158 F.3d 183 (3rd Cir. 1998), 97-1599, Paolella v. Browning-Ferris, Inc.

Docket Nº:97-1599.
Citation:158 F.3d 183
Party Name:Michael PAOLELLA v. BROWNING-FERRIS, INC., Appellant.
Case Date:October 13, 1998
Court:United States Courts of Appeals, Court of Appeals for the Third Circuit

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158 F.3d 183 (3rd Cir. 1998)




No. 97-1599.

United States Court of Appeals, Third Circuit

October 13, 1998

Argued June 4, 1998.

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[Copyrighted Material Omitted]

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David H. Marion (Argued), John E. Caruso, Howard J. Bashman, Montgomery, McCracken, Walker & Rhoads, Philadelphia, Pennsylvania, for Appellant.

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Arlin M. Adams (Argued), Nancy Winkelman, Schnader, Harrison, Segal & Lewis, Philadelphia, Pennsylvania, for Appellee.

Before: SCIRICA, NYGAARD and SEITZ [*], Circuit Judges.


SCIRICA, Circuit Judge.

In this diversity action, we are asked to predict certain parameters of the employment-at-will doctrine under Delaware law. Relying on the "public policy exception" to the doctrine, plaintiff claimed he was unlawfully terminated for protesting his employer's illegal billing scheme. After a jury rendered a verdict for plaintiff, defendant employer moved for judgment as a matter of law or, in the alternative, a new trial. The district court denied both motions. Paolella v. Browning-Ferris, Inc., 973 F.Supp. 508, 510 (E.D.Pa.1997). We will affirm.


In October 1989, Michael Paolella began working as a sales supervisor for Browning-Ferris, Inc. in its office in King of Prussia, Pennsylvania. In February 1990, Paolella was promoted to sales supervisor and transferred to BFI's Wilmington, Delaware division. His responsibilities included servicing existing commercial waste disposal accounts and obtaining new business for BFI. Paolella soon developed and instituted a marketing plan which resulted in increased profits for the Delaware division. At the start of the next fiscal year, October 1, 1990, Paolella was promoted to sales manager.

BFI's customer relationships were governed by service agreements, which usually ran for a three year term and provided for a flat monthly billing rate. Although the customer was only informed of the bottom line figure, the billing rate was actually comprised of two separate components: a service fee, representing the cost of collecting and transporting the trash to the landfill each week, and a disposal fee, representing the cost of dumping the trash at the landfill. While the monthly rate was based on the volume of the customer's trash, measured in cubic yards, the state-run landfill charged BFI based on the weight of the trash dumped. Consequently, BFI based the disposal portion of its contract price on an average weight of 90 pounds per cubic yard. The service agreements allowed BFI to increase the monthly rate in three ways: 1) BFI could pass along state increases in dumping costs at the landfill; 2) BFI could impose cost-of-living increases on the service fee; or 3) BFI could increase the rate in other situations, provided it gave the customer 30 days advance notice and received customer consent. 1

In late 1991, the Delaware Solid Waste Authority announced plans to increase landfill disposal rates by 25%, effective July 1, 1992. Ronald Hanley, BFI's Delaware District manager, discussed the rate increase at a January 1992 sales meeting, and announced two changes in BFI's billing procedures. First, he unveiled a new invoicing system to begin February 1, 1992, whereby customer invoices would display both the disposal fee and the service fee. This would allow customers to see that the impending 25% fee increase was the result of the state's increased disposal fees, rather than an increase in BFI's service charges.

According to Paolella, Hanley also announced a plan to increase the disposal fee artificially by assigning a new average weight of 120 pounds per cubic yard, and decreasing the service fee by a corresponding amount. The initial result of this modification was that the customer would continue to pay the same flat monthly fee. But once the state imposed 25% increase in dumping costs took effect, BFI would earn additional profits because that increase would be applied to the artificially inflated average weight of 120 pounds per cubic yard. While the total amount of the increase would be disclosed under the new billing system, the customer would assume

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the full increase was attributable to the state imposed increase in disposal charges.

Acknowledging he did not object to the plan at the meeting, Paolella testified at trial that he subsequently raised concerns about the legality of the rate increase with Hanley at least twice weekly, from January through April 1992, during their daily commute. Paolella also testified he raised similar concerns with Fred Snyder, BFI's vice-president for the Atlantic region, during a private meeting in April 1992. 2 According to Paolella, both men dismissed his protests, and Snyder advised Paolella to do as Hanley instructed. 3 Despite his objections, in June 1992 Paolella complied with instructions to draft a letter to all BFI customers advising them of the 25% increase. 4 He also negotiated contracts with customers based on the new rates.

Paolella testified that, in November 1992, a customer, Edwin DeSeta, advised him that a BFI competitor had offered a better rate. After a weight study of DeSeta's trash indicated that it weighed much less than the average weight of 120 pounds per cubic yard, Paolella asked Hanley if BFI could reduce DeSeta's rate. According to Paolella and his subordinate, Geoffrey Schenck, Hanley instructed them to inform DeSeta that his trash weighed 120 pounds and the rate could not be reduced. Paolella then instructed Schenck to explain this to DeSeta. Paolella testified he complied because he feared losing his job. One month later, Paolella was replaced by Stephen Stanko as sales manager. Despite not having received any prior written warning or other indication that his performance was unsatisfactory, Paolella was demoted to sales representative.

Paolella also testified to two other instances of fraudulent billing by BFI. First, Paolella testified that in 1993 he discovered BFI had increased its weight disposal fee for Dempsey's Diner, claiming the average weight of Dempsey's trash was 200 pounds. Although Dempsey's contract did not permit BFI to increase its fees based on an increase in the trash weight, Dempsey's agreed to pay the higher rate if BFI could substantiate the weight increase. According to Paolella, Stanko directed Paolella to prepare three false weight tickets. Paolella testified he did as directed because he feared repercussions if he disobeyed.

Second, Paolella testified that he learned BFI was continuing to bill Fayva Shoes, although Fayva had stopped using BFI's services some months earlier. When Paolella suggested to Hanley that Fayva should receive a credit for the overpayments, Hanley told him, "as long as they keep paying us, you keep billing them."

In late 1993, the tension between Paolella and BFI reached a breaking point. On August 27, 1993, Paolella sent BFI a certified letter concerning unpaid commissions he claimed BFI owed him. On September 24, 1993, BFI sent Paolella a written warning about his performance. On December 2, 1993, Paolella sent BFI another letter about the commissions. BFI replied by sending Paolella another warning on December 23, 1993. Paolella then sent BFI two more letters on December 30, 1993. In one of them, Paolella warned BFI to "immediately cease all illegal activities," a statement he claimed referred to Hanley's fraudulent billing scheme. On January 17, 1994, BFI terminated Paolella for "poor performance."


On December 6, 1994, Paolella filed a complaint against BFI and its parent company,

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Browning-Ferris Industries, Inc., alleging wrongful discharge. 5 After a four day trial, the jury returned a verdict for the plaintiff and awarded $732,000 in damages. At the court's request, the jury specified that $135,000 represented back pay, while the remaining $597,000 constituted front pay. BFI filed a renewed motion for judgment as a matter of law and, in the alternative, a motion for a new trial. 6 As noted, the district court denied both motions.


The district court examined Delaware case law to determine whether whistleblowing employees were entitled to protection under the public policy exception to the employment-at-will doctrine. Finding no cases directly on point, the court predicted whether the Delaware Supreme Court would afford such protection. Based primarily on its interpretation of the Delaware Supreme Court's decision in E.I. DuPont de Nemours and Co. v. Pressman, 679 A.2d 436 (Del.1996), the district court held Delaware would extend the protection of the public policy exception to an employee who "blew the whistle" on an employer's illegal (as opposed to merely questionable) conduct. Paolella, 973 F.Supp. at 512.

The court then examined whether there was sufficient evidence to support the jury's finding that BFI had engaged in illegal activity. Citing Paolella's testimony concerning Hanley's creation of the fraudulent billing scheme, Hanley's instructions to lie to customer DeSeta, Stanko's instructions to fabricate weight tickets, and the corroboration of much of Paolella's testimony by Schenck, the court concluded the evidence was sufficient. The court also found the public policy exception could still apply even if Paolella participated in the unlawful activity: "[t]o preclude even a penny of recovery to a whistleblower plaintiff because that plaintiff had some slight participation in that wrongdoing would be a disincentive to rooting out corruption, and would mute more than a few whistles." Id. Drawing an analogy to the concept of comparative fault in negligence, the district court held that, although the Delaware courts would not create an absolute bar to recovery, some reduction in the jury verdict was appropriate because of Paolella's participation. 7 Consequently, the court ordered a remittitur of $132,000.

The district court also rejected BFI's...

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