Romero v. Allstate Ins. Co., CIVIL ACTION NO. 01-3894

Citation158 F.Supp.3d 369
Decision Date26 January 2016
Docket NumberCONSOLIDATED WITH NO. 01-6764,CIVIL ACTION NO. 01-3894, NO. 01-7042
Parties Gene R. Romero, et al., Plaintiffs, v. Allstate Insurance Company, et al. Defendants.
CourtUnited States District Courts. 3th Circuit. United States District Court (Eastern District of Pennsylvania)

John V. Gorman, Coleen M. Meehan, David W. Marston, Jr., Jacqueline C. Gorbey, James P. Walsh, Jr., K. Catherine Roney, Marisel Acosta, Paul Anton Zevnik, William P. Quinn, Jr., Morgan, Lewis & Bockius LLP, Philadelphia, PA, Mary Ellen Signorille, AARP Foundation Lit. (AFL), Michael D. Lieder, Sprenger & Lang, Michael Wilson, Morgan Lewis & Bockius LLP, Washington, DC, Steven H. Doto, Lauletta, Birnbaum, LLC., Turnersville, NJ, Brian M. Ercole, Morgan Lewis, Miami, FL, for Plaintiffs.

John B. Langel, Ballard Spahr Andrews & Ingersoll LLP, Katherine M. Katchen, Akin, Gump, Strauss, Hauer & Feld, LLP, Christopher Todd Cognato, Montgomery McCracken Walker & Rhoads, LLP, Philadelphia, PA, Erica Zolner, Peter A. Bellacosa, Richard C. Godfrey, Erica Zolner, Kirkland & Ellis LLP, New York, NY, Jordan M. Heinz, Richard C. Godfrey, Donna M. Welch, Hariklia Karis, Sallie G. Smylie, Brian Borchard, Kirkland & Ellis LLP, Christopher Q. King, Denton US LLP, Chicago, IL, Donald R. Livingston, W. Randolph Teslik, Akin, Gump, Strauss, Hauer & Feld, LLP, Tia T. Trout Perez, Kirkland & Ellis, Washington, DC, for Defendants.

MEMORANDUM

RONALD L. BUCKWALTER

, SENIOR JUDGE.

From June 1, 2015 to June 17, 2015, the first of multiple jury trials was held in this case on the singular issue of whether ten of the PlaintiffsRoger Boyd, Craig Crease, Ronald Harper, Mike Kearney, Sylvia Kelly, David Lawson, Ed Murray, Christopher Perkins, Rick Peterson, and Paula Reinerio—knowingly and voluntarily signed the Release of claims Allstate used in connection with the termination of Plaintiffs' employment contracts as part of the Preparing for the Future Group Reorganization Program. The jury found that, as to eight of the Plaintiffs, the Release was not knowingly and voluntarily signed, but, as to the remaining two Plaintiffs,1 the Release had been knowingly and voluntarily signed.

Plaintiffs also posed two other Release defenses: unclean hands and unconscionability. These equitable defenses, however, were reserved for ruling by the Court and were not submitted to the jury. Following the trial, the parties submitted hundreds of pages of proposed findings of fact and conclusions of law, together with thousands of pages of exhibits, pursuant to Rule 52(a)(1) of the Federal Rules of Civil Procedure

. The Court now issues the following Memorandum on the remaining issues.

I. FINDINGS OF FACT

By way of brief review, this case revolves around Allstate's announcement and implementation of its Preparing for the Future Group Reorganization Program (“the Program”). Prior to November 1999, the majority of Allstate's captive agency force acted as employee agents, under either an R830 or an R1500 contract, and was entitled to a wide range of company-sponsored health, welfare, and retirement benefits. On November 10, 1999, Allstate announced the Program by noting that, as part of a new business model, it was reorganizing its entire captive agency force into a single exclusive agency independent contractor program. With few exceptions, Allstate terminated the employment contracts of the 6,200-plus R830 and R1500 employee agents effective no later than June 30, 2000.

In connection with the termination of the R830 and R1500 employment contracts, Allstate offered the agents working under those contracts four options. The first three options were conditioned upon the agents' agreement to execute a release of claims (the “Release”), while the fourth option was not. The first “Release-based” option was the “EA Option.” According to the Program Information Booklet, this option would allow the agent to enter into an R3001C or R3001S Agreement, thereby converting the agent from an employee to an Exclusive Agent (“EA”) independent contractor. The second option was the “Sale Option.” This option also permitted an agent to enter into an R3001C/S Agreement with Allstate, thus converting the agent to an EA independent contractor. In turn, the agent would receive a “conversion bonus” and Allstate would forgive any advances owed, assume certain lease and advertising obligations the agent incurred as an employee agent, and permit the agent, after thirty days' service as an EA, to sell his or her book of business written while an R830 or R1500 agent. The third option was the “Enhanced Severance Option.” Under this option, Allstate would pay the agent “enhanced” severance equal to one year's pay based on the greater of 1997 or 1998 total compensation, forgive debt and/or expenses that Allstate had advanced to the agent, and relieve the agent of certain lease and advertising obligations incurred as an R830 or R1500 agent. The final option was the “Base Severance Option.” If an agent elected this option, then Allstate paid him or her up to thirteen weeks of pay. The agent electing this option did not need to enter into the Release.

As to the remaining findings of fact, the Court remarks that this case has been in litigation for over fourteen years. The facts have been enumerated at length on multiple occasions and in numerous, extensive opinions from this Court. None of the trial evidence or testimony varied materially from these previous discussions.2 For the most part, the parties' Proposed Findings of Fact and Conclusions of Law agree on the salient factual points that bear on the remaining issues in this case. The proposed findings on which the parties disagree concern, for the most part, matters of legal interpretation rather than factual determination. In lieu of prolonging this matter further by engaging in yet another excruciatingly detailed discussion of the facts—a discussion which will have little bearing on the future of this case or the multitude of other trials through which the parties must proceed—the Court, for purposes of this Opinion only, accepts the Plaintiffs' Findings of Fact as true, except as noted in the Conclusions of Law below, and engages in a discussion of the remaining legal issues.

II. CONCLUSIONS OF LAW3
A. Whether the Release is Invalid Based on Unclean Hands

As a general principle, unclean hands is “a self-imposed ordinance that closes the doors of a court of equity to one tainted with inequitableness or bad faith relative to the matter in which he seeks relief, however improper may have been the behavior of the defendant.” Precision Instrument Mfg. Co. v. Auto. Maint. Mach. Co. , 324 U.S. 806, 814, 65 S.Ct. 993, 89 L.Ed. 1381 (1945)

. It is an equitable doctrine which applies “when a party seeking relief has committed an unconscionable act immediately related to the equity the party seeks in respect to the litigation.” Highmark, Inc. v. UPMC Health Plan, Inc. , 276 F.3d 160, 174 (3d Cir.2001). As a general rule, a claim is barred under the doctrine of unclean hands when (1) a party seeking affirmative relief (2) is guilty of conduct involving fraud, deceit, unconscionability, or bad faith (3) directly related to the matter in issue (4) that injures the other party and (5) affects the balance of equities between the litigants.” Imprisoned Citizens Union v. Shapp , 11 F.Supp.2d 586, 608 (E.D.Pa.1998) (citation and internal quotation marks omitted), aff'd , 169 F.3d 178 (3d Cir.1999) ; see also Lucey v. Workmen's Comp. Appeal Bd. , 557 Pa. 272, 732 A.2d 1201, 1204 (1999) (stating the doctrine of unclean heads “closes the doors of a court of equity to one tainted with inequity or bad faith relative to the matter in which he seeks relief”). The doctrine is to be applied ‘only where some unconscionable act of one coming for relief has immediate and necessary relation to the equity that he seeks in respect of the matter in litigation.’ Ne. Women's Ctr., Inc. v. McMonagle , 868 F.2d 1342, 1354 (3d Cir.1989) (quoting Keystone Driller Co. v. Gen. Excavator Co. , 290 U.S. 240, 245–46, 54 S.Ct. 146, 78 L.Ed. 293 (1933) ).

Plaintiffs now contend that the doctrine of unclean hands precludes Allstate from enforcing the Release. Allstate, on the other hand, argues that Plaintiffs have failed to prove that the Release is invalid based on unclean hands because: (1) the unclean hands doctrine does not apply to this case where Allstate is not asserting an equitable defense; and (2) Plaintiffs have failed to prove the unclean hands theory on its merits. The Court addresses each assertion individually.

1. Whether the Unclean Hands Theory Applies to this Case

Allstate first argues that the unclean hands doctrine is a defense that is available only to a party opposing a request for equitable relief. Allstate, however, does not request equitable relief, but rather only seeks to enforce a contract as an affirmative defense to Plaintiffs' federal and state law claims. Thus, according to Allstate, the unclean hands doctrine cannot apply.

The Court previously addressed this argument in detail in the Memorandum Opinion of October 6, 2014. Romero v. Allstate Ins. Co. , 52 F.Supp.3d 715 (E.D.Pa.2014)

. Specifically, in response to this precise argument, the Court held as follows:

This argument, however, disregards prevailing Third Circuit law. In Mente v. Chevrolet Oldsmobile, Inc. v. GMAC , 451 Fed.Appx. 214 (3d Cir.2011)

, a jury awarded $4 million to the plaintiffs for the defendant's breach of contract. Id. at 217. The defendant asserted at trial that the plaintiffs had waived their rights to sue the defendant in a Forbearance Agreement. Id. at 216–17. The jury found enforcement of the Forbearance Agreement was barred by the equitable doctrine of unclean hands. Id. at 217. On appeal, the defendant argued that the unclean hands doctrine did not apply because the plaintiff's claim was contractual and not equitable. Id. The Third Circuit disagreed and held that “the doctrine is being invoked to defend against GMAC's request...

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    ...clean hands." See Precision Instrument Mfg. Co. v. Auto. Maint. Mach. Co., 65 S. Ct. 993 (U.S. 1945); Romero v. Allstate Ins. Co., 158 F. Supp. 3d 369, 374-75 (E.D. Pa. 2016); In re Estate of Pedrick, 482 A.2d 215, 223 (Pa. 1984); Stauffer v. Stauffer, 351 A.2d 236, 244-45 (Pa. 1976). My an......
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