Whitesand Research v. Sehn, P.

J-A02041-18
NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37
WHITESAND RESEARCH, LLC, IN THE SUPERIOR COURT
OF
PENNSYLVANIA
Appellant
v.
PATRICK F. SEHN, AN INDIVIDUAL,
AND STEADY STATE MEDIA, LLC, A
LIMITED LIABILITY COMPANY,
Appellees No. 1123 WDA 2017
Appeal from the Order entered July 6, 2017,
in the Court of Common Pleas of Allegheny County,
Civil Division, at No(s): GD-17-001786.
BEFORE: BOWES, J., OLSON, J., and KUNSELMAN, J.
MEMORANDUM BY KUNSELMAN, J.: FILED JUNE 07, 2018
WhiteSand Research, LLC, appeals from the trial court’s order sustaining
Patrick Sehn and Steady State’s preliminary objections and dismissing the
complaint against them. Concluding that WhiteSand alleged sufficient facts in
its amended complaint to establish most of the claims against Patrick Sehn
and Steady State, we affirm in part and reverse in part and reinstate several
claims.
The well-plead facts averred in the amended complaint, which we must
accept as true, are as follows:
WhiteSand is a limited liability company in the business of selling and
marketing investment research reports to brokerage firms, conducting
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investment research, providing consulting services and performing executive
searches and recruiting. WhiteSand’s predecessor, Global Marketing Partners,
was engaged in these same business activities.
Stephanie Sehn, Patrick Sehn’s wife, started working for Global
Marketing Partners in 2003. In 2010, she became a member of Global. To
do so, she was required to sign a non-disclosure agreement (NDA). Upon the
merger of WhiteSand and Global, Stephanie continued as a member of
WhiteSand, owning a 12.5 percent interest, and served as the chief sales
person. WhiteSand succeeded to the rights under the NDA Stephanie had
signed with Global. Pursuant to this contract, Stephanie agreed that she
would hold certain information confidential including, in particular, potential
transactions, business opportunities and customer lists and information.
Failure to do so would result in harm to WhiteSand and entitle it to monetary
damages and other remedies.
While working for WhiteSand, Stephanie travelled to New York City and
other cities. Stephanie told David McMullin Jr., WhiteSand’s manager and
majority member, that these trips were for marketing and selling WhiteSand’s
research; WhiteSand paid for this travel, including airplane flights. On
average, Stephanie brought in $287,000 in revenues annually. However, in
the year preceding Stephanie’s resignation, her sales plummeted to $7,500.
Stephanie told McMullin that her lack of sales was because big investment
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banks were providing free research, so no one wanted to pay for it. She also
told him that the type of research offered by WhiteSand was not in demand.
Unbeknownst to WhiteSand, and while working for WhiteSand,
Stephanie also worked for Steady State, a company solely owned by her
husband, Patrick. She did so on WhiteSand’s time and at its expense.
Moreover, she used WhiteSand’s computer and cell phone, among other
resources, as did Patrick, to conduct Steady State’s business and for their own
personal benefit and that of Steady State. Steady State accepted Stephanie’s
work knowing that she was diverting WhiteSand’s time and resources for its
own benefit.
Late in November 2015, McMullin decided to expand WhiteSand’s
business to provide executive searches for financial firms and other
businesses. WhiteSand hired a professional in this field to teach Stephanie
how to set up an executive search business for WhiteSand. In the months
thereafter, when McMullin inquired as to the status of the executive search
program, Stephanie told him that it was still in the developmental stage and
not yet operational. Stephanie asked for extra compensation to run this part
of the business, but McMullin refused.
After thirteen years at the company, Stephanie terminated her
employment with WhiteSand on February 24, 2016. McMullin told Stephanie
to return the computer and any other personal property of WhiteSand in her
possession. She did not return the computer until over a week later and did
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not return any of the other confidential information she had received during
her membership with WhiteSand and Global. During that week, Stephanie
and Patrick erased from the computer much of the business information on it.
They also used special software to ensure that normal recovery of erased or
deleted material could not be done. WhiteSand had to employ a forensics
engineer to recover most of the lost data. During these recovery efforts, it
was discovered that Stephanie had been operating an executive search
business for herself, while she reported to McMullin it was not operational.
Additionally, Stephanie had been using WhiteSand’s resources to operate her
own business of selling investment research. This recovery also showed that
Patrick had used the computer for his benefit and Steady State’s. He had
been helping Stephanie with her investment research operation and the
executive search business.
After leaving WhiteSand, Stephanie formed Block House, which like
WhiteSand, markets, sells and provides consulting services for investment
research. Block House also conducts executive searches.
Stephanie’s actions have depleted the assets of WhiteSand and severely
affected the continuing viability of WhiteSand. Moreover, as a result of the
Appellees’ actions, the value of WhiteSand has been greatly reduced.
Based upon these facts, WhiteSand and David McMullin Jr. filed suit
against Stephanie Sehn, Patrick Sehn, Block House and Steady State. In the
amended complaint, WhiteSand and McMullin asserted the following claims:
Count I - Fraud as to Stephanie, Patrick and Block House;
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Count II - Breach of Contract as to only Stephanie;
Count III - Tortious Interference with the Non-Disclosure Agreement as
to Patrick;
Count IV - Unjust Enrichment as to all Defendants;
Count V - Conversion as to all Defendants;
Count VI - Interference with Contractual Relations of WhiteSand’s clients
as to all Defendants; and
Count VII - Injunctive Relief.
Appellees filed preliminary objections, raising several arguments
including an objection in the nature of a demurrer on all counts as to all
Appellees. With respect to Patrick and Steady State, in particular, Appellees
contend that WhiteSand asserted no facts regarding the actions or
representations of these parties which would form a basis for the claims
asserted against them. Rather, they argue, these claims are derived solely
from the conduct and actions of Stephanie in conjunction with WhiteSand’s
claims of conspiracy.1
By Order dated July 6, 2017, the trial court overruled the preliminary
objections as to Stephanie and Block House, but sustained the preliminary
objections as to Patrick and Steady State. The trial court denied WhiteSand’s
motion for reconsideration. The trial court provided no detailed explanation
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1 WhiteSand does not set forth a separate count for conspiracy. However,
WhiteSand’s allegations that a conspiracy existed between Stephanie and
Patrick, coupled with allegations of tortious conduct, form the basis for a
claim of conspiracy as discussed infra.
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for its decision in either of these orders or its 1925(a) Opinion of September
5, 2017, only stating that “[Appellant has] failed to plead legally sustainable
causes of action against Defendants, Patrick Sehn or Steady State Media.”
The original plaintiffs, WhiteSand and David McMullin Jr., discontinued
the case without prejudice, as to Stephanie and Block House on July 31, 2017,
making the case against Patrick and Steady State ripe for appeal. This timely
appeal followed.2
WhiteSand raises the following issues on appeal:
1. Did [WhiteSand] state a cause of action for fraud against
[Patrick]?
2. Did [WhiteSand] state a cause of action for tortious interference
with contractual relations against [Patrick and Steady State] for
interfering with the non-disclosure agreement between Stephanie
and [WhiteSand]?
3. Did [WhiteSand] state a cause of action for tortious interference
with contractual relations against [Patrick] for interfering with the
sales agreements for investment research between [WhiteSand]
and its customers?
4. Did [WhiteSand] state a cause of action for unjust enrichment
against [Patrick and Steady State]?
5. Did [WhiteSand] state a cause of action for conversion against
[Patrick and Steady State]?
WhiteSand’s Brief at 4.
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2 Prior to the filing of the Notice of Appeal, David McMullin Jr. withdrew as a
plaintiff from the case.
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The relevant scope and standard of review in examining a challenge to
an order sustaining preliminary objections in the nature of a demurrer are as
follows:
Our review of a trial court’s sustaining of preliminary objections in
the nature of a demurrer is plenary. Such preliminary objections
should be sustained only if, assuming the averments of the
complaint to be true, the plaintiff has failed to assert a legally
cognizable cause of action. We will reverse a trial court’s decision
to sustain preliminary objections only if the trial court has
committed an error law or an abuse of discretion. All material
facts set forth in the complaint as well as all inferences reasonably
[deducible] therefrom are admitted as true for [the purpose of this
review]. The question presented by the demurrer is whether, on
the facts averred, the law says with certainty that no recovery is
possible. Where a doubt exists as to whether a demurrer should
be sustained, this doubt should be resolved in favor of overruling
it.
Lerner v. Lerner, 954 A.2d 1229, 1234 (Pa. Super. 2008) (internal citations
and quotations omitted).
We, therefore, must examine closely the allegations contained in the
amended complaint in the context of each cause of action. A careful review of
the allegations shows that WhiteSand has pled sufficient substantive facts to
establish several causes of action, contrary to Appellees’ position and the trial
court’s order.
Preliminarily, we note that WhiteSand’s claims against Patrick are in
large part premised upon the existence of an alleged conspiracy between
Patrick and Stephanie; this conspiracy is important to the success of
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WhiteSand’s claims.3 Specifically, WhiteSand argues that although Patrick did
not directly engage in certain conduct, a cause of action may nonetheless be
asserted against him because the conduct was taken in furtherance of the
conspiracy. WhiteSand, however, has not specifically asserted a separate
cause of action for conspiracy. We will first consider the impact of WhiteSand’s
conspiracy allegation upon this case.
The Pennsylvania Supreme Court set forth the elements of civil
conspiracy in Thompson Coal Co. v. Pike Coal Co., 412 A.2d 466, 472 (Pa.
1979). “[It] must be shown that two or more persons combined or agreed
with intent to do an unlawful act or to do an otherwise lawful act by unlawful
means.” Id. Proof of malice, i.e., an intent to injure is an essential part of a
conspiracy cause of action; this unlawful intent must also be without
justification. Id. Furthermore, a conspiracy is not actionable until “some
overt act is done in pursuance of the common purpose or design . . . and
actual legal damages result.” Baker v. Rangos, 324 A.2d 498, 506 (Pa.
Super. 1974) (citations omitted). However, a plaintiff need not aver
specifically the time, place or date for a conspiratorial meeting or the precise
date on which the conspiracy was entered. Smith v. Wagner, 588 A.2d 1308,
1312 (Pa. Super. 1991) (citing Baker, 324 A.2d at 507).
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3WhiteSand does not claim that Steady State engaged in this conspiracy.
See WhiteSand’s Reply Brief, p.10 n. 1.
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In Paragraphs 22 and 24 of the amended complaint, WhiteSand alleges
that Stephanie and Patrick entered into a conspiracy “to steal [WhiteSand’s]
business by appropriating [WhiteSand’s] commercial, intellectual and personal
property and by using [WhiteSand’s] resources to start up a competing
businesses [sic]. . . . All of the acts . . . undertaken by [Patrick] were
undertaken by him in furtherance of the conspiracy and were intended to
benefit not just him but [Stephanie] as well.” These allegations clearly
evidence an agreement by Patrick and Stephanie to commit an unlawful act
or act in an unlawful way. WhiteSand further alleged that Patrick and
Stephanie’s actions were based on an evil motive, meaning they acted with
malice. Lastly, WhiteSand alleged that Patrick and Stephanie’s actions
significantly damaged WhiteSand’s revenues and impacted the continuing
viability of WhiteSand. These facts support the existence of a civil conspiracy
between Patrick and Stephanie under the law.
Consequently, because Patrick was part of this conspiracy as alleged by
WhiteSand, WhiteSand claims that Patrick also engaged in the various torts
averred in the amended complaint and may be liable therefore. In essence,
because one member of the conspiracy, Stephanie, acted in a certain way,
i.e., committed fraud, in furtherance of the conspiracy, a claim for that same
tort, i.e., fraud, may be asserted against the non-acting member, Patrick.
In support of this theory, WhiteSand quotes the following from Church
Mut. Insur. Co. v. Allied Adjustment Group, 102 F.Supp.3d 719 (E.D. Pa.
2015), “a conspirator ‘may be liable for overt acts committed in furtherance
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of the conspiracy regardless of which co-conspirator committed the act.’”
Church Mut. Insur. Co., 102 F.Supp.3d at 732 (quoting Commonwealth v.
Yong, 120 A.3d 299, 312 (Pa. Super. 2015)). Relying on this, WhiteSand
argues that the amended complaint clearly states a cause of action for fraud,
unjust enrichment, tortious interference with contractual relations between
WhiteSand and its customers, and conversion against Patrick as his wife’s co-
conspirator.
Civil conspiracy, though typically not an independent cause of action, is
a “mechanism for subjecting co-conspirators to liability when one of their
member[s] committed a tortious act”; therefore, a plaintiff need not allege an
underlying tortious claim against every co-conspirator. See Tender Touch
Rehab. Services, LLC v. Brighten at Bryn Mawr, 26 F.Supp.3d 376, 405
(E.D. Pa. 2014). Thus, even though Patrick may not have engaged in some
of the tortious conduct himself, because Stephanie did, and the actions were
in furtherance of a conspiracy to defraud WhiteSand, WhiteSand can assert a
cognizable claim for civil conspiracy to commit the underlying tort against
Patrick. Although Stephanie is no longer a party, WhiteSand can still proceed
with its claims against Patrick, provided it proves that Patrick conspired with
Stephanie to commit the underlying tort. To succeed on these claims,
WhiteSand must prove all elements of a conspiracy and all elements of the
underlying tort; Patrick would be liable for committing the underlying tort
under the theory of co-conspirator liability, even if Stephanie completed the
tort.
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With this in mind, we will examine each of the causes of action asserted
against Patrick and Steady State.
Fraud
In its first issue on appeal, WhiteSand contends that the trial court erred
in concluding that it failed to state a claim for fraud.
To prove fraud, a plaintiff must demonstrate: (1) a
representation; (2) which is material to the transaction at hand;
(3) made falsely, with knowledge of its falsity or recklessness as
to whether it is true or false; (4) with the intent of misleading
another into relying on it; (5) justifiable reliance on the
misrepresentation; and (6) the resulting injury was proximately
caused by the reliance.
Gruenwald v. Advanced Computer Applications, Inc., 730 A.2d 1004,
1014 (Pa. Super. 1999) (internal quotations and citations omitted).
Within its amended complaint, WhiteSand alleged:
22. During her last 12 months of employment at [WhiteSand,
Stephanie and Patrick] formed a conspiracy on their own behalf to
steal [WhiteSand’s] business by appropriating [WhiteSand’s]
commercial, intellectual[,] and personal property and by using
[WhiteSand’s] resources to start up a competing business[].
23. The approach which [Stephanie and Patrick] followed with
respect to [WhiteSand] was on[e] which [Patrick] and Steady
State had followed in stealing the business of [Patrick’s] former
employer.
24. All of the acts described in this complaint as being undertaken
by [Patrick] were undertaken by him in furtherance of the
conspiracy and were intended to benefit not just him but
[Stephanie] as well.
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25. [Stephanie] repeatedly told [David K. McMullin, Jr.
(hereinafter “McMullin”)4] during the 12 months preceding her
resignation that she was not making sales because big investment
banks were giving out free research so no one wanted to pay for
it and further that there was no demand in the marketplace for
the type of research produced by [WhiteSand].
26. [McMullin] believed what she said.
27. [Stephanie’s] statements were false and fraudulent and
designed to cover up and conceal the fact that she had been using
[WhiteSand’s] time and money to make sales on her own behalf
and on behalf of others, representing to [WhiteSand’s] customers
that the products being sold were coming from [WhiteSand].
29. [WhiteSand] paid for [Stephanie’s] airplane flights and other
trip expenses to New York and other cities based on her
representation to [McMullin] that such trips were for the purpose
of marketing and selling [WhiteSand] research.
30. These representations were false since [Stephanie] used such
trips not to market or sell for [WhiteSand], but for her own benefit
and for the benefit of third party producers of investment reports.
***
67. [Stephanie’s] statements . . . were material factual
misrepresentations, made with the knowledge of their falsity, with
the intention that [WhiteSand] would rely upon the same, and
with the result that they did in fact justifiably rely on the same to
their detriment[.]
***
69. [Stephanie’s] statements and concealments were . . . made
both on her own behalf and on behalf of her fellow conspirator,
[Patrick,] who expected to benefit financially from the actions of
his wife.
70. [Stephanie and Patrick’s] conduct caused major financial
damage to [WhiteSand].
____________________________________________
4McMullin “is the [m]anager of and an 87.5% interest owner in [WhiteSand].”
WhiteSand’s Amended Complaint, 4/10/17, at ¶ 3.
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71. [Stephanie and Patrick’s] conduct was the result of an evil
motive. . . .
WhiteSand’s Amended Complaint, 4/10/17, at ¶¶ 22-30 and 67-71.
From the above, it is clear that WhiteSand alleged: Stephanie and
Patrick entered into an agreement “to steal [WhiteSand’s] business by
appropriating [WhiteSand’s] commercial, intellectual[,] and personal
property and by using [WhiteSand’s] resources to start up a competing
business;” pursuant to this agreement, Stephanie knowingly made
materially false statements to McMullin, intending that McMullin and
WhiteSand rely upon the representations; McMullin and WhiteSand
justifiably relied upon the misrepresentations; and, WhiteSand suffered
harm as a result of the fraud.
These allegations properly plead a claim against Patrick, based
upon his liability as Stephanie’s co-conspirator, as they allege all
elements that are necessary to support a fraud claim against Stephanie
and all elements that are necessary to establish Patrick’s liability for the
fraud as a co-conspirator. We therefore find that the trial court erred in
sustaining the preliminary objection on the fraud claim.
Tortious Interference with Contractual Relations
In its second and third issues on appeal, WhiteSand contends that it set
forth sufficient facts to state claims against Patrick for tortious interference
with the NDA between Stephanie and WhiteSand, for interference with the
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agreements between WhiteSand and its customers.5 Consequently, the trial
court erred in dismissing these claims. We agree.
To establish a claim for tortious interference with contractual relations,
the following elements must be alleged:
The existence of a contractual, or prospective contractual relation
between the complainant and a third party;
Purposeful action on behalf of the defendant, specifically intended
to harm the existing relation, or to prevent a prospective
relationship from occurring;
The absence of privilege or justification on the part of the
defendant; and
The occasioning of actual legal damage as a result of the
defendant’s conduct.
Pelagatii v. Cohen, 536 A.2d 1337, 1343 (Pa. Super. 1987) app. den. 548
A.2d 256 (Pa. 1988).
First, we address WhiteSand’s claim in relation to Stephanie’s NDA
(originally signed with Global, and now held by WhiteSand) in view of these
elements. WhiteSand averred that Stephanie had a valid NDA. Patrick
argued, however, that the NDA was not valid, on its face, for lack of
____________________________________________
5 The caption to Count VI indicates that the claim for Intentional Interference
with Contractual Relations is to “All Defendants”. However, footnote 1 in
WhiteSand’s Reply Brief indicates that the allegations against Steady State
are only for conversion and unjust enrichment. Moreover, there are no facts
asserted directly against Steady State that it interfered with WhiteSand’s
business relations; those facts are asserted only against Patrick in his
individual capacity.
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consideration; therefore, there is no existing contractual relationship as
required under the first element. We disagree.
In order for Stephanie to become a member of Global she was required
to sign the NDA, which provides in pertinent part:
Potential Member is considering acquiring a membership interest
in the Company . . . and it may become necessary or desirable
for Company to disclose to Potential Member and for the Potential
Member to disclose to Company and Managing Member certain
information which the respective parties deem to be confidential.
In exchange for signing this NDA, in part, Stephanie became a member of
Global. Thus, there was consideration for the NDA, and the first element is
satisfied.
In Paragraphs 77 and 78 of the amended complaint, WhiteSand averred
that Patrick “intentionally and purposely induced and encouraged [Stephanie]
to breach her commitments under the NDA”, thereby causing her to break the
NDA. Although there are no facts to state how, or in what way, this was done,
that is not necessary; WhiteSand does not need to plead its entire case. See
3 Standard Pa. Practice 2d §16:68 (1981). It is further alleged that this was
done without privilege or justification. These allegations are sufficient to
satisfy the second and third elements of the tort.
Lastly, as discussed above, WhiteSand set forth how Patrick’s actions,
along with Stephanie’s, have damaged WhiteSand’s business and worth. This
meets the requirement of the fourth element.
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Based upon these allegations, WhiteSand has established a direct cause
of action for intentional interference with contractual relations against Patrick
as to Stephanie’s NDA.
Turning to WhiteSand’s claim that Patrick interfered with WhiteSand’s
contractual relations with its customers, WhiteSand averred in Paragraph 92
that Patrick “intentionally and purposely interfered with existing business
relationships and contracts” between WhiteSand and its investment research
customers, causing them to stop doing business with WhiteSand and do
business with Appellees. Further, in Paragraph 93, WhiteSand claims that
Patrick “intentionally and purposely interfered with the prospective business
relationship and contract between Plaintiff and its prospective clients for
executive search undertakings.” WhiteSand has alleged that existing
contracts and relationships, as well as potential relationships, of WhiteSand,
have been affected by Patrick’s conduct. Thus, WhiteSand has sufficiently set
forth the first and second elements of a claim for tortious interference.
Additionally, WhiteSand again alleges Patrick acted without justification
or privilege, and as a result, WhiteSand’s business and worth were damaged.
Elements three and four of the cause of action for tortious interference are
satisfied.
In this cause of action, WhiteSand alleges that Patrick is also liable
based on the actions of his co-conspirator, Stephanie. In particular,
WhiteSand alleges that Stephanie was making sales on her own behalf and on
behalf of others while working for WhiteSand, and telling WhiteSand
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customers that the products were coming from WhiteSand. In doing so, she
used WhiteSand’s resources, including WhiteSand’s customer lists, trade
secrets, proprietary sales techniques and other confidential information.
Again, all being done in furtherance of the conspiracy between Stephanie and
Patrick.
We conclude that WhiteSand has set forth both a direct claim against
Patrick for intentional interference with the contractual relations between
WhiteSand and its customers, and a claim for conspiracy to do so. Consistent
with our analysis above regarding conspiracy, because WhiteSand has pled a
viable claim for the underlying tort of intentional interference with contractual
relations, WhiteSand also has pled a cognizable claim for conspiracy to commit
tortious interference with contractual relations.
Therefore, the trial court erred in dismissing the claims against Patrick
for intentional interference with contractual relations as to both the NDA and
the contracts between WhiteSand and its customers.
Unjust Enrichment
WhiteSand’s fourth appellate issue is that the trial court erred in
dismissing the claims against Patrick and Steady State for unjust enrichment.
Initially, we find that WhiteSand waived this claim on appeal, since it failed to
allege how the trial court erred or how the Appellees were unjustly enriched.
In its brief, WhiteSand merely recited the elements of an unjust enrichment
claim and then quoted the allegations from its amended complaint. See
WhiteSand’s Brief at 13-14. WhiteSand has provided us with no argument as
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to how the complaint sufficiently pleaded that Patrick and Steady State’s
“retention of [the] particular enrichment [would be] unjust.” See Meehan v.
Cheltenham Twp., 189 A.2d 593, 596 (Pa. 1963). Therefore, we hold this
claim is waived. Commonwealth v. Spotz, 716 A.2d 580, 585 n.5 (Pa.
1999) (“[the Pennsylvania Supreme Court] has held that an issue will be
deemed to be waived when an appellant fails to properly explain or develop it
in his brief”).
Even if this issue was not waived, we note that WhiteSand failed to set
forth sufficient facts in the amended complaint to support this theory of
liability. A claim for unjust enrichment sounds in equity. We previously have
held that:
[W]hen a person receives a benefit from another, and it would be
unconscionable for the recipient to retain that benefit, the doctrine
of unjust enrichment requires the recipient to make restitution. .
. . This equitable doctrine imposes on the recipient an obligation
in the nature of quasi contract.
Myers-Macomber Engineers v. M.L.W. Constr. Corp., 414 A.2d 357, 360
(Pa. Super. 1979) (citations omitted).
Here, the amended complaint sets forth numerous allegations that the
Appellees benefitted from the use of assets belonging to White Sand (e.g.,
Patrick used WhiteSand’s computer, and other resources, for his benefit;
Stephanie developed businesses by using WhiteSand’s resources, assets and
money; she benefitted from the training provided by WhiteSand and expensed
her travel through WhiteSand to meet with clients for her business; she used
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WhiteSand’s customer list, trade secrets, proprietary sales techniques and
other confidential information). From these allegations, it is apparent that
Stephanie, Patrick, and Steady State were all enriched.
However, while the conferral of a benefit is a necessary condition of a
valid unjust enrichment claim, it alone is not sufficient. “’The doctrine does
not apply simply because the defendant may have benefit[t]ed as a result of
the actions of the plaintiff.’” Styer v. Hugo, 619 A.2d 347, 350 (Pa. Super.
1993) aff'd 637 A.2d 276 (Pa. 1994) (quoting D.A. Hill Co. v. Clevetrust
Realty Investors, 573 A.2d 1005, 1009 (Pa. 1990)). In order to avoid
dismissal of the unjust enrichment claim, a plaintiff must allege, in its
complaint, facts showing that it is unjust.
The Restatement of Restitution sets forth various rules for the
determination of whether the retention of a particular enrichment
is unjust. Section 110 deals with the situation where a third party
benefits from a contract entered into between two other parties.
It provides that, in the absence of some misleading by the third
party, the mere failure of performance by one of the contracting
parties does not give rise to a right of restitution against the third
party. The Restatement gives as an example of this principle the
situation where A purchases a ring from C, a jeweler, for his
fiancee B and then defaults in the payments. The Restatement
states that C cannot recover the ring or its value from B.
Meehan v. Cheltenham Twp., 189 A.2d 593, 596 (Pa. 1963). Thus, to
recover under this theory, a defendant must have either requested benefits
from a plaintiff or misled the plaintiff. See D.A. Hill Co. supra.
WhiteSand claims in Paragraphs 84 and 85 that the Appellees “unjustly
enriched themselves” and that “unjust retention of money and property are
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against fundamental principles of justice and good conscience and are patently
unfair.” Nothing in the amended complaint, however, sets forth that the
Appellees requested these benefits from WhiteSand or misled WhiteSand.
Based on waiver and a failure to adequately set forth the elements of
this cause of action in the amended complaint, we conclude that the trial court
did not err when it dismissed the unjust enrichment claim against Steady State
and Patrick.6
Conversion
In its fifth and final issue on appeal, WhiteSand contends that it set forth
a cause of action for conversion against Patrick and Steady State, and the trial
court erred in dismissing this claim. Pursuant to Pennsylvania case law,
conversion is widely understood as “the deprivation of another's right of
property in, or use or possession of, chattel, or other interference therewith,
without the owner's consent and without lawful justification.” McKeeman v.
Corestates Bank, N.A., 751 A.2d 655, 659 n. 3 (Pa. Super. 2000) (quoting
Stevenson v. Economy Bank of Ambridge, 197 A.2d 721, 726 (Pa. 1964)).
A person may incur liability for conversion by “[u]nreasonably withholding
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6 Additionally, we note that there can be no liability for unjust enrichment
against Patrick as co-conspirator. “An action based on unjust enrichment is
an action which sounds in quasi-contract or contract implied in law” – not in
tort. Roethlein v. Portnoff Law Assocs., Ltd., 81 A.3d 816, 825 n.8 (Pa.
2013). Thus, since unjust enrichment does not sound in tort, there can be no
conspirator liability for the claim of unjust enrichment.
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possession from one who has the right to it.” Martin v. National Sur.
Corp., 262 A.2d 672, 675 (Pa. 1970) (emphasis added).
In support of its position, WhiteSand generally alleges that “Defendants’
actions have resulted in depriving WhiteSand of its rights in the physical,
commercial and intellectual property used in WhiteSand’s business without
their consent and without lawful justification.” In particular, WhiteSand relies
on the same allegations set forth to establish its claim for unjust enrichment.
In Paragraphs 34, 35, 47 and 55 of the amended complaint, WhiteSand avers
that both Stephanie and Patrick used WhiteSand’s computer for their benefit
as well as for the benefit of Steady State. It is also alleged that Stephanie
used WhiteSand’s telephone and number.
As we will explain, these facts do not rise to the level necessary to
establish conversion. First, although it is alleged that Patrick and Steady State
used WhiteSand’s computer, there is no allegation that the computer was
unreasonably withheld from WhiteSand. Prior to Stephanie’s resignation,
there is no allegation that WhiteSand demanded return of the computer that
was refused; a demand and refusal is an essential element to a claim for
conversion. Norriton E. Realty Corp. v. Central-Penn Nat’l Bank, 435 Pa.
57, 254 A.2d 637 (Pa. 1969). Without this, there can be no unreasonable
withholding. Id. After Stephanie resigned, the computer was returned to
WhiteSand within a short time. This Court has held that where property
alleged to be converted was returned within three weeks, the property was
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not unreasonably withheld. See PTSI v. Haley, 71 A.3d 304, 314-15 (Pa.
Super. 2013).
Moreover, the Restatement (Second) of Torts section 222A comment c
indicates:
In conversion the measure of damages is the full value of the
chattel, at the time and place of the tort. When the defendant
satisfies the judgment in the action for conversion, title to the
chattel passes to him, so that he is in effect required to buy it at
a forced judicial sale. Conversion is therefore properly
limited, and has been limited by the courts, to those
serious, major and important interferences with the right
to control the chattel which justify requiring the defendant
to pay its full value.
Restatement (Second) of Torts § 222a, comment c (emphasis added).
Comment d goes on to emphasize that not only are the consequences to be
considered, but also the extent to which the owner has lost control over the
chattel. Interference with the chattel must have been so serious to rise to the
level of conversion. Id. at comment d. Today, computers and cell phones
are commonplace. We, therefore, find that any interference with the
computer, in and of itself, or the phone, did not rise to the level of conversion.
We also find that the law does not support a conversion claim for the
use of Stephanie’s time. In Paragraphs 32 and 33, WhiteSand claims that
Stephanie was working for Steady State on WhiteSand’s time. By definition,
conversion claims only apply to chattels. A “chattel” is tangible property.
However, time does not meet this definition, and we have found no authority
to the contrary. Consequently, WhitesSand has failed to state a claim for
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conversion of Stephanie’s time. We will, therefore, affirm the trial court’s
order, in part, as to WhiteSand’s conversion claim, as to the use of the phone,
the computer and Stephanie’s time.
We do find, however, that WhiteSand has pled a conversion claim
against Patrick and Steady State with respect to WhiteSand’s confidential
business information. This claim, however, is dependent upon the specific
type of information which WhiteSand claims was converted.
As to the type of property that may be the subject of conversion, it is
clear in Pennsylvania that a cause of action for conversion may be maintained
for almost all kinds of personal property, including money, notes, bonds,
certificates of stock, title deeds.” Mackay, et al., Administrators v.
Benjamin Franklin R. & H. Co., 135 A. 613, 614 (Pa. 1927). Courts in other
states have expanded the type of property to which a conversion claim may
apply to include intangible property. Federal courts within Pennsylvania have
extended conversion claims specifically to confidential business information.
See PNC Mortgage v. Superior Mortgage Corp., 2012 WL 628000 (E.D.
Pa. 2012) (allowed conversion claims for customer lists and other confidential
information to proceed); The Bancorp Bank v. Isaacs, 2010 WL 1141336(E.D. Pa. 2010) (recognized a conversion claim of customer information as
confidential business information improperly procured by raiding computers in
contravention of Restatement of Torts § 759; other information such as
business forms, website and customer lists were not subject to a conversion
claim as they were not confidential).
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Pennsylvania courts, however, have limited conversion claims only to
intangible rights to property that are typically merged in or identified with a
particular document. See Northcraft v. Edward C. Michener Associates,
Inc., 466 A.2d 620, 625 (Pa. Super. 1983) (holding that ideas for a prototype
which had been reduced to sketches of same and actually existed, a
conversion claim could be maintained). See also Evans v. American Stores
Co., 3 D. & C.2d 160, 162 (Phil. Co. 1955) (permitting an action for conversion
of a sports promotion plan); Benaquista v. Hardesty & Associates, 20 D.
& C.2d 227, 229 (Allegh. Co. 1959) (permitting a claim for conversion of
architectural design). But see Mackay, 135 A. at 614 (not recognizing an
action for conversion for an idea given in preparation for architect's plan).
In PTSI, a training company sued former employees for conversion,
inter alia, of its customer list/worksheets which were in an Excel spreadsheet.
Although the claim was dismissed on other grounds, we allowed a claim for
conversion of this type of information to be filed. PTSI, 71 A.3d at 315.
Here, in Paragraph 34, WhiteSand claims that Patrick and Steady State
used WhiteSand’s resources. In Paragraphs 28 and 47, it is alleged that
Patrick used WhiteSand’s computer which contained WhiteSand’s data and
information for his benefit and that of Steady State. In Paragraph 88,
WhiteSand alleged that “Defendants’ actions have resulted in depriving
WhiteSand of its rights in . . . the commercial and intellectual property used
in the WhiteSand business. . . .” These allegations are directed to Patrick and
Steady State. Additionally, and most significantly, are the allegations in
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Paragraphs 50 and 51, that Patrick, along with Stephanie, erased much of the
business information contained in WhiteSand’s computer, and further, that
they used special software on the computer to make normal recovery
extremely difficult. Some of this information may ultimately be considered
tangible and, therefore, properly the subject of a conversion claim. We,
therefore, believe these allegations are sufficient to overcome the preliminary
objection stage of the case, and may establish a claim for conversion against
Patrick and Steady State.
Additionally, WhiteSand has pled a cognizable action for conspiracy to
commit conversion, again, depending on the specific business information. As
stated above, WhiteSand has set forth a claim for conversion against Patrick.
In Paragraph 28 of the Complaint, WhiteSand alleges that Stephanie used all
of the data and information on the computer. She also used WhiteSand’s
customer lists, trade secrets, proprietary sales and other confidential
information. Stephanie did not return the confidential information and
material that she had received over the years from WhiteSand and Global.
WhiteSand alleged that this was done in furtherance of the conspiracy
between Stephanie and Patrick. These allegations are sufficient to support a
cause of action for which Patrick and Steady State may be liable for conversion
under a theory of conspiracy, and thus, the trial court erred in dismissing this
claim.
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Conclusion
In sum, after careful review of the amended complaint, we affirm the
trial court’s order dismissing of WhiteSand’s claim for unjust enrichment;
however, we reverse the trial court’s order and reinstate WhiteSand’s claims
for fraud, tortious interference with contractual relations, and conversion (in
part, i.e., with respect to conversion of WhiteSand’s business information)
consistent with this memorandum.
Order affirmed in part and reversed in part.
Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 6/7/2018
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