Fraser v. Nationwide Life Insurance Co. (3rd Cir. 2003)

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.

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.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. 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"), and a parallel Pennsylvania statute.

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 tiebreaker, 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. 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 "it 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.

1. Title I

Fraser argues that, by accessing his e-mail on its central file server without his express permission, Nationwide violated Title I of the ECPA, which prohibits "intercepts" of electronic communications such as e-mail. The statute defines an "intercept" as "the aural or other acquisition of the contents of any wire, electronic, or oral communication through the use of any electronic, mechanical, or other device." Nationwide argues that it did not "intercept" Fraser's e-mail within the meaning of Title I because an "intercept" can only occur contemporaneously with transmission and it did not access Fraser's e-mail at the initial time of transmission.

On this matter of statutory interpretation which we review de novo, Moody v. Sec. Pac. Bus. Credit, Inc., we agree with Nationwide. Every circuit court to have considered the matter has held that an "intercept" under the ECPA must occur contemporaneously with transmission.

The first case to do so, Steve Jackson Games, noted that "intercept" was defined as contemporaneous in the context of an aural communication under the old Wiretap Act, and that when Congress amended the Wiretap Act in 1986 (to create what is now known as the ECPA) to extend protection to electronic communications, it "did not intend to change the definition of 'intercept.'" Moreover, the Fifth Circuit noted that the differences in definition between "wire communication" and "electronic communication" in the ECPA supported its conclusion that stored e-mail could not be intercepted within the meaning of Title I. A "wire communication" under the ECPA was (until recent amendment by the USA Patriot Act) "any aural transfer made in whole or in part through the use of facilities for the transmission of communications by the aid of wire, cable, or other like connection between the point of origin and the point of reception . . . and such term includes any electronic storage of such communication " By contrast, an "electronic communication" is defined as "any transfer of signs, signals, writing, images, sounds, data, or intelligence of any nature transmitted in whole or in part by a wire, radio, electromagnetic, photoelectronic or photooptical system . . . but does not include . . . any wire or oral communication." Thus, the Fifth Circuit reasoned that because "wire communication" explicitly included electronic storage but "electronic communication" did not, there can be no "intercept" of an e-mail in storage, as an e-mail in storage is by definition not an "electronic communication."

Subsequent cases, cited above, have agreed with the Fifth Circuit's result. While Congress's definition of "intercept" does not appear to fit with its intent to extend protection to electronic communications, it is for Congress to cover the bases untouched. We adopt the reasoning of our sister circuits and therefore hold that there has been no "intercept" within the meaning of Title I of ECPA.

2. Title II

Fraser also argues that Nationwide's search of his e-mail violated Title II of the ECPA.That Title creates civil liability for one who "(1) intentionally accesses without authorization a facility through which an electronic communication service is provided; or (2) intentionally exceeds an authorization to access that facility; and thereby obtains, alters, or prevents authorized access to a wire or electronic communication while it is in electronic storage in such system." 18 U.S.C. § 2701(a). The statute defines "electronic storage" as "(A) any temporary, intermediate storage of a wire or electronic communication incidental to the electronic transmission thereof; and (B) any storage of such communication by an electronic communication service for purposes of backup protection of such communication."

The District Court granted summary judgment in favor of Nationwide, holding that Title II does not apply to the e-mail in question because the transmissions were neither in "temporary, intermediate storage" nor in "backup" storage. Rather, according to the District Court, the e-mail was in a state it described as "post-transmission storage." We agree that Fraser's e-mail was not in temporary, intermediate storage. But to us it seems questionable that the transmissions were not in backup storage -- a term that neither the statute nor the legislative history defines. Therefore, while we affirm the District Court, we do so through a different analytical path, assuming without deciding that the e-mail in question was in backup storage.

18 U.S.C. § 2701(c)(1) excepts from Title II seizures of e-mail authorized "by the person or entity providing a wire or electronic communications service." There is no circuit court case law interpreting this exception. However, in Bohach v. City of Reno, a district court held that the Reno police department could, without violating Title II, retrieve pager text messages stored on the police department's computer system because the department "is the provider of the 'service'" and "service providers [may] do as they wish when it comes to accessing communications in electronic storage." Like the court in Bohach, we read §2701(c) literally to except from Title II's protection all searches by communications service providers. Thus, we hold that, because Fraser's e-mail was stored on Nationwide's system (which Nationwide administered), its search of that e-mail falls within § 2701(c)'s exception to Title II.

We affirm the District Court's grant of summary judgment in favor of Nationwide on Fraser's wrongful termination claim, his ECPA and parallel state claims, and his bad-faith claim. We vacate and remand the forfeiture-for-competition claim for consideration in light of the Pennsylvania Supreme Court's recent decision in Hess. Moreover, on remand, the Court should address Fraser's motion for discovery sanctions.

CO259--Cyberlaw
Copyright © 2010 Dale A. Herbeck
Last update: 19 January 2009