B.G. Balmer & Co. v. Frank Crystal & Co. , 2016 Pa. Super. 202 ( 2016 )

J-A33017-15
2016 PA Super 202B.G. BALMER & CO., INC. IN THE SUPERIOR COURT OF
PENNSYLVANIA
Appellee
v.
FRANK CRYSTAL & COMPANY, INC., ERIC
HAMPLE, BRIAN COURTNEY, BRUCE
EINSTEIN, PETER REILLY AND C.
RICHARD PETERSON
Appellants No. 3444 EDA 2013
Appeal from the Judgment entered November 12, 2013
In the Court of Common Pleas of Chester County
Civil Division at No: No. 2003-09686-IR
BEFORE: FORD ELLIOTT, P.J.E., STABILE, and STRASSBURGER,* JJ.
OPINION BY STABILE, J.: FILED SEPTEMBER 09, 2016
In this appeal, Appellants/defendants Frank Crystal & Company, Inc.,
Eric Hample, Brian Courtney, Bruce Einstein, Peter Reilly, and C. Richard
Peterson (individually “FCC,” “Hample,” “Courtney,” “Einstein,” “Reilly,” and
“Peterson,” and collectively “Appellants”) challenge the Court of Common
Pleas of Chester County’s (“trial court”) award of compensatory and punitive
damages in favor of Appellee/plaintiff Barry G. Balmer & Co., Inc. (“Balmer”
or “Balmer Agency”). Upon review, we affirm.
The facts and procedural history underlying this case are undisputed.
As recounted by the trial court:
____________________________________________
*
Retired Senior Judge assigned to the Superior Court.
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The Balmer Agency, established in 1967, is a Pennsylvania
corporation engaged in the business of insurance brokerage and
was solely owned by its founder and president, Barry G. Balmer.
After being in business for in excess of thirty (30) years, Balmer
began to assemble a group of employees that eventually would
assume control of the Balmer Agency. B[arry] Balmer was
president; Gail Masayko was vice president of finance and
systems (which included human relations responsibilities); and
Bruce Constanzar was chief operations officer. In 1999, Balmer
hired [d]efendants Hample and Courtney as account executives.
In 2000, Balmer hired [d]efendant Einstein as vice president of
operations and [d]efendant Reilly as executive vice president. In
2001, Balmer hired [d]efendant Peterson as president of
strategic planning. Defendants Einstein, Hample and Courtney
reported to [d]efendant Reilly as their supervisor. When all
[d]efendants were hired, as a condition of employment, each
[d]efendant entered into the same valid and enforceable
employment agreements containing a non–solicitation provision
with restrictive covenants limiting permissible post[-
]employment activities. The employment agreements require[d]
that [d]efendants not solicit Balmer customers and active
prospects during the four (4) years subsequent to the
termination of their respective employment with Balmer. The
agreements also prohibit[ed] [d]efendants from attempting to
induce or from actually inducing Balmer clients, directly or
indirectly, to terminate, cancel, discontinue or fail to renew
insurance coverage through the Balmer Agency for that same
four (4) year period. Further, Defendants [we]re not to use or
disclose customer lists, policy information, prospect lists or other
contractually defined information for that four (4) year period.
Defendants Reilly, Peterson and Einstein were members of
the Balmer Agency executive committee. Defendant Peterson
was a member of its advisory board as well. Balmer began to
formulate a succession plan wherein control of the Balmer
agency would eventually be transferred to [d]efendant Reilly,
who would eventually run the agency. Defendant Reilly, in his
position as senior executive vice president, created a business
plan for the future of the Balmer Agency and Balmer hired a
professor at the University of Pennsylvania, Eric Von
Merkensteijn, as a consultant in creating this plan. This plan
was referred to as the company’s “Strategic Plan” and was
presented to and discussed extensively by the executive
committee in 2002 and 2003. Defendant Reilly created the
Strategic Plan containing agency revenue, expenses and
projected growth in consultation with Barry Balmer, Professor
Von Merkensteijn and Defendant Peterson.
In 2001, Barry Balmer, [d]efendant Peterson and Steven
Pazuk started a captive insurance company named Penn Capital
Insurance Company (“PCIC”). The Balmer agency would place
insurance for its customers through PCIC. Defendant Peterson
was named president of PCIC in addition to his position as
president of strategic planning. PCIC wrote insurance for
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Balmer’s largest and longstanding client, Wellington
Investments, as well as Kaolin Mushroom and other clients.
In 2003, [d]efendants Reilly and Peterson began to
conspire to entice employees to leave the Balmer agency and
Balmer’s clients and customers to a competing agency. Gail
Masayko, who then worked at the Balmer Agency for 13 years,
overheard [d]efendant Peterson state that “. . . he had people
that were unhappy and that they were willing to move . . . and
they also, had business to move.” Defendant Reilly also told
Masayko that his employment agreement would not “hold water”
and that if things did not move along faster at the Balmer
Agency he would take people and business and leave. These
statements, made by these [d]efendants prior to July of 2003,
are supportive of the trial [c]ourt’s finding of conspiracy, malice
and an intent to harm the Balmer Agency.
In December of 2002, Barry Balmer and [d]efendant
Peterson met with Craig Richards, president of David Brook
Associates, a major recruiter for the insurance brokerage
business in New York City. Barry Balmer wanted to find new
sales people to expand the Balmer Agency business. After
meeting with Richards, B[arry] G. Balmer informed [d]efendants
Peterson and Reilly that he did not wish to use the services of
Craig Richards. However, [d]efendant Peterson continued to
speak with Richards on his own. In May of 2003, [d]efendant
Peterson met with Richards in New York City to discuss further
employment opportunities and informed Richards that
[d]efendant Reilly was unhappy at the Balmer Agency and was
also looking for employment opportunities. Richards contacted
[d]efendant Reilly and a meeting with Richards was arranged
with [d]efendants Reilly and Peterson on June 4, 2003 to discuss
employment opportunities, including opening up a Philadelphia
office for a large insurance brokerage firm. During these
discussions, Craig Richards was the primary employment
recruiter for Defendant FCC. In 2003, FCC was a large New York
based insurance brokerage company with annual revenues of
approximately 66 million dollars. Following the June 4, 2003
meeting, [d]efendants Peterson and Reilly remained in New York
City overnight and met the following day with the president and
chief operations officer of FCC, Mark Freitas, to discuss
employment opportunities, including the opening of a[n] FCC
office in Philadelphia (“FCC Philadelphia”). Defendant Reilly
subsequently disclosed to Richards trade secret information
about Balmer Agency clients and customers that could be moved
to FCC Philadelphia as well as the names of Balmer employees
that he wished to join him at FCC Philadelphia. Those
employees included Joe Valerio, Brian Courtney, Eric Hample,
Bruce Einstein, Jennifer Little, Pavid Krause and Pennock
Yeatman. This proposed team, including Reilly and Peterson,
consisted of nine (9) of out a total of twenty (20) employees at
Balmer and further consisted of all the insurance
sales/marketing people at Balmer, other than B[arry] Balmer
himself. All this information was passed on to FCC by Richards.
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In May and June of 2003, all individual [d]efendants met
with Craig Richards and/or FCC. On June 25, 2003, all individual
[d]efendants, as well as Balmer employee David Krause,
received letters from FCC confirming their acceptance of an offer
to work for FCC starting on July 3, 2003. All were to make more
income with FCC than when at the Balmer Agency. On June 25,
2003, all individual [d]efendants met in New York City to discuss
their pending establishment of FCC Philadelphia. All individual
[d]efendants arranged details of their employment with FCC
while using Balmer Agency computers, office telephones, cell
phones, fax machines and facilities and when on Balmer Agency
employment time. Balmer Agency employee Krause did not join
FCC.
Prior to all individual [d]efendants resigning employment
from the Balmer Agency within a day of each other, [d]efendant
Reilly refused to return [d]efendant Einstein’s personnel file to
Gail Masayko and attempted to acquire [d]efendants
Courtney[’s] and Hample’s personnel files, but was unsuccessful.
Defendant Einstein compiled various client lists and trade secret
information regarding the Balmer Agency’s Wellington account
including coverage and policy information and took this
information with him when leaving the employment of the
Balmer Agency. Other client list trade secret information
regarding Balmer Agency clients had previously been disclosed
to FCC by [d]efendants. All individual [d]efendants took with
them to FCC Philadelphia Balmer trade secret information and
subsequently used that information when breaching their
respective employment agreements. While Barry Balmer was on
vacation for the 4th of July weekend in 2003, he received
information that individual [d]efendants had resigned. FCC
Philadelphia was operational on July 3, 2003. Within days of July
3, 2003, individual [d]efendants began to solicit Balmer Agency
clients and customers in violation of their employment
agreements. At least 24 Balmer Agency customers or prospects
were solicited by using trade secret information. All of these
efforts were to benefit FCC. Shortly after the resignations of
individual [d]efendants, additional Balmer Agency employees
were either terminated or resigned as a direct result of the
individual [d]efendants’ departure and the resultant adverse
impact on Balmer Agency business.
The record is replete with the individual [d]efendants
contacting Balmer Agency clients and customers in an attempt to
solicit and/or transfer those insurance businesses to FCC
Philadelphia. The contacts in violation of their respective
employment agreements are extensive. The most obvious and
documented contractual violation engaged in by [d]efendants
involves the Wellington account. That account had been a client
of the Balmer Agency for over twenty-six (26) years and was its
largest and most lucrative client. Shortly after all individual
[d]efendants resigned from their employment with Balmer,
[d]efendant Einstein, who had close contact with the Wellington
account while at the Balmer Agency, contacted Wellington and
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set up a meeting with Wellington executives. Defendants
Einstein, Reilly and Sanford F. Crystal, executive vice president
of FCC who had FCC responsibility to gain Wellington as a client,
all traveled to Boston, Massachusetts on August 12, 2003 to
solicit the Wellington account for FCC. Defendants Einstein and
Reilly prepared an agenda for this meeting which included
providing an explanation to Wellington how the Balmer Agency
did not honor its succession commitment to them; bullet points
to discuss the integrity/personal reputation of B[arry] Balmer
and the Balmer Agency; and an introduction of FCC and the
different services that can be provided by FCC. An examination
of the meeting agenda makes it clear that Defendants were
there to solicit the Wellington business by promoting FCC and
tarnishing B[arry] Balmer and the Balmer Agency. The last
sentence of the agenda states: “We are committed to resolving
issues for Wellington and are best able to b[y] reason of market
knowledge and knowledge of the client”
Defendants’ contact with Wellington is a prime example of
individual [d]efendants’ breach of their employment agreements,
use of Balmer trade secret information, the conspiratorial nature
of the actions of all [d]efendants and the attempt to destroy
Balmer Agency business relationships. The August 12, 2003
meeting did not result in Wellington becoming a client of FCC.
Therefore, on October 17, 2003, [d]efendant Peterson,
accompanied James Crystal, CEO and chairman of FCC, travelled
to Wellington and again solicited Wellington business. After the
August and October meetings, Wellington did not renew its 26
year insurance relationship with the Balmer Agency but neither
did it become a client of FCC. Defendants’ solicitation of
Wellington business set in motion a chain of events that directly
caused the loss of the Wellington account by the Balmer Agency.
Following the collective resignation of individual
[d]efendants and the establishment of FCC Philadelphia, B[arry]
Balmer thereafter worked arduously to preserve the business of
the Balmer Agency. Late 2005, Balmer was diagnosed with a
terminal illness and decided in March of 2006 to sell the Balmer
Agency. He died before the sale could be completed. On July
26, 2006, the sale of the Balmer Agency assets to Univest was
completed. [Balmer] introduced insufficient evidence of any
other potential arm’s length purchase offer. The market price
agreed to by Univest and the Balmer Agency was two times the
agreed recurring net annual revenue, capped at 5 million dollars.
The actual sales price, after due diligence, was 4.8 million
dollars. There is no evidence of record that the Univest capped
purchase price would have been higher because of the loss of
revenue resulting from [d]efendants’ conduct herein. The right
to the causes of actions set forth in this litigation and any
resultant damages were retained by the Balmer Agency.
FCC has agreed to indemnify the individual [d]efendants
for any costs and damages they may owe to the Balmer Agency
as a result of their actions in this litigation. It is clear to the trial
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[c]ourt that FCC was the party [d]efendant in control of the
entire defense in this litigation.
Trial Court Opinion, 12/10/14, at 2-8 (internal record citations and footnotes
omitted).
On December 5, 2003, Balmer filed a multi-count complaint against
Appellants. Counts 1 through 4 of the complaint pertained to breach of
employment agreements by Hample, Courtney, Einstein, Reilly and Peterson.
Specifically, Count 1 alleged improper “solicitation of Balmer clients,” Count
2 alleged violation of a confidentiality provision, Count 3 alleged improper
solicitation of Balmer employees, and Count 4 alleged improper inducement
of Balmer clients to discontinue, cancel, terminate or decline renewals of
insurance coverage. Count 5 of the complaint alleged that, as employees of
Balmer, Hample, Courtney, Einstein, Reilly and Peterson breached the
fiduciary duty owed to Balmer. Count 6 alleged that Einstein, Reilly, and
Peterson, as officers and/or directors of Balmer, breached the fiduciary duty
owed to Balmer. Counts 7 through 11 of the complaint pertained to all
Appellants. Count 7 alleged tortious interference with contractual relations,
Count 8 alleged unfair competition, Count 9 alleged misappropriation of
proprietary, confidential and/or trade secret information, Count 10 alleged
conspiracy, and Count 11 alleged unjust enrichment and constructive trust.
The case eventually proceeded to a bench trial, following which the trial
court entered a verdict in favor of Balmer and against Appellants on Counts
1 though 8 and Count 10 on July 1, 2013. The trial court, however, found in
favor of Appellants and against Balmer on Counts 9 and 11. With respect to
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Count 9, the trial court found that it was barred by the gist of the action
doctrine because the relief requested was the same relief requested for the
breach of contract claims. The trial court determined that Count 11 (unjust
enrichment) did not merit relief given the existence of a valid, enforceable
contract. The trial court awarded Balmer $2,391,569.00 in compensatory
damages and $4,500,000.00 in punitive damages. Appellants timely filed a
post-trial motion seeking judgment notwithstanding the verdict (“JNOV”).
Appellants’ post-trial motion was deemed denied by operation of law
because the trial court failed to dispose of it within 120 days as required
under Pa.R.C.P. No. 227.4(1)(b).1 On November 12, 2013, Appellants filed a
praecipe for entry of judgment. Thereafter, Appellants timely appealed to
this Court.2 Following Appellants’ filing of a Pa.R.A.P. 1925(b) statement of
errors complained of on appeal, the trial court issued a Pa.R.A.P. 1925(a)
opinion.
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1
Rule 227.4(1)(b) provides in relevant part:
[T]he prothonotary shall, upon praecipe of a party enter
judgment upon . . . the decision of a judge following a trial
without jury if . . . one or more timely post-trial motions are filed
and the court does not enter an order disposing of all motions
within one hundred twenty days after the filing of the first
motion. A judgment entered pursuant to this subparagraph shall
be final as to all parties and all issues and shall not be subject to
reconsideration[.]
Pa.R.C.P. No. 227.4(1)(b).
2
We note that Balmer filed a cross appeal in this Court which it discontinued
on February 18, 2015.
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On appeal, Appellants raise the following questions which we have
paraphrased somewhat for ease of disposition.
1. Was the trial court’s award of $4.5 million in punitive damages
legally erroneous because (a) the trial court failed to identify
clear and convincing evidence to support its finding that
outrageous or malicious conduct occurred, (b) the trial court
failed to assess the subjective intent and financial means of each
defendant against whom it awarded punitive damages, (c) the
trial court failed to state the amount of punitive damages
awarded on each count against each defendant, and/or (d) failed
to dismiss the tort claims under the gist of the action doctrine?
2. Was the trial court’s award of $2,391,569 in compensatory
damages legally erroneous because it (a) was based on an
expert report that should have been rejected, and (b) it included
an award of both lost profits and diminution in value?
3. Did the trial court apply the incorrect legal standard to the non-
solicitation and trade secret claims?
Appellants’ Brief at 3-4.
Our standard of review of a trial court’s denial of a motion for JNOV is
as follows:
Whether, when reading the record in the light most favorable to
the verdict winner and granting that party every favorable
inference therefrom, there was sufficient competent evidence to
sustain the verdict. Questions of credibility and conflicts in the
evidence are for the trial court to resolve and the reviewing court
should not reweigh the evidence. Absent an abuse of discretion,
the trial court’s determination will not be disturbed.
Ferrer v. Trustees of Univ. of Pennsylvania, 825 A.2d 591, 595 (Pa.
2002) (internal citations omitted). Furthermore, there are two bases upon
which the court can grant JNOV:
One, the movant is entitled to judgment as a matter of law
and/or two, the evidence is such that no two reasonable minds
could disagree that the outcome should have been rendered in
favor of the movant. With the first, the court reviews the record
and concludes that even with all factual inferences decided
adverse to the movant the law nonetheless requires a verdict in
his favor, whereas with the second, the court reviews the
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evidentiary record and concludes that the evidence was such
that a verdict for the movant was beyond peradventure.
Drake Mfg. Co. v. Polyflow, Inc., 109 A.3d 250, 258 (Pa. Super. 2015)
(citation omitted).
We first address Appellants’ challenge to the trial court’s award of
punitive damages in favor of Balmer. As mentioned, Appellants argue that
the trial court abused its discretion in concluding that Appellants’ conduct
was outrageous and that punitive damages were barred by the gist of the
action doctrine. We disagree.
As we recently explained in Lomas v. Kravitz, 130 A.3d 107 (Pa.
Super. 2015) (en banc):
In reviewing challenges to punitive damage awards, we
determine whether the trial court has committed any abuse of
discretion or whether after a complete and exhaustive review of
the record, the award shocks the court’s sense of justice.
Punitive damages are awarded to punish a person and/or entity
for outrageous conduct. Conduct is considered outrageous
where a defendant’s action shows either an evil motive or
reckless indifference to the rights of others. Reckless
indifference to the interests of others, or as it is sometimes
referred to, wanton misconduct, means that the actor has
intentionally done an act of an unreasonable character, in
disregard of a risk known to him or so obvious that he must be
taken to have been aware of it, and so great as to make it highly
probable that harm would follow. The determination of whether
a person’s actions rise to outrageous conduct lies within the
sound discretion of the fact-finder and will not be disturbed on
review, provided that discretion has not been abused.
Kravitz, 130 A.3d at 128-29 (internal citation and quotation marks
omitted); see also Reading Radio, Inc. v. Fink, 833 A.2d 199, 214 (Pa.
Super. 2003) (affirming an award of punitive damages based on appellants’
outrageous conduct), appeal denied, 847 A.2d 1287 (Pa. 2004).
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In Reading Radio, appellant Reading Eagle offered appellant David
Kline, who was the station manager of Reading Radio, Inc., t/d/b/a/ WAGO
Radio (WAGO), a position in its A.M. radio station WEEU. Kline accepted the
new position and tendered his resignation as the station manager of WAGO,
but agreed to remain in WAGO’s employ for thirty days. During the thirty-
day period, Kline solicited Molly Fink and Isaac Ulrich, whom he supervised
and who were described as the best performing sales representatives at
WAGO, to work for appellant WEEU in identical sales positions that they held
at WAGO in breach of non-compete covenants. Kline also cancelled a
bluegrass music program on WAGO without notice to his employers and
transferred a significant car dealership advertising account to appellant
Reading Eagle.
Fink and Ulrich ultimately tendered their resignations directly to
appellant Kline, who, although aware of the covenants-not-to-compete in
Fink’s and Ulrich’s employment contracts, did not attempt to enforce them.
The loss of the majority of its sales staff caused WAGO to lose a number of
advertising clients and advertising promotions, and thus, the sales revenue
and performance of WAGO faltered significantly. WAGO diminished in value
by approximately $1.6 million.
WAGO thereafter initiated a civil action against appellants Kline, Fink,
Ulrich, Reading Eagle, and WEEU for, inter alia, civil conspiracy, breach of
contract, breach of pre-resignation and post-resignation common law and
fiduciary duties, tortious interference with WAGO’s contractual and business
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relationships, seeking compensatory and punitive damages. Following a jury
trial, the trial court returned a verdict in WAGO’s favor and against
appellants for $300,000.00 in compensatory damages and $805,000.00 in
punitive damages.
On appeal, appellants challenged, among other things, the award of
punitive damages, arguing that their conduct was not outrageous. We
disagreed, and in so doing, concluded:
The evidence presented to the jury in this case indicates
that the conduct of Appellants was outrageous. Appellant WEEU
and [a]ppellant Reading Eagle’s agreement with [a]ppellant Kline
to hire Fink and Ulrich in derogation of their contractual
obligation to WAGO coupled with the complicity of appellant
WEEU and [a]ppellant Reading Eagle in [a]ppellant Kline’s
breach of loyalty as a result of the formation of that agreement
leaves this Court with little doubt that punitive damages were
assessed properly in this case. It is of no moment that
[a]ppellant WEEU and [a]ppellant Reading Eagle did not, as
[a]ppellant argues, owe a duty of loyalty to WAGO. The
evidence suggests that [a]ppellant WEEU and [a]ppellant
Reading Eagle knew that [a]ppellant Kline was soliciting
sales employees for them from WAGO in violation of
WAGO’s covenants-not-to-compete, because [a]ppellant
Kline provided Ulrich with salary and employment
information obtained from [a]ppellant WEEU and
[a]ppellant Reading Eagle.
Reading Radio, 833 A.2d at 214 (internal record citation omitted)
(emphasis added).
Here, based on our review of the undisputed facts of record, we agree
with the trial court’s conclusion that Appellants’ conduct warranted an award
of punitive damages. Similar to some of the defendants in Reading Radio,
Appellants Hample, Courtney, Einstein, Reilly and Peterson were subject to a
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restrictive covenant, i.e., a non-solicitation agreement.3 As the trial court
found, while Appellants Reilly and Peterson were employed by Balmer, they
met with Craig Richards, an employment recruiter for FCC, a large insurance
brokerage firm based in New York with approximately $66 million in annual
revenue in 2003. Thereafter, Appellants Reilly and Peterson met with FCC’s
president, Mark Freitas, to open an FCC office in Philadelphia. Subsequently,
while still in Balmer’s employ, Appellant Reilly disclosed to Richards trade
secret information about Balmer Agency clients and customers who could be
moved to FCC Philadelphia along with names of Balmer employees that
Reilly wished to join him at FCC Philadelphia. Those employees made up all
of Balmer’s insurance sales/marketing staff, other than Barry Balmer
himself. Richards conveyed this information to FCC.
In the summer of 2003, Appellants Reilly, Peterson and the targeted
Balmer employees met with Richards and FCC, after which they all received
employment offers at a salary higher than what they earned at the Balmer
Agency. At the time of hiring, FCC knew of the existence of Appellants’
employment agreements with the Balmer Agency and all Appellants were
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3
Although Appellants point out that Reading Radio involved non-compete
covenants, whereas this case involves non-solicitation covenants, they do
not explain how the distinction between the two types of restrictive
employment covenants is a relevant consideration or compels a different
outcome.
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aware that they were subject to the same.4 All individuals arranged details
of their employment with FCC while using Balmer Agency computers, office
telephones, cell phones, fax machines and facilities and while on Balmer
Agency’s employment time.
As the trial court determined:
[Appellants] violated their fiduciary obligations to the Balmer
Agency by helping FCC to establish FCC Philadelphia and its
Balmer Agency customer base all while using Balmer Agency
employment time, telephones, computers, fax machines and
trade secret information. [Appellants] Peterson and Reilly
further breached their fiduciary duties to the Balmer Agency by
recruiting or attempting to recruit [Appellants] Einstein,
Courtney and Hample and other Balmer Agency employees Joe
Valerio, David Krause, Jennifer Little and Pennock Yeatman. All
[Appellants] used Balmer Agency confidential trade secret
information, including customer lists, for their own purposes and
for the purposes of establishing FCC Philadelphia.
Trial Court Opinion, 12/10/14, at 10.
Prior to all individual Appellants resigning employment from the
Balmer Agency within a day of each other, Appellant Reilly refused to return
Appellant Einstein’s personnel file to Gail Masayko and attempted to acquire
Appellants Courtney’s and Hample’s personnel files, but was unsuccessful.
Appellant Einstein compiled various client lists and trade secret information
regarding the Balmer Agency’s Wellington account including coverage and
policy information and took this information with him when leaving the
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4
The trial court observed that “[Appellant] FCC attempts to use Richards to
shield itself from knowledge of, or complicity in, contractual breaches by
individual [Appellants]. The [trial court] specifically finds that FCC and its
representatives knew what . . . Richards knew prior to the establishment of
FCC Philadelphia.” Trial Court Opinion, 12/10/14, at 11.
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employment of the Balmer Agency. Other client list trade secret information
regarding Balmer Agency clients had previously been disclosed to FCC by
Appellants. Appellants took with them to FCC Philadelphia Balmer trade
secret information and subsequently used that information when breaching
their respective employment agreements. While Barry Balmer was on
vacation, he received information that Appellants had resigned en masse.
Shortly thereafter, Appellants began to solicit Balmer Agency clients and
customers in violation of their employment agreements. At least twenty-
four Balmer Agency customers or prospects were solicited by using trade
secret information. All of these efforts were to benefit FCC.
Appellants contacted Balmer Agency clients and customers in an
attempt to solicit and/or transfer those insurance businesses to FCC
Philadelphia. The contacts, in violation of their respective employment
agreements, were extensive. The most obvious and documented contractual
violation engaged in by Appellants involved the Wellington account. That
account had been a client of the Balmer Agency for over twenty-six years
and was its largest and most lucrative client. Soon after resigning, Appellant
Einstein, who had close contact with the Wellington account while at the
Balmer Agency, contacted Wellington and set up a meeting with Wellington
executives. Appellants Einstein, Reilly and Sanford F. Crystal, executive vice
president of FCC who had FCC responsibility to gain Wellington as a client,
all traveled to Boston, Massachusetts on August 12, 2003 to solicit the
Wellington account for FCC. Appellants Einstein and Reilly prepared an
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agenda for this meeting which included providing an explanation to
Wellington how the Balmer Agency did not honor its succession commitment
to them; bullet points to discuss the integrity/personal reputation of Barry
Balmer and the Balmer Agency; and an introduction of FCC and the different
services that can be provided by FCC. As the trial court found, an
examination of the meeting agenda makes it clear that Appellants were
there to solicit the Wellington business by promoting FCC and tarnishing
Barry Balmer and the Balmer Agency. The last sentence of the agenda
states: “We are committed to resolving issues for Wellington and are best
able to by reason of market knowledge and knowledge of the client”
Appellants’ contact with Wellington is a prime example of their breach
of their employment agreements, use of Balmer trade secret information,
the conspiratorial nature of the actions of all Appellants and the attempt to
destroy Balmer Agency business relationships. The meeting with Wellington
did not result in Wellington becoming a client of FCC. Therefore, Appellant
Peterson, accompanied James Crystal, CEO and chairman of FCC, visited
Wellington again to solicit Wellington business. After the August and
October meetings, Wellington did not renew its 26-year insurance
relationship with the Balmer Agency. Wellington also did not become a
client of FCC. Appellants’ solicitation of Wellington business set in motion a
chain of events that directly caused the loss of the Wellington account by the
Balmer Agency.
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Furthermore, as the trial court found, when a company hires
essentially all of the sales/marketing staff of one agency, the purpose in
doing so is to induce the clients of that agency to move their business with
that sales force. Id. at 12. FCC Philadelphia’s first year business revenue of
approximately $300,000.00 was received all from Balmer Agency clients.
Id.
Based on the foregoing facts, we cannot conclude that the trial court
abused its discretion in awarding punitive damages to Balmer based on its
conclusion that Appellants’ conduct was outrageous.5 To reiterate, all
individual Appellants had a non-solicitation covenant in their employment
contracts, the existence of which was known to FCC. Appellant Reilly
desired to move people and business from the Balmer Agency to FCC
Philadelphia. Despite being aware of this, FCC hired all individual Appellants
who eventually, with FCC’s support, solicited clients, such as Wellington,
from the Balmer Agency. As summarized by the trial court:
All [Appellants] met on June 25, 2003 in New York City to
discuss their resignations and start date at FCC Philadelphia. All
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5
The trial court bolstered its award of punitive damages by noting that
Appellants committed discovery violations and failed to comply with its July
7, 2005 preliminary injunction order barring them from continuing business
with poached Balmer Agency customers. The trial court, sitting as a fact
finder, also may consider discovery violations in fashioning an award for
punitive damages. See Judge Tech. Servs., Inc. v. Clancy, 813 A.2d
879, 889 (Pa. Super. 2002) (noting that “it was appropriate for a trial court
to allow consideration of discovery violations in fashioning a remedy which
included punitive damages”).
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[Appellants] knew of the existence of the employment
agreements. The individual [Appellants] cleared out personal
belongings at the Balmer Agency, attempted to delete
information from Balmer Agency computers, immediately went
to work at FCC Philadelphia and immediately began soliciting
Balmer Agency clients using Balmer Agency trade secrets in
violation of the employment agreements, all with the knowledge
and assistance of FCC and for the purpose of benefitting FCC
Philadelphia. This conduct was deliberate and reckless with
respect to the violation of their contractual and fiduciary
obligations at the Balmer Agency and the resultant damage their
actions would create. The [trial court] finds these actions to be
with unjustifiable malice with the intent to establish FCC
Philadelphia at the direct and crippling expense of the Balmer
Agency. As a result of this conduct, the Balmer Agency suffered
damage. All revenues in the first year of FCC Philadelphia
w[ere] received from Balmer clients. This intended malice is
reflected in [Appellant] Reilly’s letter to Craig Richards stating
that 50% of FCC Philadelphia revenues for 2004, 2005 and 2006
will come from solicited Balmer Agency clients. He states: “In
short, why compete when we do not have to do so . . . .”[6]
Id. at 12. Accordingly, we find no error in the award of punitive damages
based upon the trial court’s finding of outrageous conduct by the Appellants.
Before addressing Appellants’ arguments that the trial court erred by
failing to assess the subjective intent and financial means of each defendant
against whom it awarded punitive damages and to state the amount of
punitive damages awarded on each count against each defendant, we need
to determine whether these issue were properly preserved for this Court’s
review. Appellants’ Rule 1925(b) statement provides in relevant part:
[t]he trial court erred in awarding any, or excessive, punitive
damages. There was a complete lack of evidence of any
outrageous or malicious conduct that would warrant punitive
damages under Pennsylvania law. Even if the trial court’s award
____________________________________________
6
The trial court noted that Appellant Reilly overestimated FCC Philadelphia’s
non-Balmer client revenue producing capability when he informed FCC that
50% of its revenue would come from Balmer clients. Instead, it actually was
100%. See Trial Court Opinion, 12/10/14, at 12.
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of punitive damages could be supported (which it cannot), it was
excessive, both in absolute terms and as compared to the actual
damages, in this commercial case.
See Appellants’ Rule 1925(b) Statement. Issues not included in a Rule
1925(b) statement or fairly suggested by the issue(s) stated are deemed
waived. Pa.R.A.P. 1925(b)(4)(v) and (vii). Our Supreme Court will not
countenance anything less than strict application of waiver pursuant to Rule
1925(b). Greater Erie Indus. Development Corp. v. Presque Isle
Downs, Inc., 88 A.3d 222, 224 (Pa. Super. 2014) (en banc). Failure to
comply with the requirements of Rule 1925(b) will result in automatic waiver
of the issues raised. Upon review of the Appellants’ Rule 1925(b) statement,
we do not find that the issues as to whether the trial court properly
considered the subjective intent and financial means of each defendant or
whether there was error not to determine punitive damages on an individual
basis, are stated or fairly comprised within the issue stated in Appellants’
1925(b) statement. Accordingly, we are unable to address these issues, as
they have not been preserved for appeal.7
To the extent Appellants argue that the trial court erred in accepting
the testimony of Balmer’s expert because it lacked a proper foundation, we
find the argument likewise is waived. Appellants failed to object to the
testimony of Balmer’s expert on this basis at trial. See Pa.R.A.P. 302(a)
____________________________________________
7
Nonetheless, we note that FCC agreed at trial to indemnify the co-
defendants. See e.g., N.T. Trial, 4/6/09, at 57-63; N.T. Trial, 4/7/09, at 9-
12.
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(issues not raised in lower court are raised and cannot be raised for first
time on appeal). Although Appellants’ assert that the lack of foundation was
raised on four separate occasions at trial, see Appellants’ Brief at 44, we
cannot find support for this statement upon review of the record. Pa.R.A.P.
2117(c) and 2119(e) require that an appellant’s statement of the case and
argument, respectively, indicate specifically where in the record an issue was
timely and properly raised so as to preserve the question for appeal. Here,
Appellants cite en masse to this Court approximately 84 pages of the record
pertaining to closing arguments and another 204 pages pertaining to
argument on post-trial motions and post-trial briefs in which they claim this
issue was preserved for appeal. Apart from the fact that objections as to
proper foundation should be timely lodged well before the filing of post-trial
motions, this Court repeatedly has stated that it will not scour the record in
order to find support for statements made by litigants in their briefs. See
Commonwealth v. Kearney, 92 A.3d 51, 66-67 (Pa. Super. 2014) (noting
it is not the responsibility of this Court to scour the record to find evidence
to support an argument). Nonetheless, we have attempted to review this
volume of material to attempt to identify where this issue was preserved
during trial and have not been able to do so. The issue is waived.8
____________________________________________
8
Even if Appellants’ credibility challenge to Balmer’s expert had been
preserved, it is without merit because we may not disturb the trial court’s
weight and credibility determinations, specifically here as they relate to
gross margin and cost of goods sold as delineated in the Strategic Plan. See
(Footnote Continued Next Page)
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Appellants next argue that the trial court abused its discretion in
awarding punitive damages because the gist of the action doctrine bars
Balmer’s tort claims. Differently stated, Appellants assert that the trial court
should have dismissed the tort claims under the gist of the action doctrine
because the breach of employment agreements is the gist of the current
action.
The gist of the action doctrine prohibits a plaintiff from re-casting
ordinary breach of contract claims into tort claims. Empire Trucking Co.,
Inc. v. Reading Anthracite Coal Co., 71 A3.d 923, 931 n.2 (Pa. Super.
2013) (citation omitted). As we explained in Reardon v. Allegheny
College, 926 A.2d 477 (Pa. Super. 2007), appeal denied, 947 A.2d 738(Pa. 2008):
The gist of the action doctrine acts to foreclose tort claims: 1)
arising solely from the contractual relationship between the
parties; 2) when the alleged duties breached were grounded in
the contract itself; 3) where any liability stems from the
contract; [or] 4) when the tort claim essentially duplicates the
breach of contract claim or where the success of the tort claim is
dependent on the success of the breach of contract claim.[9] The
critical conceptual distinction between a breach of contract claim
and a tort claim is that the former arises out of breaches of
duties imposed by mutual consensus agreements between
particular individuals, while the latter arises out of breaches of
duties imposed by law as a matter of social policy.
_______________________
(Footnote Continued)
Turney Media Fuel v. Toll Bros., 725 A.2d 836, 841 (Pa. Super. 1999)
(“Assessments of credibility and conflicts in evidence are for the trial court to
resolve; this Court is not permitted to reexamine the weight and credibility
determinations or substitute our judgments for those of the factfinder.”).
9
In Bruno v. Erie Ins. Co., 106 A.3d 48, 67 (Pa. 2014), our Supreme
Court noted that the four-part “test” implicates “four situations” in which the
gist of the action doctrine precluded a tort claim.
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Reardon, 926 A.2d at 486-87 (internal citation and quotations omitted)
(emphasis added); accord Hart v. Arnold, 884 A.2d 316, 339-40 (Pa.
Super. 2005), appeal denied, 897 A.2d 458 (Pa. 2006).
Our Supreme Court explained recently:
If the facts of a particular claim establish that the duty breached
is one created by the parties by the terms of their contract—i.e.,
a specific promise to do something that a party would not
ordinarily have been obligated to do but for the existence of the
contract—then the claim is to be viewed as one for breach of
contract. If, however, the facts establish that the claim involves
the defendant’s violation of a broader social duty owed to all
individuals, which is imposed by the law of torts and, hence,
exists regardless of the contract, then it must be regarded as a
tort. See Ash v. Cont’l Ins. Co., 5932 A.2d 877, 885 ([Pa.]
2007) (holding that action against insurer for bad faith conduct
pursuant to 42 Pa.C.S.A. § 8371 is for breach of a duty “imposed
by law as a matter of social policy, rather than one imposed by
mutual consensus”; thus, action is in tort); see also W. Page
Keeton, Prosser and Keeton on Torts 656 (5th ed. 1984)
(reviewing extant case law, and noting the division therein
between actions in tort and contract based on the nature of the
obligation involved, observing that “[t]ort obligations are in
general obligations that are imposed by law on policy
considerations to avoid some kind of loss to others . . . [which
are] independent of promises made and therefore apart from
any manifested intention of parties to a contract, or other
bargaining transaction.”). Although this duty-based demarcation
was first recognized by our Court over a century and a half ago,
it remains sound, as evidenced by the fact that it is currently
employed by the high Courts of the majority of our sister
jurisdictions to differentiate between tort and contract actions.
We, therefore, reaffirm its applicability as the touchstone
standard for ascertaining the true gist or gravamen of a claim
pled by a plaintiff in a civil complaint.
....
[T]he mere existence of a contract between two parties does
not, ipso facto, classify a claim by a contracting party for injury
or loss suffered as the result of actions of the other party in
performing the contract as one for breach of contract.
Bruno, 106 A.3d at 68–69 (some citations omitted, others modified;
footnotes omitted).
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Here, Appellants appear to rely only on the fourth test from Reardon
in arguing that the gist of the action doctrine bars Balmer’s tort claims.
Specifically, Appellants argue that “all of Balmer’s purported tort claims were
either duplicative of, or dependent on, Balmer’s claim that Hample,
Courtney, Einstein, Reilly and Peterson breached their employment
contracts.” Appellants’ Brief at 30. We disagree.
Balmer’s tort claims are separate and distinct from the claims for
breach of the employment agreements containing the non-solicitation
provision. As stated earlier, Balmer’s tort claims, inter alia, were set forth in
Counts 5, 6, 7, 8, and 10 of the complaint. Count 5 pertained only to
Appellants Hample, Courtney, Einstein, Reilly and Peterson and involved an
allegation that they breached a fiduciary duty of loyalty owed to the Balmer
Agency while they were employed at the Balmer Agency. Count 6 alleged
that Appellants Einstein, Reilly and Peterson, as officers and directors,
breached their fiduciary duty of loyalty to the Balmer Agency. Specifically,
Count 6 alleged:
92. [Appellants] Reilly, Peterson and Einstein breached their
fiduciary duty by, among many other actions and omissions,
A. inducing Hample and Courtney to resign
and attempting to induce other Balmer employees,
including but not limited to the Marketing Manager,
to resign; and join them in working for [Appellant
FCC] in direct competition with [Balmer] and to the
financial detriment of [Balmer];
B. Conspiring to leave [Balmer] as a group in
such a way as to attempt to cripple and/or destroy
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Balmer without informing the President and Chief
Executive Officer;
C. Using Company time, for which they were
then being paid and Company resources to plan a
course of action to further their own personal and
collective financial goals at the expense of [Balmer];
D. Conspiring to leave Balmer and unlawfully
use information the Appellants obtained while at
Balmer to directly compete with [Balmer] to
[Balmer’s] detriment and for [Appellants’] personal
financial gain;
E. Failing to notify [Balmer] that they intended
to leave and to unlawfully use information the
[Appellants] obtained while at Balmer to directly
compete with [Balmer] to [Balmer]’s detriment, and
for [Appellants’] personal financial gain;
F. Conspiring to leave [Balmer] in such a way
to attempt to financially cripple and/or destroy the
financial viability of [Balmer’s] business for the
furtherance of [Appellants’] personal financial gain;
G. Using Company paid time and resources to
conspire to, and arrange, a plan to leave Balmer and
join a competitor in such a way as to attempt to
cripple and/or destroy [Balmer] for the furtherance
of [Appellants’] personal financial gain;
H. Failing to notify [Balmer] that they were
using Company paid time and Company resources to
communicate with outside third parties for the
purpose of obtaining employment elsewhere to
compete with [Balmer] to its financial detriment and
[Appellants’] personal financial gain; and
I. Failure to notify Balmer that they intended
to leave the Company in such a manner as to
attempt to financially cripple and/or destroy the
viability of [Balmer] by, inter alia, (1) depriving
[Balmer] immediately of its officers (2) depriving
[Balmer] immediately of members of its Executive
Committee; (3) creating the impression within the
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client community that [Balmer] had no ability to
effectively function in the commercial insurance
field; (4) creating the impression with the
employees of [Balmer] that [Balmer] had no ability
to function within the commercial insurance field.
Balmer’s Complaint, 12/3/05 at ¶ 92. Counts 7 (tortious interference), 8
(unfair competition) and 10 (conspiracy) were asserted as to all Appellants,
including FCC.10 Count 7 in particular alleged:
94. All of the individual [Appellants] had knowledge that the
other individual [Appellants] had an Employment Agreement
with [Balmer] (with provisions, including the non-solicitation of
Balmer clients, non-solicitation of Balmer employees, non-
inducement and the confidentiality/non-use agreements
therein).
95. Each of the individual [Appellants] tortiously interfered with
the contractual relationship between [Balmer] and the other
individual [Appellants] by, inter alia, inducing them to reveal
confidential, proprietary and/or trade secret information, solicit
Balmer customers, conspiring with each other to do the above,
induce Balmer customers to decline renewal of insurance
policies, and/or solicit other Balmer employees.
96. In addition, [Appellant FCC] has tortiously interfered with
the contractual relationship between [Balmer] and the other
individual [Appellants] by, inter alia, inducing them to reveal
confidential, proprietary and/or trade secret information,
conspiring with each other to do the above, solicit Balmer
customers, to encourage Balmer customers to decline renewal,
and/or solicit other Balmer employees, despite [Appellant]
FCC’s] knowledge that each of the individual [Appellants] was
party to an Employment Agreement (with post-employment
restrictive covenants) with [Balmer].
Id. at ¶¶ 94-96. Count 8 incorporated all averments alleged in the
complaint regarding the Appellants’ conduct and asserted a claim for unfair
____________________________________________
10
The gist of the action doctrine does not apply to tort claims asserted
against FCC because it did not have a contractual relationship with the
Balmer Agency.
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competition. Count 10 of the complaint alleged a conspiracy among all
Appellants to leave Balmer en masse and to use confidential and proprietary
client and/or trade secret information to compete with Balmer. Appellants do
not challenge their liability for the foregoing tort claims. Instead, they argue
only that the tort claims were duplicative of or dependent on the contract
claims, i.e., breach of the non-solicitation provision.
As Appellants acknowledge (and Balmer agrees), the contract claims
asserted by Balmer did not arise until after Appellants had terminated their
employment with the Balmer Agency. See Appellants’ Brief at 54. Indeed,
it is undisputed that the employment agreements containing the non-
solicitation provision went into effect only after the individual Appellants left
their employment. Thus, Balmer’s tort claims directed at Appellants while
employed at Balmer implicate breach of common law duties. Here, as
Balmer’s complaint reveals, the tort claims arose out of legal obligations
separate and distinct from the employment contracts because they were
based on each individual Appellants’ conduct while they were employed
with the Balmer Agency. Accordingly, the trial court did not err in
concluding that the gist of the action doctrine did not apply to bar Balmer’s
tort claims. See Knight v. Springfield Hyundai, 81 A.3d 940, 951 (Pa.
Super. 2013) (declining to apply the gist of the action doctrine in part
because the “alleged representations by [a]ppellees occurred prior [to] the
signing of any contract”); Bohler-Uddeholm Am., Inc. v. Ellwood Group,
Inc., 247 F.3d 79, 104 (3rd Cir. Pa. 2001) (concluding that the breach of
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fiduciary duty claim was not barred by the gist of the action doctrine),11
cert. denied, 534 U.S. 1162, 122 S. Ct. 1173 (2002); see also generally
Reading Radio, 833 A.2d at 211 (finding breach of fiduciary duty of loyalty,
intentional interference with contractual relations, civil conspiracy and
outrageous conduct supporting punitive damages despite defendants’
employment agreement containing restrictive covenants).
Appellants next argue that the punitive damages award of $4.5 million
exceeds the single digit ratio and, as a result, is unconstitutional. We
disagree.
In State Farm Mutual Automobile Insurance Company v.
Campbell, 538 U.S. 408 (2003), the United States Supreme Court
explained:
We decline again to impose a bright-line ratio which a punitive
damages award cannot exceed. Our jurisprudence and the
principles it has now established demonstrate, however, that, in
practice, few awards exceeding a single-digit ratio between
punitive and compensatory damages, to a significant degree, will
satisfy due process. In [Pacific Mutual Life Insurance Co v.]
Haslip,[499 U.S. 1 (1991)], in upholding a punitive damages
award, we concluded that an award of more than four times the
____________________________________________
11
In Bohler-Uddeholm, a majority partner in a joint venture was accused
of breaching fiduciary duties to the minority partner and appropriating the
minority partner’s trade secrets. The Third Circuit Court of Appeals held that
the breach of fiduciary duty claim was not barred by the gist of the action
doctrine because the fiduciary duties flowing from majority partners to
minority partners are separate and distinct from the contractual duties
contained in the joint venture agreement. Bohler-Uddeholm, 247 F.3d at
104-105. The court further held that the misappropriation claim was not
barred by the gist of the action doctrine so long as the trade secrets were
not the subject of a contract between the parties. Id. at 106.
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amount of compensatory damages might be close to the line of
constitutional impropriety. 499 U.S. at 23–24[]. We cited that
4–to–1 ratio again in [BMW of North America, Inc. v.] Gore,
517 U.S. [559 (1996)]. The Court further referenced a long
legislative history, dating back over 700 years and going forward
to today, providing for sanctions of double, treble, or quadruple
damages to deter and punish. Id. at 581, and n. 33[]. While
these ratios are not binding, they are instructive. They
demonstrate what should be obvious: Single-digit multipliers are
more likely to comport with due process, while still achieving the
State’s goals of deterrence and retribution, than awards with
ratios in range of 500 to 1, id., at 582 [], or, in this case, of 145
to 1.
State Farm, 538 U.S. at 408.
Here, it is undisputed that the compensatory damages award was for
$2,391,569.00 and the punitive damages award for $4,500,000.00,
representing a ratio of punitive to compensatory damages of 1.88 to 1.
Based on and consistent with State Farm, at 1.88 to 1, there is nothing
here improper about the ratio between punitive and compensatory damages.
Appellants next argue only as a general principle of law that the trial
court erred in awarding as compensatory damages $2,191,569 for lost
profits and $200,000 in the diminution in value of Balmer’s business because
Pennsylvania law precludes an award of both diminution in value and lost
profits. Although Appellants do not expressly state so, we understand this
argument to be that a plaintiff may not recover both lost profits and
diminution in value because this would permit recovery twice for the same
damages. Although it is true that an injured party cannot recover twice for
the same injury, see D’Adamo v. Erie Insurance Exchange, 26 A.3d 483(Pa. Super. 2010), Appellants cite no authority, and we are unable to find
any, that would establish, as a blanket rule, that lost profits and diminution
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in value may never be recovered together because these damages always
are duplicative of each other. To the contrary, where a plaintiff is able to
demonstrate damages for loss of profits and loss of equity value that are not
duplicative of each other due to the tortious conduct of another party, both
types of damages may be recovered as compensatory damages. See Miller
Oral Surgery, Inc. v. Dinello, 611 A.2d 232, 237 (Pa. Super. 1992) (both
loss of profits due to diversion of patients as a present loss and resulting
future and recurring loss of business were compensable damages).
Appellants here do not develop an argument based upon an analysis of the
evidence presented at trial that lost profits or diminution in value, as a
matter of law and not as a mere difference of opinion between experts, were
awarded for the same harm or otherwise amount to double recovery by
Balmer. Balmer, on the other hand, describes its damages as comprising
two parts; the first as lost revenue over the three-year period prior to the
business being sold because of clients leaving Balmer, and second, a
diminished sale price of the business as a result of the business having fewer
clients. The first component of Balmer’s damages for lost profits relate to its
present loss of business, while the second component of Balmer’s damages
relate to the diminished value of the business on a going forward basis as a
result of having fewer clients. We do not view these claims as being
duplicative of each other and therefore, find no merit to the issue raised by
Appellants.
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Finally, insofar as Appellants argue that the trial court applied the
wrong legal standard to the non-solicitation claims, we again are constrained
to find that this argument too is waived because Appellants failed to raise it
in their Rule 1925(b) statement. See Madrid v. Alpine Mountain Corp.,
24 A.3d 380, 382 (Pa. Super. 2011) (citation omitted); see also Pa.R.A.P.
1925(b)(4)(vii) (“Issues not included in the [concise s]tatement and/or not
raised in accordance with the provisions of this paragraph (b)(4) are
waived.”).
Judgment affirmed. Application to strike footnote denied.12
Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 9/9/2016
____________________________________________
12
We deny Balmer’s Application to Strike Footnote of Appellants’ Reply Brief
as we did not rely on the disputed statements in rendering this decision.
The certified record was available for our review.
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