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It's Confirmed (or, Rather, Affirmed): In Pennsylvania, the Truth Shall Set You Free

September 1, 2011

Pennsylvania – Contract

Key Points:

  • Truthful statements alone do not give rise to a claim for intentional interference with contractual relations.
  • It is appropriate to look to the Restatement in analyzing claims for intentional interference with contractual relations.
  • Newly adopted rules of law should generally be applied retroactively to cases pending on appeal unless they establish a new principle of law whose application will both hinder application of the old rule and lead to an inequitable result.

 

"The truth shall set you free." It's an age-old, well-known phrase. And now it's a part of Pennsylvania law, too, at least with regard to the tort of intentional interference with contractual relations (also known as tortious interference). In Walnut Street Associates v. Brokers Concepts, Inc., 2011 Pa. LEXIS 1103 (Pa. 2011), the Supreme Court of Pennsylvania officially adopted Section 772(a) of the Restatement (Second) Of Torts, thereby establishing that truthful statements cannot give rise to a claim for tortious interference.

Pennsylvania law has long recognized tortious interference as existing whenever a person "intentionally and improperly interferes with the performance of a contract (except a contract to marry) between another and a third person...." Restatement (Second) Of Torts § 766 (1979).

Prior to Walnut Street Associates, however, Section 772(a)'s "truth" defense had never been formally adopted. According to that section, a person does not "improperly" interfere with another's contractual relations "by giving the third person truthful information[,]" even if the interference is intentional. Id. at § 772(a).

In Walnut Street Associates, this "truth" defense took center stage.

The facts of the case are simple. Since the 1980s, Walnut Street Associates, Inc. ("WSA") was the employee-health-benefits insurance broker for a company called Procacci Brothers Sales Corporation. In 1994, at the recommendation of WSA, Procacci retained Brokerage Concepts, Inc. ("BCI") as the third party administrator of its insurance plans. Thereafter, BCI paid commissions to WSA based on the premiums paid by Procacci. In 2005, however, when BCI refused to lower its costs, Procacci moved its business to another third party administrator. In response, BCI wrote to Procacci asking it to reconsider and in the process, truthfully advised it about the amount of commissions it was paying to WSA. As a result of BCI's letter, Procacci terminated its relationship with WSA. WSA then sued BCI.

When the case ultimately went to trial on WSA's tortious interference claim, the trial court denied BCI's request for a jury instruction on truthfulness as a defense pursuant to Section 772(a). Instead, it charged the jury on the elements of the claim as set forth in Section 766 of the Restatement and the factors to be considered in determining whether the alleged interference was improper as set forth in Section 767 (including motive, the interests of the parties and society and the relationship of the parties). The jury subsequently found against BCI and it appealed.

The Superior Court reversed, holding that under Section 772(a), BCI's truthful statements did not amount to tortious interference.

On appeal to the Supreme Court, WSA argued that the Superior Court lacked the authority to adopt Section 772(a) where the Supreme Court had not previously done so. Instead, it claimed that the case should follow Adler Barish v. Epstein, 393 A.2d 1175 (Pa. 1978), where the court not only recognized that Sections 766 and 767 governed the tortious interference analysis, but also found tortious interference even though the statements in question were true. It also claimed that Section 772(a) was improperly applied retroactively, stating that it never would have initiated suit if it knew that was the law.

For its part, BCI argued that it is proper to consider the Restatement in analyzing tortious interference claims. It also argued that Adler Barish couldn't have considered Section 772(a) because it was not part of the Restatement at the time and, in any event, that decision turned on the actors' conduct, not their statements. In addition, it suggested that the Supreme Court's previous endorsement of Section 772(b)'s "honest advice" defense in Menefee v. Columbia Broadcasting System, Inc., 329 A.2d 216 (Pa. 1974) supported adoption of Section 772(a)'s similar "truth" defense.

Ultimately, the Supreme Court affirmed the Superior Court and officially adopted Section 772(a). In doing so, it first recognized that the court has repeatedly looked to the Restatement regarding the elements of tortious interference. It also agreed with BCI that Adler Barish had not considered Section 772(a) and found that, together with Sections 766 and 767, Section 772(a) "is now part of a larger scheme of Second Restatement Provisions regarding tortious interference...." In fact, it recognized that Sections 769-773 "supplant the generalization expressed in [Section 767]" regarding when interference is "improper" and further define this concept.

The court also held that it was proper to apply Section 772(a) retroactively because retroactive application to cases pending on appeal is favored, unless the new rule establishes a new principle of law whose retroactive application will both "retard application of the old rule" and "lead to an inequitable result." Applying this general rule, it stated that its adoption of Section 772(a) does not alter the traditional understanding of tortious interference; rather, it "is consistent with the very nature of the tort and with Pennsylvania law." It further stated that WSA's argument that it would not have sued had it known that Section 772(a) was the law "is not the sort of 'injustice or hardship'" that warrants prospective application only.

Finally, the court dismissed out of hand WSA's argument that the Superior Court lacked authority to apply Section 772(a) where the Supreme Court had not previously adopted it. Per the court, "[t]here is nothing improper [with intermediate appellate courts] deciding new or close issues," provided they do so consistent with precedent.

In the aftermath of Walnut Street Associates, it is not entirely clear how tortious interference claims should be resolved when they are based only partially on truthful statements and partially on other conduct. That will likely be the subject of future litigation. But it is clear that it is appropriate to look to the Restatement in analyzing these claims. And, it is equally clear that when truthful statements alone form the basis of these claims, "the truth shall set you free."

*Greg is an associate in our Philadelphia, Pennsylvania, office who can be reached at 215.575.2827 or gwfox@mdwcg.com.

Defense Digest, Vol. 17, No. 3, September 2011

Affiliated Attorney

Gregory W. Fox
Shareholder
(215) 575-2827
gwfox@mdwcg.com

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