Fraser v. Nationwide Mut. Ins. Co.

• Decision Date: 10 December 2003
• Docket Number: No. 01-2921.,01-2921.
• Citation: 352 F.3d 107
• Parties: Richard FRASER a/b/a R.A. Fraser Agency; Deborah Fraser, Appellants v. NATIONWIDE MUTUAL INSURANCE CO.; Nationwide Mutual Fire Insurance Co.; Nationwide Life Insurance Co.; Nationwide General Insurance Co.; Nationwide Property & Casualty Insurance Co.; Nationwide Variable Life Insurance Co.; Colonial Insurance Co. of Wisconsin.
• Court: U.S. Court of Appeals — Third Circuit

Page 107

352 F.3d 107

Richard FRASER a/b/a R.A. Fraser Agency; Deborah Fraser, Appellants v. NATIONWIDE MUTUAL INSURANCE CO.; Nationwide Mutual Fire Insurance Co.; Nationwide Life Insurance Co.; Nationwide General Insurance Co.; Nationwide Property & Casualty Insurance Co.; Nationwide Variable Life Insurance Co.; Colonial Insurance Co. of Wisconsin.

No. 01-2921.

United States Court of Appeals, Third Circuit.

Argued June 23, 2003.

Filed December 10, 2003.

As Amended January 20, 2004.

COPYRIGHT MATERIAL OMITTED

James G. Wiles, (Argued), Yardley, PA, for Appellants.

Frederick C. Fletcher, II, Curtis P. Cheyney, III. (Argued), Swartz, Campbell & Detweiler, Philadelphia, PA, for Appellees.

Before SLOVITER, AMBRO and BECKER, Circuit Judges.

OPINION OF THE COURT

AMBRO, Circuit Judge.

Richard Fraser, an independent insurance agent for Nationwide Mutual Insurance Company, was terminated by Nationwide as an agent. We decide whether: he has stated a viable claim for wrongful termination under Pennsylvania law; he is entitled to damages under the Electronic Communications Privacy Act and parallel Pennsylvania law for Nationwide's alleged unauthorized access to his e-mail account; an Agents' Review Board process reviewing his termination was properly conducted; a forfeiture-for-competition provision in his agency agreement is enforceable; and the District Court abused its discretion in refusing to allow Fraser to amend his complaint and in not sanctioning Nationwide for alleged discovery violations. We affirm the District Court on all but the forfeiture-for-competition and discovery violations issues. As to the former, we remand to the District Court for reconsideration in light of new caselaw from the Pennsylvania Supreme Court. We also remand Fraser's discovery sanctions claim, which the District Court did not address.

I. Background

This dispute stems from Nationwide's September 2, 1998 termination of Fraser's Agent's Agreement (the "Agreement"). It provided that Fraser sell insurance policies as an independent contractor for Nationwide on an exclusive basis. The relationship was terminable at will by either party.

The parties disagree on the reason for Fraser's termination. Fraser argues Nationwide terminated him because he filed complaints with the Pennsylvania Attorney General's office regarding Nationwide's allegedly illegal conduct, including its discriminatory refusal to write car insurance for unmarried and new drivers.¹ Fraser also contends that he was terminated for criticizing Nationwide while acting as an officer of the Nationwide Insurance Independent Contractors Association (the "Contractors Association") and for attempting to obtain the passage of legislation in Pennsylvania to ensure that independent insurance agents could be terminated only for "just cause."

Nationwide argues, however, that it terminated Fraser because he was disloyal. It points out that Fraser drafted a letter to two competitors — Erie Insurance Company ("Erie") and Zurich American Insurance ("Zurich") — expressing Contractors Association members' dissatisfaction with Nationwide and seeking to determine whether Erie and Zurich would be interested in acquiring the policyholders of the agents in the Contractors Association. Fraser claims that the letters only were drafted to get Nationwide's attention and were not sent. (Were the letters sent, however, they would constitute a violation of the "exclusive representation" provision of Fraser's Agreement with Nationwide.)

When Nationwide learned about these letters, it claims that it became concerned that Fraser might also be revealing company secrets to its competitors. It therefore searched its main file server — on which all of Fraser's e-mail was lodged — for any e-mail to or from Fraser that showed similar improper behavior.² Nationwide's general counsel testified that the e-mail search confirmed Fraser's disloyalty. Therefore, on the basis of the two letters and the e-mail search, Nationwide terminated Fraser's Agreement. It is this search of his e-mail that gives rise to Fraser's claim for damages under the Electronic Communications Privacy Act of 1986 ("ECPA"), 18 U.S.C. § 2510, et seq., and a parallel Pennsylvania statute, 18 Pa. Cons.Stat. § 5702, et seq.

After Nationwide terminated Fraser in September 1998, he filed an appeal with the Agents' Administrative Review Board (the "Board"). Fraser's Agreement with Nationwide provides that "the Agent shall have access to the Agents' Administrative Review Board, and its procedures, as it may exist from time to time." The Agreement did not, however, specify any particular procedures that the Board would follow, nor did it guarantee the availability of Board review. Board procedures were laid out in the agents' Compensation and Security Handbook (the "Handbook"), which stated explicitly that the procedures were not part of the Agreement between an agent and Nationwide. In considering Fraser's case, the Board split 2-2, and Nationwide's employee, acting as the tie-breaker, affirmed Fraser's termination. Fraser argues that the review process was a "sham" and contends that Nationwide conducted the review process in bad faith.

Within a year of his termination, Fraser went to work for a competitor of Nationwide, thereby triggering a "forfeiture-for-competition" provision in his Agreement. That provision specifies that an agent will forfeit deferred compensation by becoming employed by another insurance business within a twenty-five mile radius within one year of cancellation of the agent's Agreement. Fraser contends that, because of the provision, he forfeited several hundred thousand dollars of deferred compensation.³ He argues that the provision is invalid under Pennsylvania law because it is unduly restrictive.

As a result of these events, Fraser filed suit in the United States District Court for the Eastern District of Pennsylvania to contest: (1) his termination; (2) the alleged violation of his privacy rights under the ECPA and parallel Pennsylvania statute; (3) the Board's review procedure; and (4) the forfeiture-for-competition provision in his Agreement. Events during litigation in the District Court also have spawned issues on appeal. First, Fraser alleges that Nationwide committed numerous discovery violations. He claims that "[i]t is no hyperbole to state that in this case, no discovery was received from Nationwide without a court order compelling discovery, no court order compelling discovery from Nationwide went unviolated and more than one Nationwide witness was less than candid." On this basis, Fraser seeks discovery sanctions against Nationwide. Second, the District Court denied Fraser leave to amend his complaint a third time to add two more state-law causes of action: conversion and invasion of privacy. The Court believed that Fraser's third amendment was merely a dilatory tactic because he sought leave to amend the day before Fraser's response to Nationwide's motion for summary judgment was due. The Court granted summary judgment for Nationwide on all counts. Fraser appeals.⁴

II. Discussion

A. Wrongful Termination Claim

Whether Pennsylvania grants a cause of action for wrongful termination in this context is a question of law, over which we exercise plenary review. Borse v. Piece Goods Shop, Inc., 963 F.2d 611, 613 (3d Cir.1992). Fraser argues that, notwithstanding that his agency relationship with Reliance was "at-will," his termination was wrongful (and actionable) because it was motivated by his agitations for just-cause legislation — which Nationwide found undesirable, his reporting of Nationwide's allegedly illegal activities, and his leadership position in the Contractors Association. He notes that, while the general rule is that at-will employees may be terminated for any or no reason, courts have forbidden the firing of at-will employees when doing so would offend Pennsylvania's public policy. See Geary v. U.S. Steel, 456 Pa. 171, 319 A.2d 174, 185 (1974). He asserts that his termination fits this exception. Nationwide responds that Fraser was not an employee but rather an independent contractor, and thus the cases prescribing this public policy exception do not apply here.

Because no Pennsylvania case addresses whether there are limitations on a company's ability to terminate an independent contractor (as opposed to an employee), the District Court assumed arguendo that the public policy cases apply equally to independent contractors. We too proceed by so assuming without deciding the question.

We begin by noting that Pennsylvania courts have construed the public policy exception to at-will employment narrowly, lest the exception swallow the general rule. See Clay v. Advanced Computer Applications, Inc., 522 Pa. 86, 559 A.2d 917, 918 (1989) ("Exceptions to [the rule that terminations from at-will positions may not be challenged] have been recognized in only the most limited of circumstances, where discharges of at-will employees would threaten clear mandates of public policy."). In Hennessy v. Santiago, 708 A.2d 1269 (Pa.Super.1998), a Pennsylvania court recognized three limited circumstances in which public policy will trump employment at-will. "[A]n employer (1) cannot require an employee to commit a crime [and fire the employee for refusing to do so], (2) cannot prevent an employee from complying with a statutorily imposed duty, and (3) cannot discharge an employee when specifically prohibited from doing so by statute." Id. at 1273 (internal citation omitted). The Pennsylvania Supreme Court has never formally adopted Hennessy's three exceptions to the at-will employment doctrine. However, in Shick v. Shirey, 552 Pa. 590, 716 A.2d 1231 (1998), the Supreme Court did say that "public policy" is not limited to "that which has been legislatively enacted." Id. at 1235. But it also went on to note that a non-legislatively expressed public policy must be extremely clear to be cognizable in this...