In a recent decision, in the case of Walnut Street Associates, Inc. v. Brokerage Concepts, Inc.,  the Pennsylvania Supreme Court made it more difficult for a business to use the threat of a lawsuit for interference with contractual relations to deter competitors and others from acting in a manner that may harm that business.  Whether the Walnut Street decision helps or hurts your business will depend on your situation.  The Court in Walnut Street addressed whether a defendant can be held liable for such “interference” if the defendant communicates only truthful information in disrupting a plaintiff’s business relationship.

For years, Pennsylvania has recognized and allowed a person or company (a “plaintiff”) to sue another party (a “defendant”) alleging that the defendant stole a customer or otherwise did something else to disrupt a business relationship that benefited the plaintiff.  These types of lawsuits are known as actions for interference with contractual relations or simply as “contract interference” actions.  Possible remedies for contract interference include punitive damages, damages for lost profits, and other economic penalties, which can be very large awards.  As such, threat of such a lawsuit could deter a party from acting in a manner that harmed another business.

Walnut Street Associates was the insurance broker for Procacci Brothers Sales Corporation.  Brokerage Concepts, Inc. was Procacci’s insurance plan administrator.  Because Walnut Street had recommended Brokerage Concepts to Procacci, Brokerage Concepts paid commissions to Walnut Street based on Procacci’s insurance premium payments.  In 2005, Procacci insisted that Brokerage Concepts lower its fees.  When Brokerage Concepts refused, Procacci terminated its relationship with Brokerage Concepts.  In an effort to rekindle the relationship, Brokerage Concepts wrote a letter to Procacci explaining the commissions it had been paying to Walnut Street.  The commissions were apparently higher than Procacci thought they were and, because of this, Procacci terminated its relationship with Walnut Street. 

When Walnut Street learned about the Brokerage Concepts letter, it filed a lawsuit alleging Brokerage Concepts had improperly interfered with its contract with Procacci.  Both Brokerage Concepts and Walnut Street agreed that the letter to Procacci was completely truthful.  Nonetheless, the jury ordered Brokerage Concepts to pay $330,000 to Walnut Street.  Brokerage Concepts appealed the jury’s award.  On appeal, Brokerage Concepts argued it could not be held liable for “contract interference” because it had only shared truthful information with Procacci.  Ultimately, the Pennsylvania Supreme Court agreed, held that truth is a defense to a contract interference claim, and wiped out the jury’s $330,000 award against Brokerage Concepts. 

The Court’s decision in Walnut Street should help promote the free flow of information.  The potential benefits of the Walnut Street decision to your business include – 

  • If you are providing information about a competitor, you will not be held liable if you use only truthful information in pursuing the competitor’s customers and clients. 
  • Employees may share truthful information about other employees without being worried about being held liable for doing so. 

The potential detriments of the Walnut Street decision may have on your business include – 

  • Your competitors will be able to share truthful information about you without liability. 
  • Your former employees who are hired by competitors will be able to share truthful information about you to their new employer unless you have an agreement prohibiting them from disclosing the information or unless the information is sensitive and entitled to special legal protection. 

If you have any question about how the Walnut Street case may affect your business, please call a Kegel Kelin Almy & Grimm LLP business attorney to discuss your particular situation.