Acclaim Systems Inc v. Infosys Limited, et al

Filing

NOT PRECEDENTIAL OPINION Coram: FISHER*, HARDIMAN and GREENAWAY, JR., Circuit Judges. Total Pages: 11. Judge: GREENAWAY, JR., Authoring. *(Honorable D. Michael Fisher assumed senior status on February 1, 2017).

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NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
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No. 16-1770
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ACCLAIM SYSTEMS, INC.,
Appellant
v.
INFOSYS, LTD.;
VEDAINFO, INC.
_____________
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
(Civ. Action No. 2-13-cv-07336)
District Judge: Honorable Gene E.K. Pratter
______________
Submitted Under Third Circuit L.A.R. 34.1(a)
January 19, 2017
______________
Before: FISHER1, HARDIMAN, and GREENAWAY, JR., Circuit Judges.
(Opinion Filed: February 9, 2017)
______________
OPINION*
______________

1

Honorable D. Michael Fisher assumed senior status on February 1, 2017.
This disposition is not an opinion of the full Court and pursuant to I.O.P. 5.7
does not constitute binding precedent.
*

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GREENAWAY, JR., Circuit Judge.
Acclaim Systems, Inc. (“Acclaim”) appeals a grant of summary judgment in favor
of Infosys Ltd. (“Infosys”) in this business dispute. Acclaim asserts that Infosys
intentionally interfered with non-compete contracts governing four IT consultants when it
contracted to work with them. Because the record does not show that Infosys actually
knew of the non-compete clauses, we will affirm.
I. FACTUAL BACKGROUND
Acclaim and Infosys are providers of IT services. Both consult with Time Warner
Cable (“TWC”). This dispute concerns the two companies’ work with TWC on a
particular project related to the Sales Force Dot Com (“SFDC”) client relationship
platform. In the spring of 2013, Acclaim (and another company, Acumen, which is not a
party to this litigation) was working with TWC on the SFDC project. But TWC reached
out to Infosys, asking it to present on its own SFDC capabilities.2 Looking for cost
savings—made larger by Infosys’s new pricing strategy, which offered volume discounts

2

By and large, Acclaim does not contest the accuracy of the facts presented by
Infosys. Rather, it asserts that much of this factual material is inadmissible hearsay. Like
the District Court, we find that the contested statements are mostly not hearsay at all, as
they were not offered for the truth of the matter asserted. Fed. R. Evid. 801(c)(2).
Rather, they generally were offered “for the statements’ effect on the listener.” United
States v. Edwards, 792 F.3d 355, 357 n.2 (3d Cir. 2015). This is particularly true given
that our opinion turns on the knowledge of Infosys: the recipient of the purported
hearsay. For example, Acclaim challenges as hearsay testimony by an Infosys
representative regarding TWC’s request to keep on the four consultants at issue in this
litigation. But in this case, it is Infosys’s motivations that are at issue, not the truth of
TWC’s request. This opinion presents the undisputed facts cognizant of Acclaim’s
hearsay challenges, but mostly rejects them.
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to TWC—TWC decided to transfer the SFDC project from Acclaim and Acumen to
Infosys.
TWC began the transition process from Acclaim to Infosys in the summer of 2013.
Infosys originally proposed using two on-site consultants located in Charlotte, North
Carolina, with the rest of its team based in India. TWC again approached Infosys and
asked it to consider retaining four SFDC team members: Acclaim employee Timothy
Blackwell and three subcontractors, Santhosh Nellutla, Pavan Jasthi, and Leslie
Mendonca. Each of the four had non-compete agreements in place restricting their ability
to work on this project for Infosys. Infosys knew that these four had previously worked
for Acclaim, but did not know at the time that they were subject to non-competes.
Blackwell was hired directly by Infosys. In an initial email to Infosys, Blackwell
stated directly “I do not have a non-compete clause with Acclaim.” App. 189a. He also
filled out an online employment application which asked whether he was subject to any
contractual restrictions, including non-compete covenants, that might prevent him from
working for Infosys in this role; he answered, “No.” Id.3 He began his employment in
early September, 2013.
Nellutla, Jasthi, and Mendonca remained subcontractors, in part for immigration
reasons, and remained with their direct employers, Global InfoTech, Inc. and SysIntelli,
3

After the onset of litigation, Infosys wrote to Blackwell, asking him why he did
not mention his non-competes during the hiring process. At that point, Blackwell
claimed that TWC told him that he did not need to, because he had not signed anything in
the previous year. There is no indication in the record that Infosys was aware of this
alleged conversation.
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Inc. Their hiring process, therefore, took a different path. First, an Infosys hiring
manager, Sushobhan Suprabhat, spoke with the subcontractors, telling them, among other
things, to verify that they were not subject to any non-compete agreements, and to report
this to Raj Srinivasan, the Infosys project manager for the TWC SFDC work. Each of the
three told Srinivasan that they were not subject to any non-compete. Srinivasan also
asked Global and SysIntelli whether the subcontractors were contractually bound not to
work for Infosys, and those employers likewise failed to inform Infosys of the noncompetes.
With this information in hand, Infosys began to bring the subcontractors on board.
It did so by routing the subcontracts through an approved Infosys vendor, VedaInfo, Inc.,
with which it had an ongoing relationship and contract. It is disputed whether VedaInfo
conducted its own determination of whether the subcontractors were subject to noncompetes. The subcontractors began working through Infosys as of October 1, 2013.
Meanwhile, TWC cancelled its contract with Acclaim, having now transferred the
SFDC project to Infosys. The Acclaim contract could be cancelled at-will and TWC did
not breach the contract.
On October 24, 2013, Acclaim filed suit in state court against Blackwell, Global
and SysIntelli. Only after the state court litigation commenced did Infosys first learn of
the non-compete agreements at issue.

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II. PROCEDURAL HISTORY
In the course of motion practice, this suit has been substantially narrowed. On a
12(b)(6) motion, the District Court dismissed plaintiff’s claims of aiding and abetting a
contractual breach. That decision is not challenged on appeal. Next, all claims against
VedaInfo were dismissed by stipulation. Acclaim also withdrew its claims of civil
conspiracy. Finally, the District Court granted summary judgment for Infosys on the
remaining claim of tortious interference with contractual relations, finding for Infosys on
three separate grounds. This appeal, which is limited to the tortious interference claim,
followed.
III. STANDARD OF REVIEW4
The Court of Appeals’ review of a grant of summary judgment is “plenary” and
the court should “apply the same test the district court should have utilized initially.”
Giles v. Kearney, 571 F.3d 318, 322 (3d Cir. 2009). Summary judgment should be
granted only when “there is no genuine dispute as to any material fact and the movant is
entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). “‘[A]ll justifiable
inferences are to be drawn in [the nonmovant’s] favor,’” but the “mere existence of some
evidence in support of the nonmovant is insufficient to deny a motion for summary
judgment; enough evidence must exist to enable a jury to reasonably find for the

4

The District Court had jurisdiction pursuant to 28 U.S.C. § 1332. We have
appellate jurisdiction pursuant to 28 U.S.C. § 1291.
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nonmovant on the issue.” Giles, 571 F.3d at 322 (quoting Anderson v. Liberty Lobby,
Inc., 477 U.S. 242, 255 (1986)).
IV. ANALYSIS
Appellant’s only remaining claim is for tortious interference with contractual
relations. Under Pennsylvania law,5 this cause of action has four elements: “(1) the
existence of a contractual relationship between the plaintiff and a third party; (2)
purposeful action by the defendant, specifically intended to harm the contractual
relationship; (3) the absence of privilege or justification on the part of the defendant; and
(4) damages to the plaintiff as a result of the defendant’s conduct.” Burton v. Teleflex
Inc., 707 F.3d 417, 433 (3d Cir. 2013) (citation omitted). Pennsylvania follows the
Restatement (Second) of Torts in its analysis of tortious interference claims. Acumed
LLC v. Advanced Surgical Servs., Inc., 561 F.3d 199, 215 (3d Cir. 2009). The District
Court granted summary judgment in this case on three independent grounds, finding that
Appellant could not show a genuine dispute of material fact as to the second, third, or
fourth elements of a tortious interference claim. Our analysis begins, and ends, with the
second element: intent, because the factors are conjunctive.
For a defendant to have specific intent to harm a contractual relationship, it must
first have knowledge of that contractual relationship. “Actual knowledge of the contract

5

The District Court, sua sponte, raised the question whether this case should be
heard under North Carolina law, but ultimately determined that there was no conflict
between the laws of the two states. The parties have identified no conflicts since and the
case has proceeded entirely under Pennsylvania law without objection.
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with which a defendant supposedly interfered is a prerequisite to making out a claim for
tortious interference.” Mylan Inc. v. SmithKline Beecham Corp., 723 F.3d 413, 422 (3d
Cir. 2013) (citations omitted);6 see also Restatement (Second) of Torts § 766 cmt. i
(1979) (“To be subject to liability under the rule stated in this Section, the actor must
have knowledge of the contract with which he is interfering and of the fact that he is
interfering with the performance of the contract.”). Moreover, that knowledge must be
specific to the particular contractual right upon which the defendant infringes. Mylan,
723 F.3d at 422 (citing DiGiorgio Corp. v. Mendez & Co., 230 F. Supp. 2d 552, 564
(D.N.J. 2002)). The defendant need not know the specific terms of the contract. See
Posner v. Lankenau Hosp., 645 F. Supp. 1102, 1112 (E.D. Pa. 1986). Nevertheless,
enough specificity is required that the defendant could be capable of intending to
interfere with that right. See Gianacopoulos v. MOS Design, Inc., No. CIV.A. 3:05-2417,
2008 WL 1774094, at *6 (M.D. Pa. Apr. 16, 2008) (“General knowledge of a business
relationship is not sufficient; the defendant must have specific knowledge of the contract
right upon which his actions infringe. However, the defendant need not have knowledge
of the specific terms of the contract.” (citations omitted)).
The parties agree that there is no direct record evidence that Infosys knew that any
of the four SFDC team members it hired away from Acclaim had non-compete clauses.

6

Mylan was decided under New Jersey law, but on this point was applying the
Restatement, which both New Jersey and Pennsylvania have adopted.
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Rather, the uncontested record evidence shows that Infosys asked each one whether they
were subject to a non-compete and was told by each that they were not.
Appellant asserts that it can nevertheless show a genuine dispute about
knowledge—and therefore intent—based on circumstantial evidence. Alternatively, it
argues that it can, once again based on circumstantial evidence, show willful blindness as
an alternative to actual knowledge. But this circumstantial evidence is insufficient to
raise a genuine dispute of material fact as to knowledge, even drawing all reasonable
inferences in Appellant’s favor.
First, Appellant argues that Infosys asked the wrong questions about noncompetes during its due diligence. According to Appellant, Infosys knew that Acclaim
had contracted with Global and SysIntelli, not the subcontractors, and therefore Infosys
should have asked Global and SysIntelli specifically about those contracts. Instead, it
asked the subcontractors if they had any non-compete agreements and the intermediate
contractors if they could keep their subs working on the TWC project. We can perceive
no meaningful distinction between the inquiry that Infosys engaged in and the inquiry
that Acclaim wishes Infosys had undertaken; in both cases, the ultimate question is
whether the subcontractors were bound by non-competes. Moreover, even if this
approach to questioning was improper, it would not show the existence of actual
knowledge. The answer Infosys received was still, in no uncertain terms, that there were
no obstacles to contracting with the four consultants.

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Second, Appellant argues that restrictive covenants are standard in the IT
consulting industry and that Infosys can therefore be presumed to have known that there
were non-competes binding the four team members. But the record does not show that
non-competes are universal, only “common policy.” App. 224a. That these individuals
might likely have been subject to non-competes is not the same as knowledge that they
were subject to non-competes. This is all the more so because Infosys in fact inquired of
these four individuals: from its perspective, whatever uncertain probability of noncompetes existing was settled into a (false) certainty by asking and receiving an answer.
As the District Court correctly observed, both of these arguments attempt to create
liability for negligent interference with contractual relations, which is not a tort under
Pennsylvania law. Aikens v. Balt. & Ohio R.R. Co., 501 A.2d 277, 278 (Pa. Super. Ct.
1985). Appellant argues that Infosys should have conducted better due diligence and
should have made certain assumptions about industry practice, not that it in fact knew
about the contracts in question.
Third, Appellant argues that VedaInfo conducted sham due diligence, serving only
as a smokescreen to hide the fact that Infosys knew of the non-competes. Appellant
points to the low hourly margin Infosys paid to VedaInfo as indicative of that sham role
and raises questions as to what information was provided to VedaInfo and what was held
back from them. We need not determine what role VedaInfo might have played in these
events, however. Even if VedaInfo conducted insufficient due diligence—though we do
not imply that the record so suggests and, indeed, the District Court found no such
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evidence—Appellant’s argument would still rely on pure speculation. Nothing in the
record indicates that Infosys used VedaInfo, as a smokescreen or otherwise, because it
knew of the non-competes. Infosys’s use of a middleman could demonstrate its
knowledge of the non-competes only if you assume that it used the middleman because it
knew about the non-competes. Without more, this circular reasoning cannot create a
genuine dispute of material fact. Lexington Ins. Co. v. W. Pa. Hosp., 423 F.3d 318, 333
(3d Cir. 2005) (“Speculation does not create a genuine issue of fact; instead, it creates a
false issue, the demolition of which is a primary goal of summary judgment.” (quoting
Hedberg v. Ind. Bell Tel. Co., 47 F.3d 928, 932 (7th Cir. 1995))).
For the same reason, any attempt to substitute willful blindness for actual
knowledge must also fail.7 Willful blindness exists where “a person believes that it is
probable that something is a fact, but deliberately shuts his or her eyes or avoids making
reasonable inquiry with a conscious purpose to avoid learning the truth.” Prudential Real
Estate Affiliates, Inc. v. Long & Foster Real Estate, Inc., 208 F.3d 210 (Table), 2000 WL
248170 at *5 (4th Cir. 2000) (addressing a tortious interference claim under the
Restatement). Here, Infosys did not shut its eyes but made numerous inquiries. While
Acclaim asserts that those inquiries were not reasonable, there is still no record evidence

7

We do not here decide whether willful blindness can so substitute for knowledge
in tortious interference cases generally. We declined to address that question in Mylan,
723 F.3d at 422. As in that case, we merely note the absence of sufficient evidence even
to demonstrate willful blindness.
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that Infosys had a conscious purpose to avoid learning the truth. The only evidence to
that effect is Appellant’s claim that Infosys conducted an unreasonable inquiry – which is
once again speculative and circular.
Because there is no record evidence that Infosys actually knew that the four team
members in question were covered by non-compete agreements, Appellant cannot
survive summary judgment as to the second prong of a tortious interference claim. We
need not reach the other prongs of the claim.
V.

CONCLUSION

The District Court correctly determined that there was no genuine dispute of fact
as to Infosys’s actual knowledge of the non-compete agreements. We will therefore
affirm.

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