CGB Occupational Therapy, Inc. v. RHA Health Services Inc.

Opinions of the United
2004 Decisions States Court of Appeals
for the Third Circuit
1-28-2004
CGB Occupational v. RHA Health Ser Inc
Precedential or Non-Precedential: Precedential
Docket No. 02-4372
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PRECEDENTIAL
Filed January 28, 2004
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 02-4372
CGB OCCUPATIONAL THERAPY, INC.,
d/b/a CGB Rehab Inc.
v.
RHA HEALTH SERVICES INC.;
SYMPHONY HEALTH SERVICES, INC.;
RHA/PENNSYLVANIA NURSING HOMES, INC., d/b/a
Prospect Park Rehabilitation Center, d/b/a Prospect Park
Nursing Center, d/b/a Prospect Park Health and
Rehabilitation Residence;
RHA/PENNSYLVANIA NURSING HOMES, INC., d/b/a
Pembrooke Nursing and Rehabilitation Center, d/b/a
Pembrooke Nursing and Rehabilitation Residence, f/k/a
West Chester Arms Nursing and Rehabilitation Center;
SUNRISE ASSISTED LIVING, INC. aka SUNRISE;
SUNRISE ASSISTED LIVING MANAGEMENT, INC.
Sunrise Assisted Living, Inc. and
Sunrise Assisted Living Management, Inc.,
Appellants
On Appeal from the United States District Court
for the Eastern District of Pennsylvania
(Dist. Court No. 00-cv-04918)
District Judge: Hon. Clarence C. Newcomer
Argued: September 16, 2003
Before: ALITO, AMBRO and CHERTOFF, Circuit Judges
(Filed: January 28, 2004)
2
Melissa Lang, Esq.
Harvey, Pennington, Cabot,
Griffith & Renneisen
1835 Market Street
Eleven Penn Center, 29th Floor
Philadelphia, PA 19103
C. William Groscup (Argued)
Watt, Tieder, Hoffar & Fitzgerald
7929 Westpark Drive
Suite 400
McLean, VA 22102
Counsel for Appellants
David G. Concannon, Esq. (Argued)
Law Offices of David G. Concannon
150 Strafford Avenue
Building One, Suite 112
Wayne, PA 19087
Counsel for Appellee
CGB Occupational Therapy, Inc.
OPINION OF THE COURT
CHERTOFF, Circuit Judge:
This case concerns various Pennsylvania state law claims
arising out of a business dispute. It reaches us after a jury
returned a verdict in appellee’s favor and the District Court
denied appellant’s request for post-trial relief. Among other
things, we are obliged to interpret some of the contours of
the tort of interference with contractual relations under
Pennsylvania law.
Jurisdiction in the District Court was based on 28 U.S.C.
§ 1332(a), governing an action between diverse citizens
involving a claim for more than $75,000. We have
jurisdiction pursuant to 28 U.S.C. § 1291, as this is an
appeal from a final order of the District Court. We will
affirm in part and reverse in part, remanding for a re-
determination of punitive damages and further action in
conformity with this opinion.
3
I.
This case has been characterized by its contentious
history. Not surprisingly, the relevant facts are somewhat in
dispute. As both the party prevailing before the jury and
the non-movant in the post-trial motion for judgment as a
matter of law, appellee is entitled to have all reasonable
inferences drawn in its favor. See Johnson v. Campbell, 332
F.3d 199, 202, 204 (3d Cir. 2003); Becton Dickinson and
Co. v. Wolckenhauer, 215 F.3d 340, 343 (3d Cir. 2000). We
summarize the facts accordingly.
A.
Plaintiff/appellee CGB Occupational Therapy, Inc.
(“CGB”) is a provider of rehabilitation therapy services in
long-term care and assisted-living facilities. During the
relevant time period, CGB contracted with nursing home
facilities for the provision of therapeutic services and, once
under contract, provided each facility with trained
therapists and technicians.
Defendant RHA/Pennsylvania, Inc. (“RHA/Pennsylvania”)
owned two nursing home facilities, one in West Chester,
Pennsylvania (“Pembrooke facility”) and one in Prospect
Park, Pennsylvania (“Prospect facility”).1 At all times
relevant to this litigation, those facilities were managed by
one or more of appellants Sunrise Assisted Living, Inc.
(“Sunrise Assisted”); Sunrise Assisted Living Management,
Inc. (“Sunrise Management,” collectively with Sunrise
Assisted, “Sunrise”); or their predecessor entities.2 The
management agreement provided for Sunrise to be
1. Neither the role of defendant RHA Health Services, Inc. (“RHA Health”)
nor the distinction between RHA Health and RHA/Pennsylvania is clear
from the record. While various parts of the record seem to treat these
separately incorporated entities synonymously, no pleading asserted (nor
did the District Court conclude) that the corporate wall separating them
is a meaningless distinction or that the two entities are “alter-egos” of
each other. The matter is irrelevant for purposes of this appeal, however.
2. CGB’s amended complaint asserted that the distinction between
Sunrise Assisted and Sunrise Management was a fiction. The jury
agreed, and Sunrise has not challenged that determination on appeal.
We express no opinion on the subject.
4
RHA/Pennsylvania’s “managing agent.” The agreement also
stated that:
1.04 . . . Manager [Sunrise] shall on behalf of Owner
[RHA/Pennsylvania] manage all aspects of the
operation of the Facilities . . . . In connection with its
management of the operations of the Facilities,
Manager . . . shall use its best efforts to perform the
following services . . . :
(6) . . . contract for all necessary services for the
account of Owner, except that . . . any service
contract providing for payments in excess of
$10,000 shall be subject to prior approval of
Owner, and monitor the performance of the
suppliers of all contracted services and, in Owner’s
name, terminate such contracts when deemed by
Manager to be in the best interests of Owner; . . . .
A. 2883-85. A further provision stated:
(15) Manager shall be responsible for the coordination
of such ancillary services, including but not
limited to speech therapy, occupational therapy,
inhalation therapy, physical therapy, and rental
of equipment, as Manager may deem reasonable,
necessary or desirable in connection with the
operation of the Facilities and use such
consultants in connection therewith as manager
shall elect; . . . .
A. 2886.
On January 1, 1995, CGB entered into a contract with
RHA/Pennsylvania to provide therapy services (physical,
occupational, and speech) to the Pembrooke facility. A
similar agreement was executed on October 7, 1996,
whereby CGB would provide therapy services to the
Prospect facility. The agreements each contained an “anti-
raiding” clause, promising that in the event that CGB were
terminated as the provider of therapy services, the
Pembrooke and Prospect facilities would not seek to employ
or contract with CGB’s therapists (who were at-will,
independent contractors) for a period of twelve months. The
agreement with the Prospect facility also stated that the
5
CGB contract could be terminated for cause only upon
ninety days written notification specifying the cause upon
which termination was based. Further, the contract
provided CGB an opportunity to cure any defects in its
performance. If cured before the termination date, the
contract was to continue “in full force and effect.”
Changes to the federal Medicare program in 1998 altered
the way RHA/Pennsylvania was reimbursed for therapy
services provided to residents. The changes made it difficult
for RHA/Pennsylvania and its Pembrooke and Prospect
facilities to pay CGB, and the facilities stopped paying CGB
on June 30, 1998. That same day, Sunrise sent CGB
ninety-day termination notices for both the Pembrooke and
Prospect facilities. Each letter stated that the termination
was to be effective on September 30, 1998 and was due to
the facilities’ evaluation of CGB’s services “in light of
changes in the [Medicare reimbursement] system . . . .”
Under an agreement executed by Sunrise on behalf of
RHA/Pennsylvania on July 1, 1998, Symphony Health
Services, Inc. (“Symphony”) was retained as the new
therapy service provider at the Prospect facility effective
October 1, 1998.3 A similar agreement was executed
between Sunrise and Symphony on July 10, 1998 for
provision of services to the Pembrooke facility.
On July 31, 1998, despite a direct admonition by
RHA/Pennsylvania against doing so, Sunrise’s Prospect
Park Administrator, Ms. Marjorie Tomes, met with certain
CGB therapists. During that meeting, Ms. Tomes informed
the therapists that CGB had been terminated, that
Symphony would be the replacement therapy contractor,
and that there was the possibility of employment
opportunities with Symphony. Ms. Tomes also polled the
therapists for their interest in pursuing employment with
Symphony and wrote down the names of those who replied
in the affirmative.
On August 3, 1998, CGB’s lawyer sent a letter to Ms.
Tomes addressing her meeting with the therapists. The
3. The agreement was signed by a senior Vice President for Symphony in
late June of 1998, but was not signed by Sunrise until July 1, 1998.
6
letter acknowledged the fact of Ms. Tomes’s meeting with
CGB’s therapists and referred to her actions as
“appear[ing]” to have constituted tortious interference.
Also in August, RHA/Pennsylvania, through its lawyer,
sent a letter to CGB restating the reasons for termination
and stating that the decision to terminate was irrevocable.
The letter was in response to a series of letters and
telephone messages from CGB’s president to various
RHA/Pennsylvania and Sunrise executives seeking a
specific statement of “cause” for termination, opportunity to
cure, and reinstatement of the contract. On September 28,
1998, CGB sent a final letter to Sunrise, stating that it had
yet to receive notice of adequate “cause” for termination.
The letter also attempted to resolve the therapist
recruitment issue.4
At various times in September 1998, several of CGB’s
therapists signed contracts with Symphony. The therapists
continued working for CGB, however, until Symphony
officially began providing services at the Pembrooke and
Prospect facilities. On September 30, 1998,
RHA/Pennsylvania terminated CGB. On October 1, 1998,
Symphony began providing therapy services at the
Pembrooke and Prospect facilities. On that same day, those
among CGB’s therapists that had signed contracts with
Symphony officially left their posts as at-will therapists with
CGB and began working for Symphony.
B.
Two years—less two days—later, on September 28, 2000,
CGB, a citizen of Pennsylvania, sued Sunrise Assisted, a
Delaware corporation having its principal place of business
in Virginia; RHA Health, a North Carolina non-profit
corporation having its principal place of business in
Georgia; Symphony, a Delaware corporation having its
principal place of business in Maryland;5 and
4. Additional letters were sent by CGB to Symphony on September 16,
1998 and September 30, 1998. In the interim, CGB and Symphony
attempted, without success, to resolve the dispute over Symphony’s
recruitment of CGB’s therapists.
5. This Circuit employs the “center of corporate activities” test to
determine a corporation’s principal place of business. See Kelly v. United
7
RHA/Pennsylvania, a Georgia corporation.6 On December
States Steel Corp., 284 F.2d 850, 854 (3d Cir. 1960); Grand Union
Supermarkets of the Virgin Islands, Inc. v. H.E. Lockhart Mgmt., Inc., 316
F.3d 408, 410 (3d Cir. 2003). CGB’s complaint and amended complaint
allege “corporate offices” for defendants Symphony, Sunrise Assisted,
Sunrise Management, and RHA Health. For purposes of this appeal, we
will accept that pleading as an adequate, and accurate, pleading of the
principal places of business of these defendants.
6. CGB named RHA/Pennsylvania in the suit as the entity doing
business as Prospect Park Rehabilitation Center (also doing business as
Prospect Park Nursing Center and Prospect Park Health and
Rehabilitation Residence) and separately as the entity doing business as
Pembrooke Nursing and Rehabilitation Center (also doing business as
Pembrooke Nursing and Rehabilitation Residence, which was formerly
known as West Chester Arms Nursing and Rehabilitation Center).
No pleading in this case alleges a principal place of business for
defendant RHA/Pennsylvania. The record available to us strongly
suggests that RHA/Pennsylvania would be deemed to be a citizen of
Pennsylvania under this Circuit’s “center of corporate activities” test. See
Kelly, 284 F.2d at 854. As such, the requirement of complete diversity,
which is ordinarily measured at the time the action was filed, was likely
lacking and the District Court was probably without subject matter
jurisdiction to entertain the case. See Grand Union, 316 F.3d at 410. But
several courts have observed that “[w]here the case proceeds to trial and
judgment, issues of judicial economy prevail,” indicating that courts
should strive to cure jurisdictional defects, rather than dismiss for want
of jurisdiction, in cases that have already proceeded to trial and
judgment. See Caterpillar Inc. v. Lewis, 519 U.S. 61, 75 (1996); Knop v.
McMahan, 872 F.2d 1132, 1139 (3d Cir. 1989); United Republic Ins. Co.,
in Receivership v. Chase Manhattan Bank, 315 F.3d 168, 169 (2d Cir.
2003). Moreover, it is well established that courts, both district and
circuit alike, have the power under Fed. R. Civ. P. 21 to dismiss
dispensable parties to the suit in order to preserve diversity. See
Newman-Green, Inc. v. Alfonzo-Larrain, 490 U.S. 826, 837-38 (1989).
While it certainly cannot be contended that RHA/Pennsylvania was a
dispensable party, CGB’s claims against RHA/Pennsylvania were
dismissed with prejudice on May 22, 2001, when the parties settled their
dispute. Thus, the jurisdictional defect in the case with respect to
RHA/Pennsylvania was cured, and the case proceeded to trial and to
judgment in the presence of complete diversity.
We should not need to underscore the importance of adequately
pleading and proving diversity. CGB’s claims were rescued from a
jurisdictional precipice when it settled and dismissed its claims against
RHA/Pennsylvania, and the case went to trial without challenge to the
District Court’s jurisdiction.
8
13, 2001, pursuant to leave granted by the District Court,
CGB filed an amended complaint adding Sunrise
Management, a Virginia corporation having its principal
place of business in Virginia. CGB brought suit in the
Eastern District of Pennsylvania, based on diversity
jurisdiction, alleging tortious interference with CGB’s
contractual relations with RHA/Pennsylvania; tortious
interference with CGB’s relationship with its therapists;
breach of contract; and conversion. In addition, CGB
sought to pierce the corporate veil separating Sunrise
Assisted from Sunrise Management, its wholly-owned
subsidiary, asserting that any distinction between the two
was a fiction.
By the time the case was tried over a year later, the only
parties adverse to CGB in the District Court case were the
Sunrise defendants.7 The case was tried to a jury from June
10, 2002 to June 13, 2002. The jury unanimously found
that Sunrise tortiously interfered with the contracts
between CGB and the Pembrooke and Prospect facilities.
The verdict returned compensatory damages for that
interference in the amount of $576,000. The jury’s verdict
also specified that each of the Sunrise defendants tortiously
interfered with the contracts between CGB and CGB’s own
therapists. The verdict returned compensation for that
interference in the amount of $109,000. The jury awarded
CGB punitive damages in the amount of $1,300,000, but
the verdict form did not specify how the punitive damages
award was allocated between the two instances of
interference.
On June 24, 2002, Sunrise moved for post-trial relief.
Sunrise requested that the District Court enter judgment as
7. On February 9, 2001, the District Court noted a suggestion of
bankruptcy by defendant Symphony. On May 22, 2001, CGB settled
with RHA Health and RHA/Pennsylvania and its claims against the two
RHA defendants were dismissed with prejudice. On May 25, 2001, the
District Court noted a suggestion of bankruptcy by the two RHA
defendants.
The Sunrise defendants’ second amended answer had asserted a
cross-claim against RHA Health. That claim was stayed when RHA
Health entered bankruptcy.
9
a matter of law on its behalf, notwithstanding the jury
verdicts. Sunrise alternatively contended that it was
entitled to a new trial due to alleged juror misconduct and
the District Court’s denial of its motion for a continuance.
The District Court denied Sunrise’s post-trial motions and
entered a final order on November 6, 2002. Sunrise timely
appealed.
On appeal, Sunrise contends that (1) the case should
have been dismissed because the applicable two year
statute of limitations ran before CGB filed the action;8 (2)
the District Court should have granted its post-trial motion
for judgment as a matter of law because CGB failed to
establish several necessary elements of both claims of
tortious interference; (3) the jury’s verdict with respect to
punitive damages should be overturned because without
the tortious interference claims CGB’s contentions are
reduced to mere breach of contract claims, for which
punitive damages are not available; (4) it is entitled to a
new trial because the District Court wrongly refused to
grant its request for a continuance in light of the
unavailability of one of its witnesses; and (5) the District
Court erred when it declined to grant a new trial in light of
allegations that one juror violated court instructions by
relying on information outside the record during
deliberations.
We exercise plenary review over a district court’s denial of
judgment as a matter of law. Johnson v. Campbell, 332
F.3d 199, 204 (3d Cir. 2003). In conducting our review, we
apply Pennsylvania law, see Erie R. Co. v. Tompkins, 304
U.S. 64, 78 (1938), and ask whether, “viewing the evidence
in the light most favorable to the non-movant and giving it
8. On July 9, 2001, the Sunrise defendants moved for summary
judgment asserting, inter alia, that CGB’s claims were barred by the
statute of limitations. Initially, the District Court granted that motion.
CGB Occupational Therapy, Inc. v. RHA Health Servs. Inc., 00-cv-04918,
Order Dated August 16, 2001. Upon CGB’s motion for reconsideration,
however, the District Court reversed its position, finding that the
limitations period had not run as of the filing of the action. CGB
Occupational Therapy, Inc. v. RHA Health Servs. Inc., 00-cv-04918, Order
Dated December 5, 2001. Sunrise renewed its plea for relief based on the
statute of limitations in its motion for post-trial relief.
10
the advantage of every fair and reasonable inference, there
is [ ]sufficient evidence from which a jury reasonably could
find liability.” W.V. Realty, Inc. v. Northern Ins. Co. of New
York, 334 F.3d 306, 311 (3d Cir. 2003). “We afford de novo
review to the district court’s conclusions of law, but review
factual findings to determine whether the evidence and
justifiable inferences most favorable to [the non-movant]
afford any rational basis for the verdict.” Barber v. CSX
Distrib. Servs., 68 F.3d 694, 698 (3d Cir. 1995) (internal
quotations and citations omitted). Although judgment as a
matter of law should be granted sparingly, more than a
scintilla of evidence is needed to sustain a verdict.
Accordingly, “we will grant [judgment as a matter of law]
where the record is critically deficient of the minimum
quantum of evidence in support of the verdict.” Johnson,
332 F.3d at 204 (internal quotations and citations omitted).
See also Foster v. National Fuel Gas Co., 316 F.3d 424, 428
(3d Cir. 2003).
II.
Pennsylvania courts apply the two year statute of
limitations of 42 Pa. C.S.A. § 5524(3) to tortious
interference with contractual relations claims. See, e.g.,
Bednar v. Marino, 646 A.2d 573, 577 (Pa. Super. Ct. 1994).
The statute of limitations begins to run when the
underlying cause of action accrues. Bohus v. Beloff, 950
F.2d 919 (3d Cir. 1991) (citing Pocono Int’l Raceway, Inc. v.
Pocono Produce, Inc., 468 A.2d 468 (Pa. 1983)).
According to Sunrise, CBG’s action was untimely because
under Pennsylvania law the appropriate accrual date for
tortious interference claims is the date on which the tort
victim receives notice of the allegedly interfering conduct.
Because CGB was notified of RHA/Pennsylvania’s intent to
terminate the therapy contract and of Ms. Tomes’s
recruiting conversation with CGB’s therapists before
September 28, 1998 (more than two years prior to the filing
of the action), Sunrise argues, CGB’s claims are beyond the
limitations period. Sunrise dismisses the fact that the
contract at issue and the at-will employment relationships
were not actually terminated until September 30, 1998.
11
The Pennsylvania Supreme Court and this Court have
repeatedly admonished, however, that a statute of
limitations begins to run only once a plaintiff can assert
and maintain an action. See, e.g., Pocono Int’l Raceway,
468 A.2d 471; Bohus, 950 F.2d at 924. In other words, “[a]
claim under Pennsylvania law accrues at ‘the occurrence of
the final significant event necessary to make the claim
suable.’ ” Barnes v. American Tobacco Co., 161 F.3d 127,
136 (3d Cir. 1998) (internal citation omitted).
Under Pennsylvania law, a cause of action for tortious
interference with contractual relations has the following
elements:
(1) the existence of a contractual, or prospective
contractual relation between the complainant and a
third party; (2) purposeful action on the part of the
defendant, specifically intended to harm the existing
relation, or to prevent a prospective relation from
occurring; (3) the absence of privilege or justification on
the part of the defendant; and (4) the occasioning of
actual legal damage as a result of the defendant’s
conduct.
Crivelli v. General Motors Corp., 215 F.3d 386, 394 (3d Cir.
2000); see also Pawlowski v. Smorto, 588 A.2d 36, 39-40
(Pa. Super. Ct. 1991). Thus a tortious interference claim
does not accrue until, at least, the plaintiff suffers injury
(i.e., “actual legal damage”) as a result of the defendant’s
conduct.
Here, CGB did not suffer “actual legal damage” until the
termination of its contract with RHA/Pennsylvania became
effective on September 30, 1998. Even though the allegedly
interfering acts were launched before that date—
RHA/Pennsylvania notified CGB of its intent to terminate
the contract on June 30, 1998, for example—the tort was
not consummated until the contract was terminated on
September 30, 1998 and legal damage was sustained. Until
that time, the existing contract was in full force and effect,
and any termination was revocable.
Likewise, CGB did not suffer legal damage when Sunrise
met with CGB’s therapists and encouraged them to leave
CGB to join Symphony. That certain of CGB’s at-will
12
therapists subjectively decided to seek other employment
did not legally damage CGB. It was only their departure
from the rolls of CGB that occasioned legal damage. And
until September 30, 1998, there was no exodus of
therapists from CGB.
The cases cited by Sunrise to support its position that
the mere notice of termination triggered the claim and the
limitations period are inapposite. They flow from the so-
called “discovery rule,” whereby the “inability of the injured,
despite the exercise of due diligence, to know of the injury
or its cause” tolls the running of the statute of limitations
“until such time as the plaintiff discovers, or reasonably
should have discovered” the injury. Pocono Int’l Raceway,
468 A.2d at 471. But Sunrise attempts to take that
unremarkable proposition—that the statute of limitations
should be postponed where the victim is unaware of the
injury—and reverse it, so as to mandate that the statute of
limitations accelerates when the victim becomes aware that
he will suffer injury in the future. That is logically
fallacious. The “discovery rule” has nothing to do with this
case.9
III.
Sunrise contends that (1) CGB did not establish an
actual injury in fact as a result of Sunrise’s alleged
interference with the contract between CGB and
RHA/Pennsylvania; (2) Sunrise’s termination and
replacement of CGB as therapy provider was within the
scope of its authority as RHA/Pennsylvania’s agent and
therefore privileged against a claim of tortious interference;
and (3) CGB failed to prove that Sunrise acted with
tortiously culpable intent in recruiting CGB’s therapists.
We can quickly dispose of Sunrise’s first contention—we
agree with the District Court and find that there was
9. The situation in this case is like one person telling another that, in
three months, he intends to trespass. The tort of trespass has not
occurred until the victim’s property is entered by the tortfeasor. That the
victim was informed in advance of the inevitable does not alter the
accrual of his damages action for trespass.
13
adequate evidence that CGB sustained actual injury in fact
as a result of the allegedly interfering acts.10 Sunrise’s
remaining two arguments require further analysis.
A.
As noted above, in order to make out a claim of tortious
interference with contractual relations, a plaintiff must
show “the absence of privilege or justification on the part of
the defendant.” Crivelli, 215 F.3d at 394. The actions of a
principal’s agent are afforded a qualified privilege from
liability for tortious interference with the principal’s
contract. See Maier v. Maretti, 671 A.2d 701, 707 (Pa.
Super. Ct. 1995); Daniel Adams Assoc. v. Rimbach Pub.,
Inc., 519 A.2d 997, 1000 (Pa. Super. Ct. 1987); Laird v.
Clearfield & Mahoning R.R., 59 Pa. D. & C.4th 556, 562
(Court of Common Pleas, Clearfield County 2001); see also
Labalokie v. Capitol Area Intermediate Unit, 926 F. Supp.
503, 509 (M.D. Pa. 1996).
The reason for this privilege is that holding an agent
liable would be like holding the principal itself liable for the
tort of interfering with its own contract, instead of holding
the principal liable for breach of contract. The agent’s
privilege is qualified, however, because it applies only when
the agent is acting within the scope of its authority. Maier,
671 A.2d at 707; Daniel Adams, 519 A.2d at 1000;
Labalokie, 926 F. Supp. at 509. Conversely, an agent may
be liable for tortious interference, just as if the agent were
an outside third party, if the allegedly interfering acts were
conducted outside the scope of the agent’s authority.
Labalokie, 926 F. Supp. at 509.
At trial and in this Court, CGB argued that Sunrise acted
10. Sunrise argues that CGB could not have proven legal damage for its
termination because as of June 30, 1998, CGB was not being paid by
RHA/Pennsylvania for its services and therefore was operating its
therapy contract at an economic loss. So, Sunrise contends, any
interference with the contract actually saved CGB from losing more
money. We find no merit to this argument. Legal damage occurs through
loss of a legal right to which one is entitled, even if that right is a claim
for payment, rather than the payment itself.
14
outside the scope of its authority in interfering in CGB’s
contract with RHA/Pennsylvania in three ways.11
First, CGB asserts that Sunrise exceeded its authority
when it recommended that RHA/Pennsylvania terminate
CGB as therapy provider. CGB argues that
RHA/Pennsylvania expressly authorized Sunrise to do only
two things: (1) physically send the termination letters to
CGB; and (2) discuss the termination letters with CGB’s
president before those letters were sent. CGB contends,
therefore, that, unless Sunrise received direct and explicit
authorization from RHA/Pennsylvania to recommend
termination of the CGB contract, Sunrise’s actions
exceeded the scope of its authority.
CGB’s claim rests on an overly restrictive reading of
Sunrise’s authority as an agent of RHA/Pennsylvania. The
agreement between Sunrise and RHA/Pennsylvania —
which, as CGB concedes, governs the scope of Sunrise’s
agency authority — provided as follows:
Manager shall be responsible for the coordination of
. . . physical therapy, . . . and use such consultants in
connection therewith as manager shall elect.
Manager shall on behalf of Owner . . . monitor the
performance of the suppliers of all contracted services
and, in Owner’s name, terminate such contracts when
deemed by Manager to be in the best interests of
Owner; . . . .
A. 2885-86 (emphasis added). This plain language
unequivocally granted Sunrise the express authority to
terminate therapy contracts on behalf of RHA/Pennsylvania
without prior approval where termination is in
11. The parties do not dispute that an agency relationship existed
between RHA/Pennsylvania and Sunrise; the agreement between
RHA/Pennsylvania and Sunrise makes as much clear. Basile v. H & R
Block, Inc., 761 A.2d 1115, 1120 (Pa. 2000) (“[T]he three basic elements
of agency are: the manifestation by the principal that the agent shall act
for him, the agent’s acceptance of the undertaking and the
understanding of the parties that the principal is to be in control of the
undertaking.”) (internal quotations omitted). They only dispute the scope
of Sunrise’s authority as RHA/Pennsylvania’s agent.
15
RHA/Pennsylvania’s interest. It is absurd to suggest that
the management agreement provided Sunrise the power to
unilaterally terminate, but not the implicit authority to
recommend termination. An agent is entitled to act under
implicit, as well as express, authority. See Bolus v. United
Penn Bank, 525 A.2d 1215, 1221 (Pa. Super. Ct. 1987); see
also Restatement (Second) of Agency § 7 cmt. c (1958).
Implied authority, under Pennsylvania law, is “authority to
bind the principal to those acts of the agent that are
necessary, proper and usual in the exercise of the agent’s
express authority.” Bolus, 525 A.2d at 1221. Here, the
authority to recommend termination was surely “necessary,
proper and usual” in the exercise of the express authority
to terminate.
Furthermore, the agreement also imposed on Sunrise an
affirmative duty to “be responsible for the coordination of
. . . physical therapy” and “monitor the performance of the
suppliers of all contracted services.” A. 2885-86. Implicit in
Sunrise’s express authority to coordinate physical therapy
and monitor suppliers’ performance is the authority to
recommend the termination of therapy contractors if
Sunrise felt termination to be in RHA/Pennsylvania’s
interest. Had Sunrise failed to do so, it would likely have
violated its fiduciary obligations to its principal,
RHA/Pennsylvania.
CGB could only rebut Sunrise’s explicit and implicit
authority to terminate by presenting some evidence that
Sunrise was acting for an interest adverse to its principal’s.
CGB did not do so. We must conclude that Sunrise was
privileged when it recommended to RHA/Pennsylvania that
CGB be terminated.
Second, CGB argues that Sunrise acted outside its
authority because it did not allow CGB an opportunity to
cure its performance. To support its contention, CGB
asserts that RHA/Pennsylvania specifically directed Sunrise
to provide CGB with an opportunity to cure any failure of
performance, and that Sunrise failed to comply. Appellee’s
Br. at 36. CGB concludes that by failing to follow
RHA/Pennsylvania’s express mandate, Sunrise acted
outside the scope of its authority.
16
An agent’s disregard of his principal’s instructions does
not necessarily place his actions outside the scope of his
authority. See Restatement (Second) of Agency § 230.12 But
we need not decide in this case whether deviation from a
principal’s instructions can rise to the degree that actually
exceeds the scope of an agent’s authority. For here, there is
simply no evidence Sunrise violated a specific instruction
from RHA/Pennsylvania to provide CGB with an
opportunity to cure. All RHA/Pennsylvania did instruct was
that Ms. Tomes “handle [the termination of CGB]
appropriately.” A. 2216. Nothing in the record establishes
that Ms. Tomes or any other member of Sunrise was
specifically directed, by RHA/Pennsylvania’s John West or
by anyone else, to provide CGB an opportunity to cure.
Absent such a direction, the instruction to “handle” the
termination “appropriately” actually recapitulates the
delegation to Sunrise of general agency authority to
“manage all aspects of the operation of the Facilities . . .”
and “terminate such contracts when deemed by Manager to
be in the best interests of Owner . . . .”13 A. 2883-85.
Third, CGB asserts that Sunrise exceeded the scope of its
agency when it signed two contracts with Symphony as a
replacement therapy contracting company. CGB highlights
portions of the management agreement that require
RHA/Pennsylvania’s approval if Sunrise seeks to bind
RHA/Pennsylvania to new contracts for more than $10,000.
To the extent that CGB complains that Sunrise’s
negotiation of the Symphony contracts constituted action
outside the scope of its authority, CGB is again defeated by
the language of the agency agreement itself. The agreement
grants Sunrise the broad authority to “contract for all
12. Comment b of section 230 goes further, stating: “A master cannot
direct a servant to accomplish a result and anticipate that he will always
use the means which [the principal] directs . . . .” Id. at cmt. b.
13. What the record does make clear, however, is that CGB was given an
opportunity to cure by RHA/Pennsylvania directly. RHA/Pennsylvania’s
John West testified that he, RHA/Pennsylvania’s counsel, and CGB’s
Cindy Brillman conducted negotiations on several occasions regarding
CGB’s ability to cure. Presumably, this fulfilled CGB’s contractual right
to an opportunity to cure. Significantly, Sunrise was not part of this
attempted “cure” process.
17
necessary services for the account of Owner,” with the only
limitation being that “any service contract providing for
payments in excess of $10,000 shall be subject to prior
approval of Owner . . . .” A. 2883. The quoted language
authorized Sunrise to negotiate for a replacement for CGB,
withholding only RHA/Pennsylvania’s final approval
authority for the new contracts.14
On the other hand, insofar as Sunrise actually signed the
Symphony contracts, CGB is correct that Sunrise exceeded
its authority. But Sunrise’s execution of the new contracts
did not amount to interference with the separate contracts
between CGB and RHA/Pennsylvania. Under its
management contract with RHA/Pennsylvania, Sunrise had
the unrestricted authority to terminate CGB, which was
separate and distinct from Sunrise’s authority to negotiate
new contracts. A. 2884-85 at item (6). The only action by
Sunrise arguably not within the scope of any authority was
the actual signing of the new contracts with Symphony. If
Sunrise was acting outside the scope of its authority in
executing the new agreements, that fact does not vitiate its
distinct authority to terminate the former agreements.
Moreover, RHA/Pennsylvania later approved the Symphony
contracts, thereby ratifying Sunrise’s signature. And, most
important, Sunrise’s signing of the new contracts did not
cause CGB’s termination. Sunrise’s execution of the
contract for CGB’s replacement is simply legally irrelevant
to its authority to terminate CGB.
The verdict on this claim must therefore be reversed.
B.
Sunrise contends that CGB failed to prove that Sunrise
acted with tortiously culpable intent when it recruited
CGB’s therapists for CGB’s replacement therapy provider.
CGB’s claim, of course, asserts that Sunrise interfered in
the relationship between CGB and the CGB at-will
14. It seems to us that the interest this clause was intended to protect
was that of the principal, preventing Sunrise from obligating its principal
to a major and disadvantageous contract without RHA/Pennsylvania’s
prior approval.
18
employees. Therefore, no issue of agency privilege arises
because Sunrise was not CGB’s agent. The question
presented, instead, is whether intermeddling by a third
party (Sunrise) in the relationship between an employer and
its at-will employees is an actionable tort. In Pennsylvania:
Offering employment to another company’s at-will
employee is not actionable in and of itself. Albee
Homes, Inc. v. Caddie Homes, Inc., 207 A.2d 768, 771
(Pa. 1965). However, systematically inducing employees
to leave their present employment is actionable ‘when
the purpose of such enticement is to cripple and
destroy an integral part of a competitive business
organization rather than to obtain the services of
particularly gifted or skilled employees.’ Id., at 771(quoting Morgan’s Home Equipment Corp. v. Martucci,
136 A.2d 838, 847 (Pa. 1957)). Further, when the
inducement is made for the purpose of having the
employees commit wrongs, such as disclosing their
former employer’s trade secrets or enticing away his
customers, the injured employer is entitled to
protection. Albee Homes, 207 A.2d at 771 (citation
omitted).
Reading Radio, Inc. v. Fink, 833 A.2d 199, 212 (Pa. Super.
Ct. 2003). Additionally, Section 768 of the Second
Restatement of Torts states, in relevant part:
(1) One who intentionally causes a third person . . . not
to continue an existing contract terminable at will does
not interfere improperly with the other’s relation if
(a) the relation concerns a matter involved in the
competition between the actor and the other and
(b) the actor does not employ wrongful means and
(c) his action does not create or continue an unlawful
restraint of trade and
(d) his purpose is at least in part to advance his
interest in competing with the other.
Restatement (Second) of Torts § 768 (1979). Thus, with
respect to Sunrise’s interference with CGB’s at-will
therapists, the issue is not whether Sunrise’s actions were
19
outside the scope of its authority as RHA/Pennsylvania’s
agent, but rather whether its actions were “wrongful.”
In defining “wrongful means,” the comment to Section
768 provides: “[t]he predatory means discussed in § 767,
Comment c, physical violence, fraud, civil suits and
criminal prosecutions, are all wrongful in the situation
covered by this Section.” Id. at cmt. e. “[C]ourts, relying
partly on [Comment e of section 768], have interpreted the
wrongful means element of § 768 to require independently
actionable conduct on the part of the defendant.” Brokerage
Concepts, Inc. v. U.S. Healthcare, Inc., 140 F.3d 494, 531
(3d Cir. 1998) (citing DP-Tek, Inc. v. AT&T Global
Information Solutions Co., 100 F.3d 828, 833-35 (10th Cir.
1996)). “Under this standard, wrongful means are those
that are themselves capable of forming the basis of liability
for the defendant.” Id. In National Data Payment Systems v.
Meridian Bank, 212 F.3d 849, 857 (3d Cir. 2000), we
recognized that the Pennsylvania courts have adopted the
approach set forth in Section 768 of the Second
Restatement of Torts. We noted that the Pennsylvania
courts have yet to adopt a definition for “wrongful means,”
but predicted that the Pennsylvania courts would adopt a
meaning that included conduct that was “independently
actionable.” See id. at 858. The Pennsylvania courts have
yet to disagree.
Here, Sunrise breached its fiduciary duty to
RHA/Pennsylvania when it disobeyed RHA/Pennsylvania’s
direct order not to recruit CGB’s at-will therapists. That
breach of fiduciary duty is independently actionable
conduct, although the cause of action would belong to the
principal — RHA/Pennsylvania — and not a third party —
CGB. But that does not matter. Even though CGB has no
standing to sue Sunrise for Sunrise’s breach of fiduciary
duty to RHA/Pennsylvania, Sunrise’s breach still meets the
test of conduct that is “independently actionable.” Conduct
that is independently actionable by anyone is sufficiently
“wrongful” to satisfy the requirements of the tort of
interference.
We so held in National Data. In that case, National Data
Payment Systems, Inc. (NDPS) sued Meridian Bank and
CoreStates Financial Group for interference with, and
20
breach of, a contract for NDPS to purchase Meridian’s
merchant credit card business. Id. at 851. The action arose
when Meridian repudiated the deal with NDPS after their
negotiation contract expired, and then sold the same
merchant credit card business to CoreStates. Id. In part,
Meridian based its decision to sell to CoreStates, rather
than NDPS, on statements made by CoreStates to Meridian
regarding the prospective depth and strength of
CoreStates’s merchant credit card business. Id. at 852-53.
NDPS alleged that CoreStates’s statements were fraudulent
and that its actions constituted interference. Id. at 858.
We first determined that the lapsed contract to negotiate
had become a contract terminable at-will. National Data,
212 F.3d at 857. We then applied Restatement section 768
as adopted by the Pennsylvania courts, and concluded that
the Pennsylvania courts would adopt a view of “wrongful
conduct” that included independently actionable conduct.
Id. at 857-58. Ultimately, we weighed CoreStates’s allegedly
fraudulent statement to Meridian to determine whether it
was independently actionable and therefore “wrongful,”
thus exposing CoreStates to liability to NDPS for
interference with the at-will contract between NDPS and
Meridian. Id. at 858. To be sure, we determined that
CoreStates’s statements did not meet the requirements of
Pennsylvania’s tort of fraud. But implicit in our analysis
was the understanding that a finding of fraudulent
statements by CoreStates to Meridian would be sufficient
wrongful conduct to sustain a tortious interference action
by a third-party, NDPS. Id. In short, we interpret the
“wrongful means” test to be satisfied by conduct sufficiently
wrongful to be actionable by someone, even if not by the
party claiming tortious interference.15
15. This view of independently actionable conduct makes sense under
the approach to interference with an at-will contract set forth in
Restatement section 768. The “independent actionability” test for
improper means is based, in part, on Comment e of Section 768’s
explication of “wrongful means,” but none of the “means” enumerated in
Comment e necessarily requires that the party seeking redress for the
interference also be entitled to sue over the underlying wrongful conduct.
See Restatement (Second) Torts § 768 cmt. e.
21
Sunrise’s recruitment of CGB’s at-will therapists was in
breach of Sunrise’s fiduciary duty to RHA/Pennsylvania
and independently actionable by RHA/Pennsylvania.
Accordingly, it was wrongful within the meaning of
Restatement Section 768. With clean hands, Sunrise may
have been entitled to approach CGB’s at-will therapists.
But when Sunrise breached the fiduciary duty it owed to
RHA/Pennsylvania in order to do so, it became subject to
liability for tortious interference with the contract between
CGB and CGB’s at-will therapists.
The jury was entitled to find, therefore, that Sunrise’s
actions were wrongful and tortious. Accordingly, the
District Court properly refused to grant judgment
notwithstanding the jury verdict on the claim against
Sunrise for tortious interference with the contract between
CGB and its therapists.
C.
The jury awarded CGB punitive damages for Sunrise’s
interference. But while the verdict form makes it clear that
the jury found that Sunrise tortiously interfered with both
the contract between CGB and RHA/Pennsylvania and the
contracts between CGB and its therapists, the form did not
differentiate among these acts of interference for purposes
of punitive damages. Thus, it is impossible to determine
how punitive damages should be allocated in light of our
determination that Sunrise could not have interfered with
the contract between CGB and RHA/Pennsylvania.
Consequently, we must reverse the punitive damage
determination and remand to the District Court for a re-
determination of punitive damages in accordance with this
opinion. See Rush v. Scott Specialty Cases, Inc., 113 F.3d
476, 485 (3d Cir. 1997); Woodson v. AMF Leisureland
Centers, Inc., 842 F.2d 699, 705 (3d Cir. 1988).
IV.
On the second day of trial, the District Court denied
Sunrise’s request for a continuance. The basis for Sunrise’s
request was the sudden illness—and consequent
unavailability—of one of Sunrise’s key witnesses, Ms.
22
Tomes. Appellants contend that it was a prejudicial abuse
of the District Court’s discretion to deny that continuance.
In Gaspar v. Kassm, 493 F.2d 964 (3d Cir. 1974), we
determined that the district court had abused its discretion
in refusing to grant a continuance where the defendant was
shown to be ill and unavailable. We stated:
It is customary to grant a continuance on the ground
of illness of a party. We conclude that Kassm’s
testimony was necessary for the defense of his case,
that the granting of a continuance would not have
unduly prejudiced the other parties, and that the
continuance motion was not motivated by
procrastination, bad planning or bad faith on the part
of Kassm or his counsel. It is the law that where none
of the foregoing appear, the denial of a continuance for
illness is abuse of discretion.
Id. at 969. Appellants make much of the last sentence and
suggest that we intended to establish a per se rule that—in
the absence of evidence of procrastination, bad faith, or bad
planning—a district court must grant a continuance lest it
abuse its discretion. We hesitate to read our holding in
Gaspar as a per se rule, in part, because the holding
speaks in terms of discretion.16
In any case, the District Court did not abuse its
discretion even under the broadest reading of Gaspar. The
District Court observed that Sunrise “was required, as per
[the District Court]’s Pretrial Trial Procedure as well as
various orders, to have Ms. Tomes available in Court and
ready to testify on the morning of June 10, 2002,” but that,
without explanation, Sunrise did not do so. CGB
Occupational Therapy, Inc. v. RHA Health Servs. Inc., 00-cv-
04918, Order Dated November 6, 2002, at 8. The District
Court questioned whether Sunrise “planned to prevent
16. Additional pause is warranted in light of more recent cases indicating
that the appropriate test for a district court’s refusal to grant a
continuance is abuse of discretion, rather than any per se rule. See
EEOC v. State of Del. Dept. of Health and Social Servs., 865 F.2d 1408,
n. 20 (3d Cir. 1989); Concerned Citizens of Bushkill Tp. v. Costle, 592
F.2d 164, 173 (3d Cir. 1979).
23
[CGB] from calling Ms. Tomes during its case in chief.” Id.17
The District Court then observed that, had Ms. Tomes been
made available on June 10, as was required, her testimony
would have concluded before she became too ill to testify.
Faced with these facts, the District Court concluded that
“[Sunrise]’s motion was clearly the product of bad planning
and, most likely, bad faith.” Id. at 7. The District Court was
well situated to determine these fact- and credibility-laden
questions and did not abuse its discretion.
V.
Sunrise’s motion for post-trial relief included an
allegation that, on the eve of juror deliberations, Juror
Number 2 circumvented the District Court’s repeated
admonitions and conducted independent factfinding related
to the case. Specifically, Sunrise alleged that the juror used
the Internet to conduct research into Sunrise’s financial
stability and that, during deliberations, he relied on the
fruits of that research in determining a punitive damages
amount. Although Sunrise’s post-trial motion, dated June
24, 2002, marked the first time the District Court was
made aware of such allegations, Sunrise asserted that
Juror Number 2 personally admitted to his misconduct
immediately after trial and in the presence of counsel for
both CGB and Sunrise.
The District Court, mindful of the time lag between the
verdict and the allegation, the problem of proving such
allegations, and the circumspection appropriate in juror
misconduct inquiries,18 declined to subpoena the jury or
declare a mistrial. Instead, the District Court assumed
Sunrise’s allegations to be true and concluded that the
alleged misconduct did not taint the results of the verdict.
“In every case where the trial court learns that a member
or members of the jury may have received extra-record
information with a potential for substantial prejudice, the
17. Sunrise’s briefs challenge the District Court’s determination and ask
why Sunrise would want to keep Ms. Tomes, a key witness in its case,
from testifying. We decline to plumb the depths of these motivations.
18. See Tanner v. United States, 483 U.S. 107, 120 (1987).
24
trial court must determine whether the members of the jury
have been prejudiced.” Gov’t of the Virgin Islands v.
Dowling, 814 F.2d 134, 139 (3d Cir. 1987). In inquiring into
allegations of juror misconduct, a district court must first
establish whether or not extraneous information was
introduced into jury deliberations, and then must make an
objective assessment of how the information would affect
the hypothetical average juror. Wilson v. Vermont Castings,
Inc., 170 F.3d 391, 394 (3d Cir. 1999). This Court reviews
a district court’s investigation of juror misconduct for an
abuse of discretion. Id.We, like the District Court, will assume that all of the
alleged acts of misconduct actually occurred. Because the
District Court declined to subpoena Juror Number 2, there
is nothing in the record that illuminates the nature of the
information impermissibly gathered, other than that it was
“financial” in nature. But neither party disputes that this
“financial information” could only have been relevant to the
jury’s determination of the amount of punitive damages. We
have already determined that the jury’s punitive damages
determination must be reversed and the case remanded for
a new trial on the question of punitive damages. We need
not, therefore, determine whether the District Court erred
in failing to grant a new trial because the reversal of the
punitive damages determination moots the alleged juror
misconduct.
VI.
For the foregoing reasons, the judgment of the District
Court entered on November 6, 2002 will be affirmed in part
and reversed in part, and the case will be remanded for
future proceedings in conformity with this opinion.
A True Copy:
Teste:
Clerk of the United States Court of Appeals
for the Third Circuit