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A jury’s award of $1.3 million in punitive damages was sent back for a new trial when the 3rd U.S. Circuit Court of Appeals rejected one of the plaintiff’s two successful tort claims — thereby overturning a portion of the jury’s $685,000 compensatory damages award – because the appellate court found it impossible to discern how the jury had allocated the punitive damages between the two claims. In the suit, plaintiff CGB Occupational Therapy Inc., a Delaware County occupational therapy firm, claimed that Sunrise Assisted Living Inc., a Virginia nursing home management company, had tortiously interfered with its contracts by inducing two Philadelphia-area nursing homes to terminate CGB and then hire away five of its therapists. At trial, plaintiff’s attorney David G. Concannon said CGB’s contracts with RHA/Pennsylvania Nursing Homes Inc. included a “non-raiding” clause that prohibited the nursing homes from hiring any of the independent-contractor therapists who worked for CGB for a period of one year in the event that CGB’s contract was terminated. CGB had settled with RHA prior to trial. The only remaining defendant was Sunrise, which had been hired by RHA to manage the two nursing homes. In its verdict, the jury sided with CGB on both its claims. On the first claim, the jury found that Sunrise had tortiously interfered with CGB’s contract with RHA by inducing it to terminate CGB’s contract. The jury awarded $576,000 on that claim. The jury also found that Sunrise tortiously interfered with the contracts between CGB and CGB’s own therapists when Sunrise recruited CGB’s therapists to continue working for RHA, and awarded $109,000 on that claim. Now the 3rd Circuit has ruled that CGB’s second claim was valid but that the first claim was flawed since Sunrise, as a management company, was legally acting as RHA’s “agent” and therefore had a “qualified privilege” to recommend termination of CGB’s contract. “The actions of a principal’s agent are afforded a qualified privilege from liability for tortious interference with the principal’s contract,” U.S. Circuit Judge Michael Chertoff wrote in CGB Occupational Therapy Inc. v. RHA/Pennsylvania Nursing Homes Inc. “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,” Chertoff wrote in an opinion joined by Judges Samuel A. Alito Jr. and Edward R. Becker. But the agent’s privilege is qualified, Chertoff noted, and “applies only when the agent is acting within the scope of its authority.” Concannon argued on appeal that Sunrise was not entitled to the privilege because its contract with RHA did not include the authority to recommend termination of CGB’s contract. Chertoff disagreed, saying, “CGB’s claim rests on an overly restrictive reading of Sunrise’s authority as an agent.” The “plain language” of Sunrise’s contract with RHA, Chertoff said, “unequivocally granted Sunrise the express authority to terminate therapy contracts on behalf of RHA without prior approval. . . . It is absurd to suggest that the management agreement provided Sunrise the power to unilaterally terminate, but not the implicit authority to recommend termination.” But Chertoff found that CGB’s second claim of tortious interference was a valid one and did not implicate the privilege because CGB claimed that Sunrise interfered in the relationship between CGB and the therapists. The question, Chertoff found, was “whether intermeddling by a third party (Sunrise) in the relationship between an employer and its at-will employees is an actionable tort.” Under Pennsylvania law, Chertoff said, offering employment to another company’s at-will employee is not actionable in and of itself. “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,” Chertoff wrote. Pennsylvania applies Section 768 of the Second Restatement of Torts, Chertoff noted, which requires proof that the defendant employed “wrongful means.” Although Pennsylvania courts have not yet adopted a definition for “wrongful means,” Chertoff said the 3rd Circuit has predicted that Pennsylvania would adopt “a meaning that included conduct that was ‘independently actionable,’” and that the Pennsylvania courts “have yet to disagree.” Chertoff found that, by recruiting the therapists despite the non-raiding clause, Sunrise had breached its fiduciary duty to RHA because it disobeyed RHA’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,” Chertoff wrote. “But that does not matter,” he wrote. “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.” To satisfy the requirements of the tort of interference, Chertoff said, “conduct that is independently actionable by anyone is sufficiently ‘wrongful.’” The rulings on the two claims mean that CGB’s compensatory damages verdict is reduced from $685,000 to $109,000. But Chertoff also found that the punitive damages verdict cannot stand because the jury did not allocate the punitive damages between the two claims. “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 redetermination of punitive damages,” Chertoff wrote. ( Copies of the 25-page opinion in CGB Occupational Therapy Inc. v. RHA/Pennsylvania Nursing Homes Inc. , PICS No. 04-0113, are available from The Legal Intelligencer . Please call the Pennsylvania Instant Case Service at 800-276-PICS to order or for information. Some cases are not available until 1 p.m.)

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