Alexander & Alexander, Inc. v. Danahy

• Decision Date: 23 January 1986
• Citation: 488 N.E.2d 22,21 Mass.App.Ct. 488
• Parties: ALEXANDER & ALEXANDER, INC. v. Robert F. DANAHY et al. 1
• Court: Appeals Court of Massachusetts

Page 22

488 N.E.2d 22

21 Mass.App.Ct. 488

ALEXANDER & ALEXANDER, INC. v. Robert F. DANAHY et al. ¹

Appeals Court of Massachusetts Middlesex.

Argued Nov. 8, 1985.

Decided Jan. 23, 1986.

John K. Markey, for Rollins Burdick Hunter of Massachusetts, inc.

Jerome Gotkin (Steven M. Sayers & Gordon P. Katz with him) for plaintiff.

Paul W. Goodrich, James J. Moran, Jr., & Joanne P. Keating, for Robert F. Danahy, submitted a brief.

Richard D. Glovsky & Sharon D. Meyers, for Kevin M. Daly, submitted a brief.

Before GRANT, ARMSTRONG and FINE, JJ. FINE, Justice.

This case involves a dispute among several major forces in the insurance brokerage business in Massachusetts. A Superior Court judge allowed a motion for a preliminary injunction to enforce covenants not to compete. A single justice of this court modified the injunction. From the order as further modified (see note 4, infra) the defendants have appealed. We apply the standards for appellate review of the issuance of a preliminary injunction set forth in Packaging Indus. Group, Inc. v. Cheney, 380 Mass. 609, 615-616, 405 N.E.2d 106 (1980). Thus, while we accord weight to the judge's exercise of discretion, to the extent that the order was based upon documentary evidence, we draw our own conclusions. See Edwin R. Sage Co. v. Foley, 12 Mass.App.Ct. 20, 25-26, 421 N.E.2d 460 (1981). The conclusions we have drawn lead us to affirm.

The plaintiff, Alexander & Alexander, Inc. (A & A), a Massachusetts corporation, is an insurance brokerage firm operating in Massachusetts. It is a wholly owned subsidiary of Alexander & Alexander Services, Inc. (A & AS), a Maryland corporation engaged in the insurance brokerage business nationwide and overseas. On November 20, 1984, A & A filed suit against Robert F. Danahy and his employer, Rollins Burdick Hunter of Massachusetts, Inc. (RBH). ² RBH, a Massachusetts corporation engaged in the insurance brokerage business in Massachusetts, is also a subsidiary of a large national insurance agency (Combined Insurance Company of America). RBH is a competitor of A & A's.

A & A made the following allegations in its complaint. In 1979, Danahy was president and principal stockholder of the John T. Keyes Insurance Agency, Inc. (KIA). On August 3, 1979, A & A, A & AS, KIA and Danahy agreed to an arrangement which in its essence accomplished a transfer to A & A of all of KIA's assets, including its good will, in exchange for stock in A & AS worth approximately $2,200,000. The written agreement covering this transaction included the following provisions:

5.5.2 For a period of five years after termination of [Danahy's] employment with A & A, [Danahy] will not, directly or indirectly, solicit, sell, serve, divert or receive insurance business to or from any customer or actively solicited prospective customer of KIA as of [August 3, 1979];

5.5.3 For a period of five years after termination of [Danahy's] employment with A & A, [Danahy] will not, directly or indirectly, solicit, sell, serve, divert or receive insurance agency, insurance brokerage, actuarial, or employee-benefit reporting business to or from any corporation, partnership or other person which was a customer or actively solicited prospective customer of any A & AS office in which [Danahy] worked on a full-time basis within one year prior to termination of his employment and which customer or prospect was such a customer or prospect of A & AS within one year prior to the date of such termination.

Also included in the agreement was a provision that A & A would be entitled to an injunction restraining any breach of the covenants. KIA thereafter dissolved, and the A & AS shares were distributed to KIA's shareholders, consisting of Danahy and members of his family. Danahy personally received A & AS stock worth approximately $1,500,000.

Upon the execution of the agreement, Danahy became employed by A & A. First he worked as a senior vice president and, for a short time in 1983, as president. Throughout his employment with A & A Danahy was active in producing insurance business. In the spring of 1983, while still an A & A employee, Danahy was awarded additional stock in A & A's parent company. In consideration for that stock and for his continued employment by A & A, on May 24, 1983, Danahy executed an additional noncompetition agreement. It provided that for two years after the termination of his employment with A & A ³ he would not "in any capacity whatsoever ... solicit, sell, service, divert, accept or receive" insurance business from any customer or active prospect of A & A's which he had handled, serviced, or solicited during the two years prior to the termination of his employment.

On June 28, 1983, Danahy notified A & A by letter that he was resigning from A & A to join RBH. RBH was aware of Danahy's noncompetition agreements. In his letter of resignation, Danahy wrote, "In my new position with another respected insurance broker, I will fully comply with all contractual commitments to A & A." The next day, Danahy began work as president of RBH and, since at least July 30, 1984, he has also been a director of that company. At various times after his departure from A & A and before suit was filed, Danahy attempted unsuccessfully to negotiate exceptions to the noncompetition covenants. Assurance was given by Danahy to A & A that he would not violate the agreements. Nevertheless, for the benefit of himself and RBH, according to A & A's allegations, Danahy has violated the covenants and continues to do so. The alleged violations include soliciting from, and conducting business with, A & A customers and prospective customers, and encouraging one Edward W. Marvel, Jr., a former A & A employee, to join RBH.

The plaintiff's complaint was signed by the managing vice president of A & A, who verified that all the allegations were true to his personal knowledge, except for those relating to KIA's liquidation and violations of the covenants, which allegations he believed to be true.

The motion for preliminary injunctive relief against Danahy and RBH was heard on November 26, 1984. In addition to the verified complaint, the judge had before him extensive memoranda and various affidavits filed by the defendants. In addition, the judge was presented with a copy of an advertisement for RBH which all parties conceded had appeared in the Boston Globe and elsewhere in the summer of 1984. Photographs of Danahy (identifying him as president of RBH), Marvel, and Kevin M. Daly, another former A & A employee (see note 2, supra), appeared in the advertisement along with a list of new RBH accounts, among which were some former A & A clients. On December 14, 1984, the judge entered an order enjoining both Danahy and RBH from violating the terms of the noncompetition covenants. In a careful memorandum of decision, the judge considered the likelihood of A & A's success on the merits and balanced the risk of irreparable harm to the plaintiff against the risk of harm to the defendants. A motion by RBH for reconsideration, supported by additional affidavits, was heard on January 2, 1985, and denied. After a hearing before a single justice of this court, the injunction was modified on January 29, 1985, so as to refer only to customers specified on lists which were to be provided by A & A, which lists were to be treated as confidential. We were informed at oral argument that such a list has been agreed to by the parties. It includes A & A's customers as of the relevant date and slightly in excess of one hundred of A & A's active prospects. The single justice also remanded the case to the motion judge for further consideration of the issue of security under Mass.R.Civ.P. 65(c), 365 Mass. 833 (1974). On remand a surety bond in the amount of $500,000 was ordered and filed by A & A. ⁴

Preliminary Matters.

We deal first with two issues raised by the defendants on appeal which do not go to the merits of the controversy. The defendants argue first that the factual material before the court provided insufficient support for issuance of the injunction because some of the allegations in the verified complaint were made not on personal knowledge but on information and belief, and the complaint was not supported by affidavits.

None of the parties requested an evidentiary hearing. A preliminary injunction is usually based upon affidavits, but it may be based upon a verified complaint. Mass.R.Civ.P. 65. See K-2 Ski Co. v. Head Ski Co., 467 F.2d 1087, 1088 (9th Cir.1972). The defendants' contention would have merit if all that supported the order were allegations made on information and belief. See Bowles v. Montgomery Ward & Co., 143 F.2d 38, 42 (7th Cir.1944); Marshall Durbin Farms Inc. v. National Farmers Organization, Inc., 446 F.2d 353, 357 (5th Cir.1971). That is not the case here, however. The facts alleged in the verified complaint on the basis of personal knowledge establish the existence of the noncompetition agreements and the background circumstances. The facts are not controverted. Nor is the fact of RBH's newspaper advertisements controverted or the correspondence in which the parties discussed the agreements after Danahy joined RBH. The verified complaint and the affidavits together clearly establish that RBH and A & A are in competition with each other; that Danahy serves as RBH's president and is involved in the production of new business; that RBH, under Danahy's direction, intends to compete with A & A for A & A's active prospects, and with A & A's existing customers for different insurance product lines; that Danahy, as RBH's president, had contact with representatives of at least one of A & A's former customers; that Marvel, for over twelve years a broker employed by A & A, left A & A and joined RBH as a broker in December of 1983; and that RBH had knowledge of the relevant terms of Danahy's noncompetition agreements with A & A.

That the allegations of widespread violations of the...