Nearly a year-and-a-half after awarding the plaintiff in a nonsolicitation case $6.9 million in compensatory and punitive damages, the Chester County judge overseeing the matter authored an opinion in support of the award, detailing in sharp terms the defendants’ alleged misconduct.
“This case presents facts created through impatience, self-interest and greed,” Chester County Court of Common Pleas Judge William P. Mahon opened his Dec. 10 opinion in B.G. Balmer v. Frank Crystal.
In July 2013, Mahon awarded plaintiff B.G. Balmer & Co., a former insurance brokerage firm, $4.5 million in punitive damages on top of nearly $2.4 million in compensatory damages he awarded for net lost revenues and the reduction of Balmer’s sales price. The suit raised allegations of contractual and fiduciary breaches, conspiracy and unfair competition by five former B.G. Balmer employees and Frank Crystal & Co., the New York insurance firm that hired the former Balmer employees to open a Philadelphia location.
The defendants’ attorney, Stephen A. Cozen of Cozen O’Connor, called the judge’s opinion “really vitriolic” and said it could cause employees like the defendants here, who had only a nonsolicitation agreement and were not bound by a noncompete clause, to be afraid of making a move if they are unhappy at their current employer.
“It’s not very judicious,” Cozen said of the decision. “You’re taking an employment contract infringement case and trying to turn it into a conspiracy-to-destroy case. I don’t think the record will ever support that.”
Cozen said the record could sustain findings that some of the defendants may have violated certain aspects of their nonsolicitation agreements and may be liable for a few-hundred-thousand dollars in damages, but he said there was nothing in the record to support the millions in compensatory and punitive damages assessed against his clients.
Thomas A. “Buck” Riley Jr. of Riley Riper Hollin & Colagreco represented the Balmer company and saw Mahon’s opinion a bit differently.
“This was a conspiracy on the part of the defendants to ruin the Balmer company and the judge captured it best in the first sentence of his opinion when he said ‘this case presents facts created through impatience, self-interest and greed,’” Riley said.
Some of the individual defendants were executives at Balmer and were set to take over the insurance company as its founder, Barry G. Balmer, readied to retire from the company he founded in 1962.
But Mahon said in his opinion that Balmer was not relinquishing control of the company in a timeframe acceptable to the defendants. Mahon said those individual defendants met with a recruiter and with Frank Crystal in 2003 and all resigned within hours of one another and joined Frank Crystal within 48 hours of that. As part of their resignation and business plan to get Frank Crystal’s Philadelphia office up and running, the individual defendants solicited Balmer company clients with trade secret information in violation of their nonsolicitation agreement with the Balmer company, Mahon found.
“Systematically inducing employees to leave their employment when the purpose of such is to cripple and destroy an integral part of that business organization rather than to obtain the services of the particularly skilled employee evidences unfair competition,” Mahon said in finding the individual defendants and Frank Crystal engaged in unfair competition, one of the several counts against them.
Balmer eventually had to sell his company as a result of the defection and client solicitation. He died before a $4.8 million deal with Univest was inked, but that deal did ultimately close, Mahon said.
The judge said the defendants’ solicitation of a 26-year client of the Balmer company, Wellington, in which they allegedly attacked the Balmer company’s integrity, directly led to the client not re-signing with Balmer. That started a string of events forcing the Balmer company to be sold, Mahon said.
“Defendants’ contact with Wellington is a prime example of individual defendants’ breach of their employment agreements, use of Balmer trade secret information, the conspiratorial nature of the actions of all defendants and the attempt to destroy Balmer Agency business relationships,” Mahon said.
Mahon discounted the defendants’ argument that they left the Balmer company over concerns they had about how the company was being run. The judge said that even if those concerns were valid, it didn’t excuse their solicitation of Balmer clients, which the judge said was in violation of their employment agreements. The judge further rejected the argument that the defendants’ contacting of Balmer clients after the defendants left the company was purely a “professional courtesy.”
“It was the responsibility of the Balmer Agency to inform its clients and customers of a change in personnel servicing those customers,” Mahon said. “The ‘personal courtesies’ extended by individual defendants to Balmer Agency clients constituted uses of contractually defined trade-secret information to solicit Balmer Agency customers in order to enhance their careers and the business of FCC Philadelphia.”
Mahon dismissed the defendants’ arguments that the individual defendants’ resignations around the same time was for their own reasons and didn’t mean they were solicited to do so.
“If defendants’ position is true, the fact that all defendants resigned within 24 hours of each other and all started new work at the same time and at the same place and with the same employer would be the coincidence of all coincidences,” Mahon said.
Mahon also rejected the individual defendants’ arguments that they had decided to leave the company before ever meeting with the recruiter or Frank Crystal, therefore making it impossible for them to have been solicited or for Frank Crystal to have tortiously interfered with contractual relations.
“That logic does not follow,” Mahon said. “Even though someone may be looking for other employment, the fact that the private employment relationship is terminated at the same time by all individual defendants and further that within 48 hours all individual defendants are working at FCC Philadelphia speaks louder than any words arguing against tortious interference.”
In explaining why his awarding of punitive damages should be upheld, Mahon said he could take into consideration both the defendants’ unlawful conduct as well as their discovery violations over the course of the case. He also noted the defendants failed to heed his preliminary injunction order from July 2005 by continuing business relationships with Balmer clients. And because Frank Crystal was indemnifying all defendants in the case, Mahon said he took into account that company’s finances in awarding the $4.5 million in punitive damages.
Mahon’s opinion was in response to post-trial motions filed by both sides, with the Balmer company appealing a portion of Mahon’s overall award that valued at $200,000 the reduced sales price of the company to Univest in light of the defendants’ actions.
(Copies of the 15-page opinion in B.G. Balmer v. Frank Crystal, PICS No. 14-2065, are available from The Legal Intelligencer. Please call the Pennsylvania Instant Case Service at 800-276-PICS to order or for information.) •