A Philadelphia trial court judge has penned an opinion in a contract case
that has since been appealed to the state Superior Court in which the jurist states that a since-deceased fellow Common Pleas Court judge was correct to toss a punitive damages claim in the litigation.
Philadelphia Common Pleas Court Judge Patricia McInerney docketed her opinion on Aug. 26 in the case of First Senior Financial Group vs. Steven Suib, et al.
First Senior filed suit in late 2010 against Suib and his company, American Tax & Advisory Corp., as well as Louis Aarons, Lisa Romansichov and William Midler, over claims that Aarons, Romansichov and Midler, all of whom had previously worked for the plaintiff, violated non-compete and non-solicitation clauses they signed with the plaintiff.
Aarons and Midler had previously worked as independent contractors for First Senior and signed the clauses when they became employees of the company and Romansichov signed the clauses when she became employed by First Senior.
First Senior, which says it is in the business of educating seniors and retired workers with regard to their personal finances, investments and retirement options and needs, alleges that the three individuals breached their contracts with the plaintiff when they went to work for Suib and his company, American Tax & Advisory Corp., a competitor.
The lawsuit contained counts of tortious interference with existing contractual relations and misappropriation of trade secrets against Aarons, Romansichov and Midler, and causes of action against Suib and ATAC for tortious inference with existing contractual relations and tortious interference with prospective contractual relations.
In early 2011, attorneys for Aarons, Suib and ATAC filed preliminary objections to the complaint, including an objection based on the “gist of the action” doctrine.
The defendants argued that the doctrine precludes a party from recasting an ordinary breach of contract action into a tort action.
The three also objected to the plaintiff’s request for punitive damages, arguing that First Senior provided no facts or circumstances in its complaint to back up the claim that the defendants acted with reckless indifference to the rights of the plaintiff.
The defendants argued that the complaint set forth a “run of the mill business dispute between competing business interests whereby a former employee/independent contractor is now working for a competing business,” the preliminary objections stated.
In response, First Senior counter-argued that it should not be precluded by the “gist of the action” doctrine because “Aarons’ obligations to neither compete nor solicit are breaches of social policy as well [as breaches of contract] because his enticement of [First Senior’s] former employees, [Romansichov] and Midler, at the behest of Suib, was so reckless that contract principles are collateral,” the record shows.
First Senior’s attorneys also argued that the count of tortious interference with existing contractual relations against Suib and ATAC should not be precluded because the plaintiff had no contract with either of those two defendants.
First Senior also argued that the lawsuit does indeed contain facts to back up their claim for punitive damages.
On March 8, 2011, Judge Albert Sheppard, who had originally been assigned to the case, ended up dismissing Suib from the case in his individual capacity, and dismissing two counts against Suib and his company, the counts for tortious interference with prospective contractual relations pursuant to the “gist of the action” doctrine and the plaintiff’s demand for punitive damages.
Lawyers representing Aarons, Romansichov and Midler subsequently filed papers to settle and discontinue the case.
First Senior filed its appeal of Sheppard’s decision to drop Suib and ATAC from the litigation.
The matter got transferred to another judge after Sheppard passed away, the record shows.
McInerney, who took over the case, wrote in her Aug. 26 memorandum that while she believes Sheppard properly struck First Senior’s demands for punitive damages against Suib and ATAC, she would not have dismissed the two tortious interference claims against those two defendants pursuant to the “gist of the action” doctrine as because there wasn’t a contractual relationship between First Senior and either Suib or ATAC.
“While this court would not characterize First Senior’s allegations as merely ‘a run of the mill business dispute between competing business interests whereby a former employee/independent contractor is now working for a competing business’ as was done by Suib and ATAC, neither would this court say Judge Sheppard erred in striking First Senior’s demands for punitive damages against Suib and ATAC as the conduct First Senior pointed to in opposition to the preliminary objection was merely that Suib and ATAC intentionally (i.e. tortuously) interfered with the contractual relationships it had with two former employees and one former independent contract,” McInerney wrote. “If First Senior’s argument was to be accepted, punitive damages would be appropriate any time a subsequent employer tortuously interferes with a non-compete or non-solicitation convenant between an employee and his or here previous employer without any individualized consideration of whether the subsequent employer’s conduct was outrageous.”
McInerney also wrote that the case is not one involving intentional fraud, but rather the litigation involves allegations of intentional interference with contractual relations.
No other facts have been cited as to why that conduct was allegedly reckless, the judge noted.
“The fact that it has been alleged a subsequent employer knows of non-compete and non-solicitation covenants between an employee and his or her previous employer, but acts contrary to them, does not in and of itself rise to the level of reckless indifference to the interests of others as that act in and of itself is not so great as to make it highly probable that harm would follow,” McInerney wrote. “The cited conduct just lacks that element of outrage necessary to make punitive damages appropriate.”
McInerney asked the appellate court judges to affirm Sheppard’s decision to strike the claim of punitive damages from the litigation.
As for Sheppard’s dismissal of the tortious interference claims against Suib and ATAC, McInerney wrote that she would not have tossed those counts pursuant to “gist of the action” because there was no contractual relationship between First Senior and Suib and his company.
While the doctrine could have barred such counts against Aarons, Romansichov and Midler, it shouldn’t be used to bar such claims against Suib and ATAC, McInerney wrote.