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«IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA PERFORMANCE HR, LTD., INC., : CIVIL ACTION Plaintiff, : : v. : : ARCHWAY ...»

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IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF PENNSYLVANIA

PERFORMANCE HR, LTD., INC., : CIVIL ACTION

Plaintiff, :

:

v. :

:

ARCHWAY INSURANCE SERVICES :

LLC, ET AL., :

Defendants : NO. 08-3432

MEMORANDUM AND ORDER

Gene E. K. Pratter, J. October 23, 2008 This case concerns the failed relationship of a staffing company and its insurance broker.

Performance HR, Ltd., Inc. (“Performance”) alleges that its insurance broker, Archway Insurance Services, LLC, and other related entities1 failed to fulfill their duties to Performance and then later interfered with Performance’s attempts to secure insurance through another broker.2 The Archway Defendants move to dismiss the claims. Specifically, they seek dismissal of all claims against Archway Insurance Group, LLC, and Counts II and IV through XII3 against Performance HR has asserted claims against Archway Insurance Services, LLC;

Archway Insurance Group, LLC; H. James Agnew; and Partners Specialty Group, Inc.

The array of claims as characterized by Performance is: tortious interference with contract (AIG policy) (Count I), tortious interference with contract (Performance HR clients) (Count II), tortious interference with prospective business relationships (insurance carriers) (Count III), tortious interference with prospective business relationships (Count IV), breach of fiduciary duty (duty of loyalty and utmost good faith) (Count V), breach of fiduciary duty (duty of good faith and fair dealing) (Count VI), breach of fiduciary duty (duty to act with strictest integrity) (Count VII), breach of fiduciary duty (duty of full disclosure) (Count VIII), disgorgement (Count IX), fraud (Count X), business disparagement (Count XI), negligent misrepresentation (Count XII), and negligence (Count XIII).

Defendants do not challenge Performance’s claims for tortious interference with contract (AIG policy) (Count I) or tortious interference with prospective business relationships

-1Archway Insurance Services, LLC and H. James Agnew. Defendants argue that many of the claims are barred by the gist of the action doctrine or the economic loss doctrine, while others should be dismissed for failure to state a cognizable cause of action or for failure to plead with required specificity. Defendants further assert that the Complaint offers no basis for liability of Archway Insurance Group, LLC. Finally, Defendants seek to strike portions of the Complaint containing what they consider “gratuitous, unnecessary information.” Defendants’ Motion to Dismiss and Strike (“Motion”) at 26. Performance opposes the Motion.

For the reasons set forth below, the Court will grant the Motion as to the claim for “disgorgement” (Count IX) and deny the Motion in all other respects.

I. FACTUAL BACKGROUND

Performance is a staffing company that, with two related entities,4 hired Archway Insurance Services, LLC (“Archway”)5 as an insurance broker. Performance worked with Defendant H. James Agnew to obtain workers’ compensation insurance through AIG for itself and its related entities. During the application process, Performance alleges that it provided (Count III).

The two related entities are Total HR Employer Services, Inc., a staffing company that purchased 51% of the stock in Performance in March 2006, and ACEO, Inc., another company in which Total HR owned the outstanding stock. These two companies are not parties to this action.

Archway Insurance Group, LLC is also named as a defendant in this action.

Performance explains in the Complaint that “[d]uring the course of the relationship, the identities of Archway Services and Archway Group were often used interchangeably, and are therefore referred to collectively herein as ‘Archway.’” Compl. at 4 n.1. Accordingly, this memorandum uses “Archway” to refer to both entities.

–  –  –

Performance and its related entities. The insurance became effective in June 2006, and Performance paid $85,000 to Archway as a broker’s fee.

After workers’ compensation claims were being serviced and processed under the insurance policy, Performance learned that the policy did not specifically name it as an insured;

rather, the policy named only its two related entities. Performance alleges that Archway and Mr.

Agnew represented to Performance that it was covered under the AIG policy, but then requested additional documentation regarding the three related entities, documentation Performance believed to be inaccurate. Performance revised the documentation as instructed by Archway, and Archway then began issuing certificates of insurance referencing all three entities.

During this period, Performance began receiving notices from regulatory entities, including the State of New York. The notices state that no documentation had been filed reflecting that Performance and its employees were covered by a workers’ compensation policy.

Performance determined that Archway had failed to file the appropriate documentation. As a result, Performance was fined $50,000 by the State of New York and allegedly still faces additional regulatory exposures elsewhere.





Because of an increase in the number of employees covered by the workers’ compensation policy, Performance and the two related entities asked AIG to perform an audit. In March 2007, Archway demanded an emergency conference call with Performance, the related entities, and representatives of AIG. Archway allegedly represented during the call that all issues with coverage had been resolved. However, only weeks later, Archway demanded that Performance make an immediate payment of $2,566,630 in additional premiums and collateral.

–  –  –

Performance agreed to pay the remainder of the $1.1 million premium as well as two additional payments of $733,315 each. Performance made the premium payment of $1.1 million to Archway on March 28, 2007. However, on April 9, 2007, AIG informed Performance that the policy would be canceled for non-payment. Performance learned that Archway had not forwarded the $1.1 million premium payment to AIG. AIG rescinded the cancellation only after confirming Performance’s timely payment to Archway.

Performance asserts that during its relationship with Archway, Archway routinely withheld certificates of insurance, delaying compliance with workers’ compensation laws for as long as 60 days. As a result, some of Performance’s customers withheld payments, and some terminated their business. Accordingly, Performance and its related entities decided to change insurance brokers in May 2007. Performance alleges that, in apparent retaliation, Archway began interfering with Performance’s efforts to renew its workers’ compensation program. Archway and other Defendants released confidential financial and business information to insurers, made false statements to third parties about Performance and its related entities, and made duplicate submissions to insurers, a practice disfavored by the insurance industry.

II. LEGAL STANDARD A Rule 12(b)(6) motion to dismiss tests the sufficiency of a complaint. Conley v. Gibson, 355 U.S. 41, 45-46 (1957). Rule 8 of the Federal Rules of Civil Procedure requires only “a short and plain statement of the claim showing that the pleader is entitled to relief,” Fed. R. Civ. P.

8(a)(2), in order to “give the defendant fair notice of what the... claim is and the grounds upon

–  –  –

Conley, 355 U.S. at 47). While a complaint need not contain detailed factual allegations, the plaintiff must provide “more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.” Id. at 1964-65 (citations omitted). Specifically, “[f]actual allegations must be enough to raise a right to relief above the speculative level....” Id. at 1965 (citations omitted).

In making such a determination, courts “must only consider those facts alleged in the complaint and accept all of those allegations as true.” ALA, Inc. v. CCAIR, Inc., 29 F.3d 855, 859 (3d Cir. 1994) (citing Hishon v. King & Spalding, 467 U.S. 69, 73 (1984)); see also Twombly, 127 S. Ct. at 1965 (stating that courts must assume that “all the allegations in the complaint are true (even if doubtful in fact)”). The Court must also accept as true all reasonable inferences that may be drawn from the allegations, and view those facts and inferences in the light most favorable to the non-moving party. Rocks v. Philadelphia, 868 F.2d 644, 645 (3d Cir.

1989). The Court, however, need not accept as true “unsupported conclusions and unwarranted inferences,” Doug Grant, Inc. v. Greate Bay Casino Corp., 232 F.3d 173, 183-84 (3d Cir. 2000) (citing City of Pittsburgh v. West Penn Power Co., 147 F.3d 256, 263 n.13 (3d Cir. 1998)), or the plaintiff’s “bald assertions” or “legal conclusions.” Morse v. Lower Merion Sch. Dist., 132 F.3d.

902, 906 (3d Cir. 1997).

To evaluate a motion to dismiss, the Court may consider the allegations contained in the complaint, exhibits attached to the complaint, matters of public record and records of which the Court may take judicial notice. See Tellabs, Inc. v. Makor Issues & Rts., 127 S. Ct. 2499, 2509 (2007); Pension Benefit Guar. Corp. v. White Consol. Indus., 998 F.2d 1192, 1196 (3d Cir.

-5III. DISCUSSION A. Dismissal of Counts II and IV for Alleging Interference with Plaintiff, Not

–  –  –

In Counts II and IV of the Complaint, Performance asserts Tortious Interference with Contract and Tortious Interference with Prospective Business Relationships, respectively. In response, Archway argues that these Counts should be dismissed because, according to Archway, the claims allege interference directed at Performance, not third parties.

Archway’s challenge is premised on Restatement (Second) of Torts § 766A. However, in considering tortious interference claims, Pennsylvania courts have not adopted § 766A. Rather,

Pennsylvania courts have adopted only Restatement (Second) of Torts § 766 which provides:

One who intentionally and improperly interferes with the performance of a contract...

between another and a third person by inducing or otherwise causing the third person not to perform the contract, is subject to liability to the other for the pecuniary loss resulting to the other from the failure of the third person to perform the contract.

See, e.g., Nathanson v. Med. Coll. Of Pa., 926 F.2d 1368, 1388 (3d Cir. 1991). The Third Circuit Court of Appeals also has held that while the Pennsylvania Supreme Court adopted § 766, it is unlikely the Pennsylvania courts would adopt § 766A. Accordingly, our Court of Appeals has explicitly declined to apply § 766A in cases to be decided under Pennsylvania law.

See Gemini Physical Therapy & Rehab., Inc. v. State Farm Mut. Auto Ins. Co., 40 F.3d 63, 66 (3d Cir. 1994); Windsor Securities, Inc. v. Hartford Life Ins. Co., 986 F.2d 655, 660 (3d Cir.

1993).

–  –  –

plain that Performance has alleged interference directed at third parties, not merely offending actions directed only toward Performance itself. The Complaint alleges that Archway’s actions were aimed at inducing third parties to cease business relationships with Plaintiff or to refuse to enter into business relationships with Plaintiff in the first place. See, e.g., Compl. 26-28.

According to the Complaint, Archway’s actions not only attempted to harm Performance in this fashion, but those actions were ultimately successful. For example, after Archway failed to provide proper insurance certificates to state regulatory agencies, some of Performance’s clients withheld payments, and others allegedly canceled their contracts with Performance. Compl. 21.

The Complaint asserts that Archway interfered with Performance’s ability to attract new clients by stating that Archway would ensure that Performance could not get insurance through any other broker. Compl. 23. All of these actions on the part of Archway were aimed at preventing third parties from doing business with Performance. As a result, such activities fall within the scope of § 766 and are actionable.

Defendants’ Motion to Dismiss is denied as to Counts II and IV.

B. Limits on Claims for Breach of Fiduciary Relationship (Counts V-VIII) Archway asserts that all claims related to breach of fiduciary duty must be limited to include only allegations of actions which occurred during the parties’ contractual relationship and, thus, cannot encompass actions that occurred after the termination of their relationship in May

2007. Archway avers that most of the actions alleged in Counts V through VIII occurred after the

–  –  –

alleged to have taken place after the termination of the relationship, there was no longer a confidential relationship, or a fiduciary duty arising as a matter of law, and the claims for breach of fiduciary duty relating to actions taking place after the termination of the relationship should be dismissed.” Motion at 10.

Archway looks to In re Schlag, 96 B.R. 597, 602 (Bankr. E.D. Pa. 1989), for support in this regard. According to Archway, In re Schlag held that an attorney had not breached his fiduciary duty in a business relationship because the attorney-client relationship already had been terminated. However, a closer reading of the opinion demonstrates that the issue in In re Schlag was whether an attorney had abused the attorney-client relationship in a business deal with former clients where the deal commenced after the parties’ attorney-client relationship was terminated.

The Schlag court did not hold that the fiduciary duty that arose out of the earlier attorneyclient relationship ceased upon the termination of the attorney-client relationship. Rather, the court examined the parties’ evolving relationship and course of dealings, and determined that the attorney had not breached a fiduciary duty, any ethical standards, or any disciplinary rules. In re Schlag, 96 B.R. at 601-02.



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