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In Dozor Agency, Inc., on the other hand, the court did find that the defendant had misappropriated and used trade secrets belonging to the plaintiff against the plaintiff in competition with him directly resulting in actual harm to the plaintiff.
Summary of this case from News America v. MarquisOpinion
March 22, 1966, Rehearing Denied: April 12, 1966.
Action by insurance agency against former employee and insurance company to enjoin defendants from using records taken from agency by former employee. The Court of Common Pleas, Delaware County, No. 1828 June Term, 1960, John V. Diggins, J., entered a verdict in favor of agency for $5,000 compensatory damages and $1,000 punitive damages, and agency appealed averring inadequacy in the verdicts. The Supreme Court, No. 32 January Term, 1966, Musmanno, J., held that award of $5,000 compensatory damages to agency was abuse of discretion where there was undisputed evidence in record that activities of defendants caused losses to agency of over $44,000, and award of $1,000 punitive damages was an abuse of discretion where court found tortious actions of defendants to be deliberate, intentional and with full knowledge of the wrong they were perpetrating.
Decree affirmed as to liability but reversed as to damages; record remanded for revaluation.
Eagen and Roberts, JJ., dissented.
1. Master and Servant 66
In action by insurance agency for damages and to enjoin former employee and insurance company from using records taken from agency by former employee, award of $5,000 compensatory damages to agency was an abuse of discretion where there was undisputed evidence in record that activities of defendants caused losses to agency of over $44,000.
2. Master and Servant 66
In action by insurance agency for damages and to enjoin former employee and insurance company from using records taken from agency by former employee, award of $1,000 punitive damages to agency was an abuse of discretion where court found tortious actions of defendants to be deliberate, intentional and with full knowledge of the wrong they were perpetrating.
Jack Brian, Howard Richard, Richard, Brian DiSanti, Upper Darby, for appellant.
David Kanner, Philadelphia, for Carl Rosenberg.
James Meneses, Norristown, for World Mut. Health Accident Ins. Co. of Pa.
Before BELL, C. J., and MUSMANNO, JONES, COHEN, EAGEN, O'BRIEN and ROBERTS, JJ.
The Dozor Agency, Inc., general agent for the Fidelity Interstate Life Insurance Company, filed a Complaint in Equity to enjoin Carl Rosenberg and World Mutual Health and Accident Insurance Company of Pennsylvania from using records taken from Dozor by Carl Rosenberg, former employee of Dozor. The court entered a preliminary injunction and the defendants appealed. This Court affirmed and the case went back for trial. This resulted in the Court issuing a permanent injunction against both defendants and entering a verdict in favor of the plaintiff in the sum of $5,000 compensatory damages and $1,000 punitive damages. The plaintiff appealed, averring inadequacy in the verdicts.
The facts are as simple as the evil they reveal is one which has plagued mankind down through the ages, namely, betrayal of one's loyalties and responsibilities. Carl Rosenberg was employed by the Dozor Agency as its president and general manager. In that capacity he naturally acquired a comprehensive knowledge of Dozor's business including trade secrets obtained in a confidential relationship. In May, 1960, Rosenberg left Dozor and went into the insurance business for himself. He took with him not only the trade secrets he could carry in his head, but physically appropriated files containing confidential records and data including names, premium dates and amounts, as well as pertinent information concerning the active policyholders to whom Dozor had sold insurance.
Armed with this ammunition, he directed a barrage of commercial fire against his previous employer by soliciting Dozor's clients to switch their business to the World Mutual Health and Accident Insurance Company of Pennsylvania (hereinafter referred to as World). At the beginning of this campaign he flew the flag of the General Accident and Health Insurance Company, but this organization, learning of the meretricious manner in which Rosenberg had acquired his "leads", refused to do business with him any more and from then on Rosenberg represented World. In addition to purloining trade secrets and carrying away records not his own, Rosenberg prevailed upon four Dozor's subagents to leave Dozor and work for him, Rosenberg. Most of these subagents in time later became disillusioned with Rosenberg and returned to Dozor.
Dozor served notice on World that, by using Rosenberg's material, it, World, was not only violating the ethics of the trade but it was also profiting on stolen property. Although, thus being put on notice as to the illegality of its conduct, World continued to use Rosenberg's tainted sources, thereby subjecting Dozor to financial losses.
After hearing evidence for four days, the Chancellor in the Court below found that:
"World had ample knowledge of the contention of Dozor regarding the taking of the records by Rosenberg and the improper use thereof, it came into the picture with full knowledge that General Accident, when given the same information, declined to take the business, it did receive business generated by Rosenberg and for a time others under him from these records and therefore afforded an indispensable facility to Rosenberg in damaging Dozor and therefore must accept liability. There is no doubt that Rosenberg and World, each in possession of all of the essential facts, acted in concert to the detriment of Dozor."
Also that:
"Rosenberg and World knowingly, intentionally infringed on the property rights of Dozor existing in the records of Dozor and the information contained in the records compiled by Dozor."
In spite of this definitive finding that Rosenberg and Walter had raided Dozor's premises and carried away Dozor's property, the Chancellor somehow found fit to mitigate the defendants' offenses and order them to return only part of the plunder.
The defendant Rosenberg, seeking to justify his conduct, charged that Dozor had not treated him fairly. The Chancellor rejected this defense and properly observed that "unfair treatment by the employer does not give the employee the right to abrogate the law protecting confidential records and trade secrets." Paradoxically then the Chancellor decided to throw a mantle of semi-immunity over Rosenberg because the Chancellor said Rosenberg was "a very young man and that his ambition and perhaps his ability far outweighed his experience." The Chancellor did not indicate Rosenberg's age, but the record would seem to indicate that although Rosenberg might have been young in years he revealed adequate maturity in the skill by which he maneuvered to defraud his employer, who was sufficiently satisfied with Rosenberg's maturity to make him president and general manager of his firm.
The reason given by the lower Court for mitigating the verdict against Rosenberg is not convincing. Where waywardness is evident, youth is a whetstone which sharpens the blade of culpable cunning. To reward youthful misconduct by allowing the scheming culprit to retain the fruits of his illegal practices is only to develop a keener edge to the blade of his inexcusable cupidity.
The out-of-pocket expenses sustained by the plaintiff company as a result of the defendants' improper conduct was clearly testified to by John Cooney, treasurer of the company amounted to $23,996.45. This sum included expenses for postage-printing, paper and special sales expenses incurred to reinstate the former policy holders and protect other policies; it included also the proportionate salary paid to certain employees while engaged in efforts to reinstate and protect policies carried by the plaintiff company. These figures were obtained from original records of the plaintiff company produced in court. Though the Chancellor properly determined during the course of the trial that a certain percentage of salaries of regular employees who were required to forego regular activities to send out special notices, etc. to reinstate and protect the plaintiff's policies, was properly allocable as an element of damage, yet he failed to consider such an important item in arriving at the amount of damage sustained by the plaintiff company. This is also true with regard to Mr. Dozor's salary loss (Mr. Dozor owned all the stock of the plaintiff company). After admitting that the plaintiff was entitled to claim as an amount of damage that portion of salary paid for the time Dozor spent trying to protect the plaintiff company from the defendants' actions, the Chancellor's award ignored this item entirely. The evidence shows that the treasurer's allocation of the time spent by Dozor and other employees to protecting the company from defendants' actions was based on the treasurer's own personal knowledge of the time devoted thereto by them and it was based on Dozor's reports which he substantiated at the trial.
The Chancellor also failed to consider all the evidence in arriving at the damages sustained by the plaintiff company as a result of the loss of insurance policies. The Chancellor specifically found that the plaintiff company had lost 121 of its insurance contracts as a result of defendants' actions, and that this represented a net loss of $11,267.16 in annual premiums. The record further reveals (through plaintiff's expert testimony) that an actuarial study into the lapse ratio of Dozor policies shows that the 121 policies thus lost by the plaintiff were all more than one year old. Therefore, they were all beyond the first year of the policy where the largest incidence of lapse occurred. Thereafter, lapse was less likely to occur. This expert, by an examination of all the policies of plaintiff in force more than one year, arrived at the annual lapse ratio of 11.335%. He then applied this lapse ratio to the total gross premium income derived from the
policies lost by plaintiff and determined the gross income which the insurer on those policies would have received up to the time when, by reason of the attrition of drop-outs, the income production of this group of policies would have ceased. This figure, reduced to present worth, represented the total gross projected premium income lost as of 1960, the year of loss. Applying to this figure the percentage of commission which would have been received by the plaintiff, the result would represent plaintiff's gross anticipated income from those policies. The expert then deducted the average rate of commission paid out by plaintiff to its agents to arrive at the final net income loss to plaintiff of $20,450.88.
It would seem under all this concrete evidence which he in no way disputed or condemned, the Chancellor abused his discretion in awarding the plaintiff the reduced amount stated. The uncontradicted record is clear that the plaintiff sustained a loss of income and out-of-pocket expenses far in excess of the $5,000 awarded by the Chancellor.
Even more inexplicable is the Chancellor's leniency with the defendants in the allotting of punitive damages. The Chancellor found their tortious actions to be deliberate, intentional and with full knowledge of the wrong they were perpetrating. They were placed on notice that they were playing with fire, and, instead of extinguishing the flames, added more fuel. To allow willful violators of the code of insurance ethics to escape with a mild monetary rebuke is to induce further violations.
The Chancellor is, therefore, directed to reappraise the damages, both compensatory and punitive, in the light of the observations here expressed.
Decree affirmed as to defendants' liability but reversed as to damages, the record being remanded for revaluation. Costs on the defendant.
BELL, C. J., and JONES, J., concur in the result.
EAGEN and ROBERTS, JJ., dissent and would affirm.