum can do substantial justice to the cause of action then plaintiff should be bound by its agreement.” Churchill Corp. v. Third Century Inc., 396 Pa. Super. 314, 322, 578 A.2d 532, 536 (1990). (citations omitted) (emphasis added) See also, Williams v. Gruntal & Co., 447 Pa. Super. 357, 361, 669 A.2d 387, 389 (1995) (“if the agreement to proceed in the alternative forum has the effect of seriously impairing the plaintiff’s ability to pursue a cause of action, the court will strike such an agreement as unreasonable”).

This court is not convinced that this dispute is governed by the forum selection clause, which applies only to actions brought “in connection with” the subcontract. Lorenzon is not suing for a breach of the subcontract, rather it is seeking compensation only for work done outside the subcontract’s scope. Its claims, therefore, are independent of the subcontract, and the forum selection clause should not be controlling. Cf. Morgan Trailer Mfg. Co., 759 A.2d at 932 (although the plaintiff “certainly had a contract with appellees, that does not mean that all future relations with [the defendants] are somehow connected to that contract” and thus governed by its forum selection clause).

Even if this were not so, application of the forum selection clause here would not be reasonable. Lorenzon contends that it is unaware of facts that would permit it to sue Fidelity in Delaware County. Plaintiffs’ memorandum at 8. Because the two defendants are jointly and severally liable, it asserts, an inability to proceed against both defendants would seriously impair its ability to pursue its cause of action and would impede its pursuit of substantial justice. This court finds this argument persuasive and believes that enforcement of the forum selection clause would be unreasonable. Thus, the case will not be dismissed due to improper forum or transferred to Delaware County.

II. Any Potential Violations of Rule 1022 Do Not Require Dismissal of the Complaint

Defendants next urge that the complaint should be dismissed because it does not comply with the dictates of Rule 1022, which directs that each paragraph in a pleading “shall contain as far as practicable only one material allegation.” The defendants’ position is unpersuasive.

Rule 1022 was constructed to allow a pleader substantial flexibility:

“Section 5 of the suspended Practice Act of 1915 provided that each paragraph ‘shall contain but one material allegation.’ Strict adherence to this command created practical difficulties. For example, an averment that a defendant ‘executed and delivered’ a promissory note would give rise to a question whether one material allegation had been pleaded or two. Rule 1022 rewrites this so that the requirement that each paragraph of a pleading contain one material allegation is followed only as far as practicable. Perhaps this qualification results in the section having no real meaning whatever, but in any event, the emphasis on form is removed, and the matter is left to the courts with ample room for intelligent and flexible treatment. If a clear statement and the requirements of good style necessitate the inclusion of two material allegations in one paragraph, this may be done without fear that there will be a formal violation of the rules and that a plaintiff will be put to the burden of arguing a formal objection to his or her pleading.” Goodrich-Amram 2d §1022:2. (emphasis added)

Given this construction, courts have been liberal in their examination of pleadings that allegedly violate Rule 1022:

“This standard must be applied with great flexibility, not only because of the express direction of the rule that, ‘the standard be followed as far as practicable,’ but also because there is no set standard as to what constitutes a material allegation. Mere length, complexity, and verbosity do not in themselves violate Rule 1022 if the subsidiary facts averred fit together into a single allegation.” General State Authority v. Sutter Corp., 24 Pa. Commw. 391, 394, 356 A.2d 377, 380 (1976) (quoting 2A Pennsylvania Civil Practice §1022.3). (footnote omitted)

The court does not see any reason to engage in an extensive analysis of each of the 12 paragraphs that the defendants assert are violative of Rule 1022. Suffice it to say that the court has reviewed the paragraphs in question and finds that they do not prejudice the defendants or impede defendants’ ability to answer the complaint. Thus, the objections asserting violations of Rule 1022 are overruled.

CONCLUSION

For the reasons discussed the objections are overruled. The defendants should file an answer to the complaint within 20 days. A contemporaneous order to this effect will be issued.

ORDER

And now, May 10, 2001, upon consideration of the preliminary objections of defendants, Allstates Mechanical Ltd. and Fidelity Deposit Company of Maryland, to plaintiff’s complaint and plaintiff’s response thereto, the respective memoranda and in accord with the opinion being filed contemporaneously with this order, it is hereby ordered that the preliminary objections are overruled. The defendants directed to file an answer to the plaintiff’s complaint within 20 days of this order.

      . According to the complaint, Gary was not shown and was not given an opportunity to review any pages of the document he signed except for the signature page. These missing pages describe, among other things, the scope of Lorenzon’s work on the project.

      . 73 Pa.C.S. §§501-516.

      . Significantly, Lorenzon does not bring a claim for breach of the subcontract.

      . As a remedy, the defendants ask that the matter be either dismissed or transferred to Delaware County at Lorenzon’s cost. Other than raising the forum selection clause, the defendants do not contest Lorenzon’s assertion that venue is proper in Philadelphia.

      . Specifically, the defendants have objected to paragraphs 9, 14, 19, 23, 26, 27, 28, 29, 31, 35, 38 and 54.

      . Although Fidelity has joined with Allstates in asking that this matter be transferred to Delaware County, it has not waived its right to file objections to venue there.

      . Given the conclusions that application of the forum selection clause would be unreasonable and because the forum selection clause does not govern this dispute, there is no need to consider whether Lorenzon freely agreed to it.

      . While no Pennsylvania appellate courts have adopted a specific standard, several trial courts have refused to sustain an objection relying on Rule 1022 in the absence of prejudice to the party responding to the pleading. See Philadelphia v. Konopacki, 2 D.&C.3d 535, 541 (C.P. Phila. 1975) (“[ujnder Rule 1022, the test is whether defendant would be subjected to prejudice or violation of a constitutionally protected right in framing his answer”); Bethlehem Steel Corp. v. Litton

        Indus. Inc., 71 D.&C.2d 635, 643 (C.P. Allegheny 1974) (Rule 1022 “has been construed liberally; moreover, if no real prejudice to defendant is shown, technical violations generally have been ignored”); Lynch v. Hoover, 3 D.&C.2d 686, 690 (C.P. Dauphin 1955) (complaint that violates Rule 1022 should not be stricken where it “has not prejudiced defendant or made it impossible or very difficult for him to frame a reply. The difficulty or impossibility of answering a complaint is the test to be used in applying Rule 1022”). Cf. Goodrich-Amram 2d §1022:2 (“[a] good general test of compliance with Rule 1022 is the difficulty or impossibility of answering a complaint”).


author: COHEN,

text:
    Petrecca v. Allstate Insurance Co.

      July 9, 2001

      Jonathan Wheeler, for plaintiffs.

      Robert G. LaBar, for defendant.
   COHEN,

On March 19, 2001, the court, sitting without a jury, after hearing testimony in this bad faith and breach of contract matter entered a verdict in favor of the plaintiffs in the amount of $12,091 plus interest on the breach of contract claim and $4,231 in counsel fees on the bad faith claim along with $36,273 in punitive damages applying to the bad faith claim. The defendant filed timely post-verdict motions which the court by accompanying order has denied. The following are the court’s reasons for denying post-verdict motions and upholding the verdict.

FACTS

The plaintiffs own a home in Langhome, Pennsylvania. Prior to October 1998, the house had been free of any “problems, leaks, seepage, anything having to do with the master bedroom . . . .” (N.T. 3/16/2001 p. 19.) On October 18, 1998, Mrs. Petrecca returned home to find “part of the ceiling on my kitchen floor and table, part of the ceiling was cut out. We had water on our kitchen floor underneath our table. And in the comers there were all kinds of dirt in the floor, debris from what occurred.” (Id. p. 25.) Seeing the damage Mrs. Petrecca and her husband reacted by notifying a Mr. Kaufmann. (Id. p. 27.) This Mr. Kaufmann came out and “he told us what our damages was [sic], what our damages were and that he would be representing us with our insurance company.” (Id. p. 28.)

The Petreccas maintained homeowners insurance through defendant Allstate Insurance Company. By December 28 Allstate had denied their claim for coverage. The Petreccas maintained that other than the December 28,1998 letter Allstate never gave them any reasons for the denial of the claim. (Id. p. 34.)

When the Petreccas reported a claim to Allstate they stated that a pipe in the master bathroom broke causing damage. The aforementioned Mr. Kaufmann, a public adjuster who was experienced handling water damage claims for a large insurance company, testified as an expert and as a material witness. He stated that he observed water with a “definitive trail which came from a bathroom above, went right down the kitchen, damaged the wall. There was some damage to the flooring in the kitchen area____It was, you know, a routine water loss.” (Id. p.66.) Mr. Kaufmann determined the loss to be “sudden and accidental.” (Id. p. 66.) Further, Mr. Kaufmann called the Petreccas’ loss “unforeseen.” (Id. p. 68.) Mr. Kaufmann performed a detailed estimate of the damage (see plaintiffs’ exhibit no. 8) which he articulated on the record. (Id. pp. 69-77.) Mr. Kaufmann negotiated on behalf of the Petreccas with an adjuster from Allstate named Mike Trump. At the time “Mike Trump as well as a lot of other Allstate adjusters weren’t paying routine water damage claims that they had paid for the last 50 years.” (Id. p. 80.) Mr. Kaufmann made two initial appointments with Mr. Trump so that they could jointly inspect the Petreccas’ water damage. However, the appointments— scheduled for October 30 and November 9,1998 — were unilaterally canceled. (Id. pp. 81-82.) According to Mr. Kaufmann the Petreccas complied with all of the policy terms and conditions in connection with the submission of their claim. (Id. p. 95.) Mr. Trump and Mr. Kaufmann’s brother, Charlie, together inspected the Petreccas’ home on November 16. (Id. p. 83.) However, the Petreccas were not asked to provide a proof of loss because “there was no settlement in the case .... Proof of loss is filed after a claim has been agreed to, amounts of loss have been determined.” (Id. p. 95.)

Defendant pressed home its contention that the damage to the Petreccas’ home, particularly in the bathroom, was pre-existing or the result of wear and tear. (Id. pp. 98-123.) Nonetheless, plaintiff Daniel Petrecca reasserted the plaintiffs’ contention that the house was in “good condition” before October 1998 and free of any water damage to the kitchen and the bathroom. (Id. pp. 129-32.) Mr. Petrecca also testified that on October 18,1998, when he and his wife returned home there was “an obvious hole in the ceiling . . . [with] pieces of drywall left on the kitchen table which was right beneath the hole and also on the floor.” (Id. p. 133.) Mr. Petrecca, too, characterized the denial letter that he and his wife received from Allstate as “very ambiguous.” (Id. p. 139.) He claimed he fully cooperated with Allstate in pursuing his claim. (Id. p. 140.) On cross-examination Mr. Petrecca reasserted his response to interrogatories dealing with the cause of the damage, which was in his view “the tub shank in [the] bathroom broke causing a leak.” (Id. p. 144.)

The plaintiff presented as of cross-examination the testimony of Michael Trump, the Allstate representative who sent the denial letter (P-3) to the plaintiffs. Examination of Mr. Trump established that the only condition of the Petreccas’ policy which the plaintiffs allegedly failed to honor in the view of Allstate was a condition stated in sub-paragraph (f) which requires the claimant to “show us the damaged property.” Mr. Trump claimed that although he was present at the Petreccas home on November 16,1998, he was not shown the drain assembly and the water damaged drywall. (N.T. 3/19/2001 p. 7.) However, the denial letter only generally stated that the Petreccas failed to comply with the policy conditions. Mr. Trump was informed of the nature of the work done by a plumber who visited the Petreccas’ home but never called him to discuss his findings. (Id. p. 15.)

The plaintiffs presented the testimony of the plumber, Mr. Joseph Eisenman. (Id. pp. 16-35.) Mr. Eisenman testified that when he visited the Petreccas’ home in November 1998, he observed a leak emanating from the shoe and connecting pipe that is part of the bathtub assembly. (Id. p. 23.) The repair necessitated replacing the entire tub assembly, because in his efforts to stem the leak Mr. Eisenman inadvertently broke the tub. (Id. pp. 23-25.)

The plaintiff called James McMahon, the claims representative with Allstate who had verified Allstate’s answer to the complaint. Mr. McMahon stated that his verification was based upon his review of the claim file which showed that it was in his view “unnecessary” for the plumber to have ripped out the whole bathroom because “there were areas in the bathroom that were undamaged and that even assuming the tub had to be replaced, that some of the repairs listed, that we felt — at least the repairs listed on the public adjuster’s estimate were unnecessary and unwarranted.” (Id. pp. 41-42.) While Allstate initially believed that the adjuster’s report of the date of the loss as October 23,1998 rather than October 18,1998 was a material misrepresentation, Mr. McMahon withdrew that claim from the witness stand. (Id. pp. 46-47.) Indeed, the court granted the plaintiffs’ verbal request to amend the complaint stating the accurate date of loss. (Id. p. 53.)

After calling Mr. Trump in their own case (id. pp. 54-76) the defense called as an expert a William Furino. Mr. Furino was a master plumber. In his testimony (id. pp. 77-91) Mr. Furino questioned the extent of the plumbing work that the Petreccas’ contracted for with Mr. Eisenman opining that it was out of proportion to the extent of the damage upon which the Petreccas’ claim was based.

DISCUSSION

1. Defendant Is Not Entitled to a Jury Trial in a Bad Faith/Breach of Insurance Contract Action

Prior to trial the court held that this matter must be tried non-jury because the defendant failed to file a timely motion for severance and because the law requires that bad faith claims must be heard non-jury. See Mishoe v. Erie Insurance Co., 762 A.2d 369 (Pa. Super. 2000).

The Constitution of the Commonwealth of Pennsylvania affords litigants the right to a jury. However, this right only applies to actions brought in law that existed at the time the constitution was enacted — 1776—or where statutorily granted thereafter. Does a party enjoy the right to a jury trial where the plaintiff brings an action in both contract and bad faith?

Although the law is clear that a jury trial is not available in a court of equity, it is not explicit in the situation where a party files a lawsuit which incorporates both a count in law and a count in bad faith. An interpretation of the constitution, statutory and case law leads this court to conclude that once equity jurisdiction over a lawsuit is exercised, the entire matter must be decided without a jury if all counts are heard together. Thus, a plaintiff with both a contractual and an equitable claim is not entitled to a jury trial. Likewise, the defendant is not entitled to a jury trial if he files a counterclaim. Pa.R.C.P. 1510(b).

Since the bad faith statute in Pennsylvania is silent on whether a party is entitled to a jury trial the similarities between equity actions and statutory actions like this one mandate that the entire matter be heard without a jury. If the jury heard testimony on both the contract and bad faith claims, the result would be extreme prejudice to the defendants.

“Trial by jury shall be as heretofore, and the right thereof remain inviolate.” Constitution Article 1, Section 6. The right to have grievances heard by a jury of one’s peers is a sacred notion which the Framers intended to permanently preserve in writing. However, the legislature and the courts have interpreted and applied their words narrowly. The right to a jury trial attaches where the action existed at common law when the constitution was enacted or where granted by statute. See 42 Pa.C.S. §5104(a); Mishoe v. Erie Insurance Co., 762 A.2d 369, 374 (Pa. Super. 2000); Blum v. Merrell Dow Pharmaceuticals Inc., 534 Pa. 97, 109, 626 A.2d 537, 543 (1993).

A party is not entitled to a jury trial in an action for bad faith against an insurer. 762 A.2d at 374. The bad faith statute is silent regarding rights to a jury trial. Id. at 370, 42 Pa.C.S. §8371. The next inquiry is whether the cause of action existed at the time the constitution was adopted. Id. at 374. In Mishoe, op. cit., the Superior Court stated that an action brought pursuant to 42 Pa.C.S. §8371 did not exist when the Pennsylvania Constitution was adopted, but provided a “new and independent form of action against an insured.” Id. Thus, the parties were not entitled to a jury trial.

There is no right to a jury trial in an equity action. Rosenberg v. Rosenberg, 276 Pa. Super. 203, 206, 419 A.2d 167, 168 (1980), citing Schwab v. Miller, 302 Pa. 507, 153 A. 731 (1931). In Rosenberg, an ex-wife brought an action in equity against her ex-husband for failing to comply with their written agreement. 276 Pa. Super. at 205, 419 A.2d at 168. Mr. Rosenberg then filed a counterclaim, alleging that his ex-wife had also violated the agreement. Id. The court decided that Mrs. Rosenberg was not entitled to a jury trial because once a matter enters the realm of equity, equity jurisdiction subsumes the entire case. Id. According to the court, “The principle that equity has jurisdiction to do complete justice between the parties is a long established one.” Id. at 207, 419 A.2d at 168, citing Wortex Mills v. Textile Workers U. of A., 380 Pa. 3, 109 A.2d 815 (1954).

The Rosenberg court also detailed the multitude of problems that could arise if the entire case was not heard by the equity court: “due process problems are inherent in a situation where a chancellor... hears the complaint and a jury hears the counterclaim under legal principles where the issues raised in both the case in chief and the counterclaim are the same . . . having two different tribunals rule on the same dispute, could very well result in problems of collateral estoppel . . . [i]t would also result in a burdensome, cumbersome procedure which would not be in the best interests of judicial expediency and would cause great confusion to lawyers, judges and the parties to the litigation.” Id. at 207, 419 A.2d at 168.

It is clear that actions in equity, though they may also contain an action in law, must be governed by equitable principles for the sake of fairness and efficiency within the judicial system.

The Supreme Court in McGovern v. Spear, 463 Pa. 269, 344 A.2d 826 (1975), reiterated the notion that once a matter enters the realm of equity, the entire case must be decided on equitable principles. The McGoverns filed a complaint in equity against their neighbors seeking to enjoin the Spears from maintaining a fence upon the McGoverns’ property, maintaining a bright spotlight and from burning combustible materials on their own property. Id. at 271, 344 A.2d at 827. Since the Spears had ceased burning combustible materials seven months before the complaint was filed and the plaintiffs also sought damages, Count three was not brought in equity, but in law. Id. at 273, 344 A.2d at 828.

The court held that the trial court erred because it did not address the issue of damages raised in the complaint. Id. According to the court, “Once equity obtains jurisdiction, that jurisdiction continues until all issues raised have been determined.” Id. at 272-73, 344 A.2d at 828. (citations omitted)

A further procedural illustration also demonstrates the practicality of the exercise of equity jurisdiction presiding in this situation. The defendant can file a counterclaim, either equitable or legal, which arises from the “same transaction or occurrence” from which the plaintiff’s cause of action arose. Pa.R.C.P. 1510(a). However, such a counterclaim must be pleaded and tried as an action in equity. Pa.R.C.P. 1510(b). If the defendant did not file a counterclaim on that issue, he has no standing to object in his post-trial motions. Even if the defendant had filed a counterclaim, it would be decided on equitable principles and he would not be entitled to a jury trial anyway. Once a matter enters the realm of equity, the entire case must be decided in a court of equity.

The plaintiff clearly misjoined the two actions. The defendant had the opportunity to attack the misjoinder by filing preliminary objections. Objections not pleaded by means of preliminary objections are waived. Pa.R.C.P. 1509(c). “Misjoinder of a cause of action” is one available form of preliminary objection applicable here. See Pa.R.C.P. 1028(a)(5). A plaintiff’s request for both legal and equitable relief in the same complaint, though pled in separate counts, constitutes a misjoinder of causes of action. City of Philadelphia v. Pennrose Management Co., 142 Pa. Commw. 627, 635, 598 A.2d 105, 109 (1991). Pursuant to the Rules of Civil Procedure, an action at law cannot be joined with an action in equity. Id. at 636, 598 A.2d at 110, citing D’Allessandro v. Wassel, 526 Pa. 534, 587 A.2d 724 (1991). However, since the defendant in this situation did not file preliminary objections to the improper joinder, the form of action required the court to decide the case.

Since there is no clear guidance in the statute itself whether a bad faith action can be tried with a contract action, the court finds that the applicable principles may be found in equity jurisdiction. The goal is the same — to avoid extreme prejudice to the defendants by requiring that both counts be heard by the court sitting without a jury. The defendant, having failed to file preliminary objections to the improper joinder pursuant to Pa.R.C.P. 1028(a)(5), is not entitled to a jury trial in this action.

2. There Was Ample Evidence of Bad Faith and Breach of the Insurance Contract

On the second day of trial this court engaged in the following colloquy with Michael Trump who was clearly the point person for Allstate in the resolution of the Petreccas’ claim:

“The court: I have a question for you. How much effort would it have been in the letter dated December 28, 1998 to say: You failed to show us the items of damage, the damaged trap pipe, and as a result of your failure to show us this we’re going to deny your claim?
“How much effort would that have been for you to specifically set forth the property that you didn’t see that you needed to see?
“The witness: [Mr. Trump] It wouldn’t be a whole lot of effort.
“The court: Then why didn’t you do that?
“The witness: As far as counsel tells us we are supposed to quote the whole section of the policy because if we just quote the one section we’re told it is taken out of context, so we have to quote the whole section.
“The court: So you did not on advice of counsel?
“The witness: Yes. That we are supposed to quote the entire section.
“The court: How would the insured know what somebody did wrong in the adjustment of the claim if you didn’t tell them?
“The witness: Well, it was explained, apparently, to the public adjuster and they represented the insured.
“The court: Well, Charlie Kaufmann is not a registered adjuster, is he, a licensed adjuster?
“The witness: I wasn’t aware of that.
“Mr. LaBar: [Counsel for defendant] I believe Mr. Kaufmann is, your honor.
“The court: Well, you believe he might be. There is no testimony that he was. So I want to know how much trouble — you say it wouldn’t have been any trouble to do that?
“The witness: No.
“The court: All right, very well. That’s all I have.” (N.T. 3/19/2001 pp. 72-73.) (emphasis supplied)

Section 8371 of 42 Pa.C.S. creates a statutory remedy for bad faith conduct on the part of an insurer. Bad faith has been defined as “any frivolous or unfounded refusal to pay proceeds of a policy; it is not necessary that such refusal be fraudulent. For purposes of an action against an insurer for failure to pay a claim, such conduct imports a dishonest purpose and means the breach of a known duty (i.e., good faith and fair dealing), through some motive of self-interest or ill-will; mere negligence of bad judgment is not bad faith.”

Although the facts in this case amount to a close question for this court’s resolution as the foregoing colloquy demonstrates, Allstate did not engage in fair dealing with its insured. Clear communication should be a basis of any contractual relationship or any relationship in which mutuality of purpose is a foundation. The purpose of a relationship between the insurer and the insured is immediately to provide the insured with the security of knowing that it can seek a remedy for damages within the purview of its policy. In turn, the insurer requires from the insured a premium which it uses in part as the basis for a fund to provide relief for losses to its other policyholders as well as promote profits. Straightforward guidance in the claims process should be fundamental to insurance practice. The conduct of Allstate in this instance was not straightforward and thus in bad faith. The record demonstrated that Allstate had numerous opportunities merely to inform the Petreccas that all they need do was show Mr. Trump or another authorized representative the physical remnants of their loss. Allstate never gave the Petreccas such guidance. When Allstate issued a denial letter it did not clearly state the reason for the denial. The Petreccas were left at sea.

3. Testimony of Kevin Kaufmann

The defendant complains that this court abused its discretion in permitting Kevin Kaufmann to testify to issues surrounding the adjustment of the loss to the Petreccas despite the fact that he did not personally handle the adjustment of the claim in its entirety.

Kevin Kaufmann was associated as a public adjuster with Charles Kaufmann. The plaintiff offered Kevin Kaufmann as an expert witness as to the amount of damages and the cost of repair. (N.T. 3/16/2001 p. 61.) The defendant objected to Kevin Kaufmann’s testimony using the following words:

“The court: Do you have any objections?
“Mr. LaBar: Only if he is going to testify, I was going to ask if he is a plumber. I don’t think he is qualified.
“The court: If that’s the only objection, then his opinion as to the amount of damages and the cost of repair is admissible. I’ll accept his opinion.”

Mr. Kaufmann went on to testify to the damages to the Petrecca property relying on his experience in public adjustment. Upon review of the record this court finds that the defense never articulated in the words it uses in post-verdict motions its objection to the testimony of Kevin Kaufmann, hence, that objection is waived. Even if the objection were not waived the court finds that Kevin Kaufmann exhibited sufficient familiarity with the damages the Petreccas claimed to provide him with a basis for rendering an opinion.

4. Exclusion of Evidence From Michael Trump

The defense also complains about alleged limitations this court placed upon the testimony of Michael Trump. However, the brief submitted fails specifically to cite chapter and verse of the alleged limitations. The court has located the issue in the record (see N.T. 6/19/2001 pp. 63-66) in which the following testimony and dialogue occurred:

“Question [by Mr. LaBar to Mr. Trump]: Are there specific exclusions in the policy itself?
“Answer: Yes.
“Mr. Wheeler: Objection. I object to any questions concerning policy exclusions because the basis for the denial is very clear; it was a breach of policy conditions. Nothing in there about exclusions. They haven’t raised exclusions prior to the institution of suit in this case and any discussion about exclusions which may or may not apply to this case, I think, are irrelevant at this point.
“They made their bed by sending a letter, December 28, saying why they were denying this claim.
“The court: I understand the argument. But there is some validity to the argument.
“The issue here is you didn’t defend this case on that. The claim wasn’t turned down because there were exclusions in the policy for the loss.
“Mr. LaBar: We never got to that point because they didn’t exhibit the damage and that’s my line of questioning here....
“The court: Mr. LaBar, the issue here is this, and address the argument of counsel, as emotionally and overstated as it is, that there is nothing in the letter marked as P-4 that mentions an exclusion.
“Mr. LaBar: Your honor, my argument is that they didn’t show the damaged property. It doesn’t get to the point of exclusion.
“The court: Well, then you have to rest on that, don’t you?
“Mr. LaBar: I guess you’re not going to allow me into anything else. So I guess I have to rest on it.
“The court: I guess I have to sustain the objection to this issue about an exclusion. I think you are estopped from claiming an exclusion in this record.”

The foregoing exchange illustrates two facts: (1) counsel conceded that the defendant did not plead an exclusionist defense to the plaintiffs’ claim, and (2) the issues in this case did not include whether or not an exclusion applied. Hence, this ground for post-verdict relief is denied.

5. Does the Plaintiffs’ Mistake As to the Date of Claim Justify Granting of a Nonsuit?

As pointed out in the foregoing summary of the testimony at trial, the court permitted the plaintiffs to amend the complaint mid-trial to correct an evident mistake, viz the citation of the date of the Petreccas’ loss. Comes now the defendant asserting that the variance between the date of loss in the complaint and the date of loss which all parties used as the subject date at trial justifies the granting of a nonsuit. This argument is merely frivolous. This court refuses to hold that the defendant was somehow placed at a disadvantage throughout the pendency of these proceedings because it labored under the belief that the Petreccas’ loss occurred on October 23, 1998. The defendant demonstrated no discomfort with the variance in the dates during the trial. Indeed, the defendant’s counsel cross-examined knowledgeably and vigorously each time a witness addressed the Petreccas’ loss. The issue in the course of this trial was not the date of the loss. The issue was the extent of the loss and whether the defendant Allstate breached its contract of insurance and committed bad faith by failing to honor the Petreccas’ loss. The variance in the dates was of no consequence.

DAMAGES

The damages this court granted the Petreccas was reasonable under the circumstances. The court finds that the defendant’s objection to the damage award merely reiterates its argument on the merits and hence need not be addressed.

As to punitive damages the casual manner which Allstate adopted to deal with its insured was so far outside the bounds of the behavior expected of an insurance company that it shocked the conscience of this court justifying the award of punitive damages. Pacific Mutual Life Insurance Co. v. Haslip, 111 S.Ct. 1032 (1991).

CONCLUSION

For the reasons articulated in the foregoing memorandum defendant’s post-verdict motions are denied. Judgment is to be entered for the plaintiffs and against the defendant.

ORDER

And now, to wit, July 9, 2001, upon consideration of defendant Allstate Insurance Company’s motion for post-trial relief, and plaintiffs’ response thereto, it is hereby ordered and decreed that said motions are denied. Judgment is entered in favor of plaintiffs and against the defendant in the amount of $52,595 plus interest.