$26 Million Dollar Tortious Interference Suit Ends in Defense Verdict

The Legal Intelligencer
By Asher Hawkins

July 27, 2007

If business is war, then what tactics amount to war crimes when two companies are in direct competition?

On Tuesday morning, a Philadelphia jury handed up a defense verdict in a case in which the world's largest operator of outlet malls was accused of sabotaging a successful Poconos-area businessman's attempts to create his own outlet center in the area.

Joseph Farda - whose family owns a hotel and golf course, among other Poconos businesses - was planning several years ago to build an outlet mall on property he and his family own in the region.

Around the same time, outlet malls giant Chelsea Property Group Inc. acquired the Crossings Premium Outlets, an outlet mall located a short distance from the Farda property.

Farda ultimately claimed that Chelsea tortiously interfered with his attempts to attract tenants to his tentative shopping center; he sought roughly $26 million in damages. The case was assigned to the city's Commerce Case Management Program.

According to attorneys involved in the case, Farda's leasing agent testified at last week's trial in Farda v. Chelsea Property Group Inc. that an executive from a major national clothing company told him during a 2003 conversation that if the executive's company was to open a store at Farda's planned Tannersville Outlet Center, Chelsea's president "would cut my balls off."

But when the Farda jury was charged, the attorneys also said, Judge Mark I. Bernstein - who presided over the liability phase of the matter's bifurcated trial - instructed the jurors that under Pennsylvania law, there is a "competitor's privilege" defense to a claim of tortious interference with prospective business relations.

Farda's lead attorney in the case was Stephen Harvey of Pepper Hamilton, while Chelsea was defended by Marc Sonnenfeld of Morgan Lewis & Bockius.

The case's trial was the first that Bernstein has seen through to verdict since being assigned to the Commerce Court earlier this year, his chambers confirmed. The civil branch veteran, who until recently coordinated Philadelphia's class action litigations, replaced now-President Judge C. Darnell Jones II as the Commerce Court's third jurist.

According to Sonnenfeld, the jury was picked on July 7 and trial began the following Monday, July 10. The jurors heard closing arguments a week later, on Monday, and were charged that afternoon.

After they had deliberated for roughly two hours over the course of Monday afternoon and Tuesday morning, a handwritten note signed by one juror was sent out to the courtroom. Sonnenfeld said the note asked whether the plaintiffs had to establish just one of four, or all four, of the elements of tortious interference with prospective business relations that are set out in state legal precedent.

It is well settled under Pennsylvania law that in order to succeed on such a claim, a plaintiff must establish all of the following: that a prospective contractual relationship existed; that the defendant intended to harm the plaintiff by preventing the relationship from occurring; the absence of privilege or justification on the part of the defendant; and that the plaintiff suffered actual damages as a result of the defendant's conduct.

Harvey and Sonnenfeld said that when Bernstein originally charged the jury, he explained to them that with respect to the third element, there exists a competitor's privilege under which a defendant's having intentionally caused a third party to not enter into a business relationship with the plaintiff is condoned so long as the defendant did not employ "wrongful means."

Sonnenfeld said that what exactly constitutes wrongful means for the purposes of such tortious interference claims has not been made abundantly clear by Pennsylvania's case law.

Harvey said his client took the position that "the use of economic pressure in unrelated markets" amounts to wrongful means when it comes to interfering with a business competitor's prospective partnerships.

Sonnenfeld said that after Bernstein made clear to the jury that all four elements had to be established in order for Farda to prevail, it took the panel's members another 15 minutes to reach its unanimous finding in favor of Chelsea.

The trial itself featured only one expert witness, who was called by Farda.

Sonnenfeld said that local real estate appraiser Reaves C. Lukens Jr. testified that the Fardas' property would have served as an optimal location for an outlet mall.

According to Sonnenfeld, Lukens's liability testimony was heard over the defense's objection.

(In April, Bernstein, finding that the factual basis for an opinion put forward by Lukens and another expert in a report they jointly prepared was not fully identified, had ordered Farda to make the two experts available for a defense-conducted deposition.)

The remaining witnesses called to the stand in Farda were non-experts, the attorneys said.

According to Harvey and Sonnenfeld, the key witness as to prospective Farda tenants' perception of Chelsea was William Reddinger, the leasing agent hired by Farda when his outlet mall project got under way.

After being called to the stand by Farda, Reddinger testified that when he spoke with Dan Cochrane - a vice president with clothing company Phillips-Van Heusen - in February 2003 about the possibility of his company's setting up an outlet in the Farda mall, Cochrane responded that, "If I would do your project, [Chelsea president] Tom [Davis] would cut my balls off," according to Sonnenfeld.

Sonnenfeld said the defense objected to that portion of Reddinger's testimony as hearsay. Harvey responded by citing the state-of-mind exception; Bernstein ultimately allowed Reddinger to testify about what Cochrane had allegedly told him.

On cross-examination, Sonnenfeld said, Reddinger noted that he believed Cochrane had been speaking rhetorically and subjunctively.

In addition, he added, the jury was read deposition testimony from Cochrane in which the executive denied even making the "cut my balls off" comment, and characterized his company's relationship with Chelsea as being a good one in which, if anything, PVH had the upper hand.

Until roughly the morning the Farda jury was picked, it appeared that Reddinger was going to be not just a key plaintiff's witness, but also a defendant in the litigation.

In his complaint in the case, Farda had asserted counts of breach of contract and breach of fiduciary duty against Reddinger. In the complaint, Farda claimed that Reddinger, worried about his ability to lease at other outlet centers if he got on Chelsea's bad side, disregarded his duty to help Farda attract tenants to the Tannersville Outlet Center.

Harvey and Sonnenfeld said that after being sued, Reddinger maintained he did not have enough money to hire an attorney. He appeared pro se until two weeks before trial, when local attorney Clifford Haines, a former Philadelphia Bar Association chancellor, agreed to represent Reddinger.

Sonnenfeld said he believes Haines and Reddinger arrived at a "pay-me-when-you-can" arrangement.

"Once Cliff Haines came into the case, on the morning of jury selection . . . the Fardas dropped him as a defendant," Sonnenfeld said.

Harvey said the decision not to proceed to trial against Reddinger had nothing to do with his retaining counsel, but was instead prompted by a sense that an extra defendant would complicate the trial.

Harvey and Sonnenfeld said that Farda and Reddinger arrived at a settlement agreement that did not involve money. According to Harvey, among its terms were that Reddinger prove he has no substantial assets and agree to release any and all potential claims against the Fardas concerning any actions up to the trial date.

"The existence of counsel for Mr. Reddinger made it easier to make such a settlement at that time," Harvey said.

Besides Reddinger's testimony about Cochrane's alleged "cut my balls off" statement, Farda did not present any other evidence that prospective Tannersville Outlet Center tenants were threatened by Chelsea, Sonnenfeld said.

He added that there was conflicting testimony at trial about a June 2003 meeting between the Fardas and Chelsea president Davis that was arranged by a Pike County real estate broker, Peter Helms. Sonnenfeld said Helms wanted to see if the Fardas and Chelsea might be interested in a joint outlet mall venture.

At trial, members of the Farda family testified that Davis warned the Fardas during that meeting that if they built their outlet mall, no one would lease any space there. But Davis responded that no such threats had been made, and Helms corroborated Davis' version of the meeting, according to Harvey and Sonnenfeld.

Harvey said that he suggested during cross-examination of Helms and during his closing that although the company Helms works for had had business dealings with the Fardas in the past, Helms himself has had business dealings with Davis and Chelsea.

Harvey said the jurors also heard testimony about how Joseph Farda came to the U.S. from Italy at the age of 14 and, despite only having five years' worth of education, worked his way up from a laborer to become the owner of a Poconos-area hotel, golf course, restaurant and gas station, among other businesses.

"We're obviously disappointed in the outcome," Harvey said of the verdict, "but the jury has spoken, and we're still evaluating where we are now."