1

IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF PENNSYLVANIA

KAREN J. WALSH :

Plaintiff, : CIVIL ACTION

 :

 v. :

 :

IRVIN STERN'S COSTUMES, et al : NO. 05-2515

Defendants :

 :

 v. :

 :

BCA EMPLOYEE MANAGEMENT :

GROUP, INC. : 

3rd Party Defendant : 

MEMORANDUM

Baylson, J. August 15, 2006

I. Introduction

Currently before this Court is are two motions filed by Plaintiff Karen Walsh (“Plaintiff”

or “Walsh”): a Motion to Dismiss Defendant Irvin Stern's Costumes’ Amended Counterclaims

(Doc. No. 35) and a Motion to Reinstate Retaliation Claims (Doc. No. 55). For the reasons set

forth below, the Motion to Dismiss will be granted in part and denied in part, while the Motion to

Reinstate will be granted.

II. Procedural Background

Plaintiff presents a claim of employment discrimination, alleging her former employer

fired her three weeks after she advised management that she was pregnant. Her Amended

Complaint presents two (2) counts for pregnancy discrimination; the First Cause of Action is

Case 2:05-cv-02515-MMB Document 63 Filed 08/15/06 Page 1 of 14
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asserted pursuant to the Pregnancy Discrimination Act of 1978, 42 U.S.C. § 2000e(k) (“PDA”),

which is a subset of Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000e et seq. (“Title

VII”) and the Second Cause of Action is under the Pennsylvania Human Relations Act, 43 P.S. §

951 et. seq (“PHRA”). Subsumed within both was an allegation of retaliation which asserted that

Defendants Irvin Stern's Costumes (“Stern’s”), Pierre's Costumes (“Pierre’s”),Williamson

Costume Company (“Williamson Costume”), Joyce Williamson, and Richard Williamson

(collectively “Defendants”) threatened — via telephone and U.S. mail — to accuse her of theft

and seek criminal charges against her unless she withdrew her lawsuit. 

III. Motion to Reinstate Retaliation Claims

In her Motion to Reinstate Retaliation Claims, Plaintiff urges this Court to reinstate the

previously-dismissed retaliation claims in light of the Supreme Court’s recent decision in 

Burlington Northern & Santa Fe Ry. v. White, 548 U.S. --, 126 S.Ct. 2405 (2006). Because

Burlington Northern specifically and squarely abrogated the Third Circuit’s test regarding the

“adverse employment action” prong of a retaliation claim, upon which this Court relied in its

January 19, 2006 opinion dismissing Plaintiff’s claims for retaliation (Doc. No. 18), Walsh v.

Irvin Stern’s Costumes, 2006 WL 166509 (E.D. Pa. Jan. 19, 2006) (“Walsh I”), we conclude they

must be reinstated. 

A. The Court’s January 19, 2006 Order Dismissing the Retaliation Claims

In Walsh I, we indicated that the Third Circuit mandated that a plaintiff demonstrate that

“the employer took an adverse employment action after or contemporaneous with the employee's

Case 2:05-cv-02515-MMB Document 63 Filed 08/15/06 Page 2 of 14
 The Court did not discuss the other elements, as they were easily satisfied. 1

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protected activity” as one of three required prongs for a prima facie case for retaliation. Id. at 1

*5. Specifically, we noted that in Robinson v. City of Pittsburgh, 120 F.3d 1286 (3d Cir. 1997),

the Third Circuit held that in order to satisfy the “adverse employment action” element of a Title

VII retaliation claim, the retaliation must affect the plaintiff's current or future employment – e.g.

it must the “alter [ ] the employee's compensation, terms, conditions, or privileges of

employment, deprive[ ] him or her of employment opportunities, or adversely affect[ ] his [or

her] status as an employee.” Walsh I, 2006 WL 166509, at *5 (citing City of Pittsburgh, 120 F.3d

at 1300). Under the facts alleged here, we then held that Defendants’ actions did not adequately

bear a nexus to Walsh’s employment, noting:

[t]he mere threat to accuse her of theft and seek criminal charges against

her, while questionable, simply did not result in any tangible adverse

employment consequences to Walsh.

. . .

[t]he very nature of an unfulfilled threat means Walsh can not prove that

the Defendants’ conduct impacted her current or future employment

opportunities as City of Pittsburgh requires.

Walsh I, 2006 WL 166509, at *6. 

B. The Supreme Court’s Decision in Burlington Northern v. White

In Burlington Northern, the Court articulated a new, less stringent test for Title VII

retaliation cases. Burlington Northern, 126 S. Ct. at 2409. Specifically abrogating the Third

Circuit’s test in City of Pittsburgh, and that of several other circuits, requiring that the plaintiff

show an adverse employment action affecting current or future employment, the Supreme Court

ruled that to sustain a claim of retaliation, a plaintiff need only show the employer’s actions

“would have been materially adverse to a reasonable employee or job applicant.” Id. at 2409,

Case 2:05-cv-02515-MMB Document 63 Filed 08/15/06 Page 3 of 14
Burlington Northern is equally binding on Plaintiff’s PHRA retaliation claim as on her 2

Title VII claim, because the Third Circuit has held that Title VII and the PHRA are to be

interpreted co-extensively. See, e.g., Gomez v. Allegheny Health Services, Inc., 71 F.3d 1079,

1084 (3d Cir. 1995) (PHRA and Title VII are “construed consistently”). A violation of one

constitutes a violation of the other.

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2410, 2415. Specially, it explained “material adversity” as acts that might “dissuade a reasonable

worker from making or supporting a charge of discrimination.” Id. Moreover, the Court

clarified that Title VII’s anti-retaliation provision “is not limited to discriminatory actions that

affect the terms and conditions of employment,” and that such claims may extend to employer

actions that are unrelated to employment and/or occur outside the workplace. Id. at 2412-13.

C. Plaintiff Walsh’s Retaliation Claim

Here, Plaintiff alleged that the Defendants “threaten[ed] to accuse Plaintiff of a crime and

seek criminal charges against her unless she withdraws her employment discrimination claims,”

Amd. Compl. at ¶57. As stated supra, City of Pittsburgh’s rule that Defendants’ adverse action

must bear some nexus to Plaintiff’s current or future employment is no longer controlling law. 

Thus, pursuant to Burlington Northern, we agree with Plaintiff that our reasoning for dismissing

her retaliation claims in Walsh I no longer holds, and we must apply the Supreme Court’s new

test for Title VII retaliation cases. 

Applying this standard to the facts of this case, Plaintiff’s retaliation claims must be

reinstated. Viewing all alleged facts in the light most favorable to Plaintiff, a threat to accuse

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Walsh of a criminal offense could certainly be construed as “materially adverse” to her. We find

Defendants’ argument that Burlington Northern does not apply because the Supreme Court

“limit[ed] application of its standard” to cases involving “retaliation that produces an injury or

harm,” Defts.’ Memo. at 2 (citing Burlington Northern, 126 S. Ct at 2414), and the mere threat of

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filing criminal charges against her can not satisfy this standard, unconvincing. A fair reading of

Burlington Northern reveals that the case imposes no requirement that a threat be fulfilled. To

the contrary, in sentences directly following the “injury or harm” language, the Court explained

that such harm is any action that causes material adversity, which it specifically defined as acts

that might “dissuade a reasonable worker from making or supporting a charge of discrimination.” 

Burlington Northern, 126 S. Ct. at 2409, 2410, 2415. Moreover, the material adversity standard

is referenced numerous times throughout the Court’s opinion, making clear that it — and not

“injury or harm” — is the defining standard of the Supreme Court’s new test. See id. at 2420

(referencing the “materially adverse employment action test”). See also id. at 2409, 2415, 2416,

2417. Under this standard, the Burlington Northern Court concluded that the plaintiff’s mere

suspension from her job — even though she was not fired and ultimately reinstated —

constituted sufficient harm to support a retaliation claim in part because of the emotional

hardship and uncertainty caused by the defendant’s actions. Id. at 2417. 

Moreover, it is also important to note that Burlington Northern specifically rejected the

restrictive definition of retaliation articulated in City of Pittsburgh. We therefore find it difficult

to imagine that the Court intended to exclude from the universe of retaliation a threat to file

criminal charges if that threat is motivated to force a party to withdraw a lawsuit. As in

Burlington Northern, “common sense suggests that one good way to discourage an employee

such as [Walsh] from bringing discrimination charges would be to [threaten to press criminal

charges against her if she did not drop the lawsuit].” Id. at 2416. That is, we are convinced that

“a reasonable employee facing the choice between [facing criminal charges and continuing to

press her] discrimination complaint might well choose the former.” Id. at 2418. 

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Finally, we find Defendants’ argument that they merely “urged the withdrawal of

Plaintiff’s inapplicable Title VII claims, and informed her counsel of the possible assertion of . . .

criminal charges” disingenuous. Deft.’s Memo. at 3 (italics added). In fact, no where does the

word “possible” appear: the letter expressly states that “if you persist in prosecuting the

Complaint . . . the Williamsons will press criminal charges against [Plaintiff]. . .” Ex. A to Pl.’s

Reply, Letter from Deft. Counsel dated June 2, 2005, at 2. Defendants’ assertion that they had a

valid reason for communicating this “information” to Plaintiff is also irrelevant at the Motion to

Dismiss stage, when we must accept all well-pleaded allegations in the complaint as true. F.R.

Civ. P. 12(b)(6); Doug Grant, Inc. v. Greate Bay Casino Corp., 232 F.3d 173, 183 (3d Cir. 2000). 

Here, Plaintiff plainly alleged in the complaint that the Defendants “threaten[ed] to accuse

Plaintiff of a crime and seek criminal charges against her unless she withdraws her employment

discrimination claims,” which is sufficient to survive a motion to dismiss. Amd. Compl. at ¶57. 

Accordingly, we conclude that Plaintiff’s retaliation claims — subsumed in the First and Second

Cause of Action of her Amended Complaint — will be reinstated.

IV. Motion to Dismiss Defendant Irvin Stern's Costumes' Amended Counterclaims

In a separate motion, Plaintiff seeks dismissal of all of Defendants’ Amended

Counterclaims, for failure to state a claim pursuant to F.R. Civ. P. 12(b)(6). For the reasons set

forth below, Plaintiff’s Motion to Dismiss Defendant Irvin Stern's Costumes' Amended

Counterclaims will be granted in part and denied in part.

A. Allegations in the Counterclaims

On April 28, 2006, Defendants filed their Amended Answer to Plaintiff’s Amended

Case 2:05-cv-02515-MMB Document 63 Filed 08/15/06 Page 6 of 14
Defendants initially filed their Answer to the Amended Complaint with four 3

counterclaims on March 14, 2006. 

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Complaint, which included five counterclaims. Counts I asserts intentional interference with 3

contractual relations, alleging that Plaintiff wrongfully misappropriated Stern’s proprietary

customer contact information and price lists, contacting longstanding store customers and

soliciting their on behalf of a future competitor by undercutting Stern’s pricing. Amd.

Counterclaims at ¶¶89-95. Count II states a claim for tortious interference with prospective

business relations for allegedly preventing Stern’s from entering into expected contracts with

these consumers. Id. at ¶¶96-101. Count III alleges a breach of the duty of loyalty and Count IV

alleges a breach of fiduciary duty, asserting that Walsh disregarded Defendant Joyce

Williamson’s instructions to obtain prior authorization and approval of all Halloween purchase

orders and, while still employed as manager, Plaintiff began soliciting Stern’s customers on

behalf of the competitor. Id. at ¶¶102-120. Finally, Count V asserts that by removing

confidential customer records and pricing information, Plaintiff misappropriated trade secrets. Id.

at ¶¶121-129. 

B. Legal Standard

When deciding a motion to dismiss pursuant to F.R. Civ. P. 12(b)(6), the court may grant

the motion only if, accepting all well-pleaded allegations in the complaint as true, and viewing

them in the light most favorable to plaintiff, the plaintiff is not entitled to relief. Doug Grant,

232 F.3d at 183. Accordingly, a federal court may dismiss a complaint for failure to state a claim

only if it is clear that no relief could be granted under any set of facts that could be proved

consistent with the allegations. Doe v. Delie, 257 F.3d 309, 313 (3d Cir. 2001). 

Case 2:05-cv-02515-MMB Document 63 Filed 08/15/06 Page 7 of 14
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C. Parties’ Contentions

Plaintiff first argues that Counts I and II fail to state a claim and must be dismissed

pursuant to F.R. Civ. P. 12(b)(6) because Defendants failed to plead the existence of a specific

existing or prospective contract with which Plaintiff interfered. Pl.’s Motion to Dismiss at 4. 

She also seeks dismissal of Count I because it is duplicative of Count II. Id. at 5. Next, Plaintiff

contends that Counts III, IV and V are time-barred. Id. at 6. Also, she urges that Defendants are

precluded from asserting Counts III and IV because in their Amended Answer, Defendants

pleaded that Plaintiff was not an employee of Stern’s after December, 2000, and instead was

employed by third party Defendant BCA Employee Management Group after that time (“BCA”). 

Id. Finally, Plaintiff asks the Court to dismiss Defendants’ claims for attorneys’ fees as to each

counterclaim, because there is no statutory authorization and no exception applies. Id. at 7. 

Notwithstanding Plaintiff’s contentions, Defendants urge that Counts I and II are separate

and distinct claims, whereby Count I asserts interference with contractual relations and Count II

alleges interference with prospective business relations, for which the prima facie elements were

properly plead. Defts.’ Resp. at 2. Further, although Defendants concede they did not

specifically plead the existence of a contract in Count I, they assert that allegations contained in

Counts III and IV sufficiently identifies the existing or prospective contract to preclude dismissal

of Count I. Id. at 3 n.2. As to Count II, they asserted that the allegations define a “system”

whereby long-standing Stern’s customers were regularly solicited on behalf of the store, and that

Plaintiff interfered with the contracts it would have formed under this system. However, to the

extent that this Court finds that the Counterclaims do not adequately identify a contract,

Defendants request leave to amend. Id. Regarding Plaintiff’s contention that Counts III, IV and

Case 2:05-cv-02515-MMB Document 63 Filed 08/15/06 Page 8 of 14
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V are time-barred, Defendants argue that the statute of limitations was tolled by the discovery

rule and by the doctrine of fraudulent concealment. Id. at 5-7. Next, Defendants contend that

Amended Counterclaims III and IV state viable breach of fiduciary duty and breach of the duty of

loyalty claims, because these claims need not be asserted against employees. Instead, agents owe

both duties to principals, and in her capacity as store manager, Plaintiff was an agent of Stern’s. 

Id. at 7-8. Finally, as to Plaintiff’s argument regarding attorney’s fees, Defendants agree to

withdraw their attorney’s fees claims.

D. Discussion

1. Interference with Contractual Relations and with Prospective 

Business Relations (Counterclaims I and II)

Counterclaims I and II both allege that by taking Stern’s proprietary customer contact

information and price lists, Walsh prevented Stern’s from renewing or creating new contracts

with existing customers, which based on past experience, they had a significant expectation of

securing, and which they actually lost. Amd. Counterclaims at ¶¶89-101. 

Under Pennsylvania law, to set forth a legally sufficient cause of action for intentional

interference with contractual or prospective contractual relations, four elements must be pled:

(1) the existence of a contractual, or prospective contractual relation

between the complainant and a third party:

(2) purposeful action on the part of the defendant, specifically intended to

harm the existing relation, or to prevent a prospective relation from

occurring;

(3) the absence of privilege or justification on the part of the defendant;

and

(4) the occasioning of actual legal damage as a result of the defendant's

conduct.

Pawlowski v. Smorto, 588 A.2d 36, 39-40 (Pa. Super. 1991). See also Triffin v. Janssen, 626

Case 2:05-cv-02515-MMB Document 63 Filed 08/15/06 Page 9 of 14
 Advanced Power Systems states that “The elements of tortious interference with 4

contract are:AAA (1) that the acts complained of were willful and intentional; (2) that they were

calculated to cause damage to the plaintiff and its business; (3) that these were done with the

unlawful purpose of causing damage and loss to the plaintiff without right or justifiable cause on

the part of the defendant; (4) that actual damage and loss resulted.” Advanced Power Systems,

801 F. Supp. at 1458.

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A.2d 571, 574 (Pa. Super. 1993). Based on this explanation of the prima facie case, it appears

the difference between the torts of interference with a contractual relation and interference with a

prospective contractual relation is whether the tortious interference is with a current contract or

with a prospective contractual relation. While Defendants suggest that a prima facie case

involves different elements for the two torts and points to Advanced Power Systems, Inc. v.

Hi-Tech Systems, Inc., 801 F. Supp. 1450, 1458 (E.D. Pa. 1992) to demonstrate this, a close

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review of Advanced Power Systems does not bear this view out. Advanced Power Systems

merely restates the law in a slightly different way. Also, it clearly implies a current contract is

required to state a claim for tortious interference with a contractual relation by noting that

damage must be caused to “existing business relations.” Id. 

Plaintiff contends that Counterclaims I and II must be dismissed because: (1) the claims

are duplicative, and (2) Stern’s has not pled the existence of any specific contract or prospective

contract with which Plaintiff interfered. Defendants counter that the claims are separate and

distinct and that they have sufficiently identified such contracts in their amended counterclaims. 

As to Counterclaim I, we agree with Plaintiff that Defendants have not pled the existence

of any specific current contract with which she interfered. The specific pleadings in

Counterclaim I and II both reference future contracts that Stern’s expected to secure. The

complaint does not identify any specific current contractual relation with which Plaintiff

Case 2:05-cv-02515-MMB Document 63 Filed 08/15/06 Page 10 of 14
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interfered. Accordingly, Defendants’ tortious interference with contractual relations

counterclaim (Counterclaim I) must be dismissed as a matter of law. Defendants request for

leave to amend is denied because Defendants had full knowledge of any and all contracts, and

thus could have, but did not, allege the existence of an existing contract.

However, as to Counterclaim II, which asserts interference with a prospective contract,

the Court finds that Defendants sufficiently state a claim. That claim clearly states that “based

upon prior dealings and experience, [Stern’s] had a significant expectation of securing . . .

contracts” with their longstanding customers. Amd. Counterclaims at ¶¶99. A prospective

contract or business relation is a reasonable probability of a contract - that is, “something less

than a contractual right, but something more than a mere hope.” KBT Corp. v. Ceridian Corp.,

966 F. Supp. 369, 376 (E.D. Pa. 1997). While this is obviously less than a current contractual

right, Stern’s expectation of renewing contracts with past customers, particularly if that is the

practice that had previously been followed, is certainly not unreasonable. Moreover, in addition

to this system of soliciting long-standing customers, allegations elsewhere in the complaint

describe behavior that interferes with a specific prospective contract with an existing contract is

also identified. In Counts III and IV, Defendants alleged that when Defendant “Joyce

Williamson contacted a long-standing customer about an outstanding contract proposal . . . [t]he

customer told Ms. Williamson that Plaintiff contacted her and offered a better price, and the job

was given to ‘[Plaintiff] and Eddie’s store’ as a result.” Amd. Counterclaims at ¶¶ 109, 120. 

This sufficiently alleges a specific prospective contract with which Plaintiff allegedly interfered

and precludes dismissal of Counterclaim II. 

2. Breach of Fiduciary Duty, Breach of Duty of Loyalty, and 

Case 2:05-cv-02515-MMB Document 63 Filed 08/15/06 Page 11 of 14
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Misappropriation of Trade Secrets (Counterclaims III, IV and V)

Plaintiff also urges that Defendants are precluded from asserting Counts III, IV and V for

two reasons. The first is because, in their Amended Answer, Defendants pleaded that although

Plaintiff was the store manager, she was not an employee of Stern’s after December 2000, and

instead was technically employed by third party Defendant BCA after that time. As the

allegations concern events which allegedly took place in 2003, Plaintiff argues Defendants

should be estopped from now asserting claims against Plaintiff that are inconsistent with their

pleadings. Pl.’s Motion to Dismiss at 6. The second reason is that because Plaintiff’s

employment ended in November 2003, that is the latest time at which the claims can be said to

have accrued. The Pennsylvania statute of limitations period for tort actions is two years, and

therefore these claims should have been filed by November 2005. In fact, they were not filed

until 2006. Defendants counter that the statute of limitations was tolled by the discovery rule and

by the doctrine of fraudulent concealment. Id. at 5-7. Next, Defendants contend that Amended

Counterclaims III and IV state viable breach of fiduciary duty and breach of the duty of loyalty

claims, because these claims need not be asserted against employees. Instead, agents owe both

duties to principals, and in her capacity as store manager, Plaintiff was an agent of Stern’s. Id. at

7-8. 

The Court concludes that Counterclaims III, IV, and V are closely related and depend on

similar facts. Although the Court is doubtful about the timeliness of these claims, and

Defendants have failed to plead fraudulent concealment, the claims as stated satisfy the minimal

standards of notice pleading and may proceed. We agree that whether technically employed by

Defendants or by third party Defendant BCA at the time of the events in question, assuming her

Case 2:05-cv-02515-MMB Document 63 Filed 08/15/06 Page 12 of 14
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allegation that she was store manager of Stern’s is true, Plaintiff would have been an agent to

Defendants and owed a fiduciary duty to them. See McDermott v. Party City Corp., 11 F. Supp.

2d 612, 626 (E.D. Pa. 1998) (noting that “under Pennsylvania law, a fiduciary relationship exists

where one person has reposed a special confidence in another” and holding that under this

standard, a contracted manager of a party store was an agent of store owners and owed them

fiduciary duties). The statute of limitations issues should be explored promptly in discovery.

O:\CIVIL\05-2515 Walsh v. Irvin Sterns Costumes\05-2515 M to Reinstate Retaliation and MTD Counterclaims

2006.08.15.wpd

Case 2:05-cv-02515-MMB Document 63 Filed 08/15/06 Page 13 of 14
IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF PENNSYLVANIA

KAREN J. WALSH :

Plaintiff, : CIVIL ACTION

 :

 v. :

 :

IRVIN STERN'S COSTUMES, et al : NO. 05-2515

Defendants :

 :

 v. :

 :

BCA EMPLOYEE MANAGEMENT :

GROUP, INC. : 

3rd Party Defendant : 

ORDER

AND NOW this day of August, 2006 upon consideration of Plaintiff’s motions, it is

hereby ORDERED that: 

1. Plaintiff’s Motion to Reinstate Retaliation Claims (Doc. No. 55) is GRANTED;

a. Plaintiff’s retaliation claims — subsumed in the First and Second Cause of

Action of her Amended Complaint — will be reinstated; 

2. Plaintiff’s Motion to Dismiss Defendant Irvin Stern's Costumes’ Amended

Counterclaims (Doc. No. 35) is GRANTED IN PART and DENIED IN PART;

a. Defendants' Counterclaim I (tortious interference with contractual relations

counterclaim) will be DISMISSED; 

b. Defendants’ request leave to amend Counterclaim I is DENIED;

c. The statute of limitations issues as to Counterclaims III, IV, and V may be

raised again in a renewed motion for summary judgment; and

3. The Court will conduct a case management conference by telephone on Thursday,

August 17th, 2006 at 10 a.m. to consider expedited discovery periods for the

jurisdictional and statute of limitations issues.

BY THE COURT:

/s/ Michael M. Baylson

 

Michael M. Baylson, U.S.D.J.

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