American Express Financial Advisors v. Yantis
| Decision Date | 28 February 2005 |
| Docket Number | No. C05-2011 LRR.,C05-2011 LRR. |
| Citation | 358 F.Supp.2d 818 |
| Parties | AMERICAN EXPRESS FINANCIAL ADVISORS, INC., Plaintiff, v. Richard YANTIS, Defendant. |
| Court | U.S. District Court — Northern District of Iowa |
Angela Ellen Dralle, Dennis Wayne Johnson, Dorsey & Whitney, Des Moines, IA, Edward B. Magarian, Todd W. Schnell, Dorsey & Whitney, LLP, Minneapolis, MN, for Plaintiff.
John W. Holmes, Holmes & Holmes, Waterloo, IA, for Defendant.
TABLE OF CONTENTS
I. FACTUAL BACKGROUND ...........................................................821
II. PROCEDURAL BACKGROUND ........................................................824
III. LEGAL STANDARD ...............................................................825
IV. ANALYSIS .....................................................................825
A. Likelihood of Success on the Merits ......................................826
1. Breach of Contract ...................................................827
2. Misappropriation of Confidential Information .........................830
3. Conversion of Client Files ...........................................833
4. Unfair Competition ...................................................834
B. Irreparable Harm .........................................................834
C. Balance of Harms .........................................................836
D. The Public Interest ......................................................836
V. CONCLUSION ...................................................................836
The matter before the court is Plaintiff American Express Financial Advisors, Inc.'s ("AEFA") Motion for Preliminary Injunctive Relief (docket no. 6).
AEFA is engaged in the business of providing financial advice to individuals. AEFA hired and trained Yantis to provide financial advice and financial services to clients in Cedar Falls, Iowa and the surrounding area. In March 2000, Defendant Richard Yantis ("Yantis") became a franchiser of AEFA and executed an AEFA Independent Advisor Business Franchise Agreement (the "Franchise Agreement") that controlled the terms and conditions of his affiliation with AEFA, as well as his obligations following termination of the affiliation. Specifically with regard to Yantis' obligations during his affiliation with AEFA, Section 10 of the Franchise Agreement states in relevant part as follows:
Independent Advisor has had and/or may have access to AEFA trade secrets and confidential information that Independent Advisor agrees has great value to AEFA. Independent Advisor agrees that because of such access, Independent Advisor is in a position of trust and confidence with respect to this information. To protect client confidentiality, AEFA goodwill, trade secrets, and other proprietary and confidential business information, Independent Advisor agrees to not, during the term of this Agreement or thereafter, except as permitted under Section 14 regarding transfers of the Independent Financial Advisor Business, communicate, divulge, or use for himself or herself except pursuant to the System1, or for the benefit of any other person, partnership, association, or corporation any confidential information, or trade secrets, including, without limitation, Client names, addresses and data and know-how concerning the methods of operation of the System and the business franchised hereunder which may be communicated to Independent Advisor or of which Independent Advisor may be apprised by virtue of Independent Advisor's operation under the terms of this Agreement. Independent Advisor also shall not reveal any information about potential clients to whom a presentation has been made by any Independent Advisor who might reasonably be expected to do business with AEFA. Independent Advisor agrees to divulge such confidential information only to such of his or her employees as must have access to it in order to operate the Independent Financial Advisor Business. Except as otherwise permitted in Section 19, Independent Advisor agrees that, without limitation, Client names, addresses, data and other personal and financial information recorded in Client records are confidential. Confidential information includes compilations and lists of such Client information even if of otherwise public information if such compilations or lists were the result of substantial effort, time and/or money expended pursuant to the System. Independent Advisor further agrees to use this confidential information only in furtherance of this Agreement or in accordance with the Manuals and for no other purpose. Confidential information does not include information which is generally known outside of AEFA other than as a result of a disclosure by Independent Advisor, Independent Advisor's agents or representatives, or any other person or entity in breach of any contractual, legal or fiduciary obligation of confidentiality to AEFA or to any other person or entity with respect to such information.
Pl.Ex. A at 13-14. Yantis also agreed to certain restrictions after the termination of his affiliation with AEFA. In particular, Section 18 of the Franchise Agreement provides:
Upon termination of expiration of this Agreement, all rights granted hereunder to Independent Advisor shall forthwith terminate although Independent Advisor's duties under this Agreement shall continue as specified in this Section 18, and:
* * * * * *
• Independent Advisor agrees to immediately and permanently cease to use, in any manner whatsoever, any confidential methods, procedures, and techniques associated with the System....
* * * * * *
• Independent Advisor agrees to immediately deliver to AEFA the Manuals and all other original records, including most recent financial plans and recommendations, computer databases and files, correspondence, and instructions containing confidential information relating to the System (and any copies thereof, including electronic or computer generated copies, even if such copies were made in violation of this Agreement), all of which are acknowledged to be the property of AEFA. To satisfy regulatory requirements, Independent Advisor agrees to immediately deliver to AEFA the originals of all Client records, including records containing Client lists and/or information and transactions belonging to AEFA, unless Independent Advisor transfers the Independent Financial Advisor Business as provided in Section 14.
• Independent Advisor agrees to immediately (i) discontinue use of any computer software developed for the System or AEFA, (ii) deliver to AEFA all such computer software in Independent Advisor's possession or control and any copies made of such computer software, (iii) erase or destroy any of such computer software contained in the computers or data storage devices under the control of Independent Advisor, and (iv) remove such computer software from any other computer programs or software in Independent Advisor's possession or control that incorporates or used such computer software in whole or in part.
• Independent Advisor agrees to comply with the covenants contained in Section 19 of this Agreement.
Id. at 26-28. Section 19 and Addendum 3-R of the Franchise Agreement include details of the restrictive covenant in which Yantis agreed to maintain the confidential nature of information provided to him by both AEFA and AEFA's clients and that he would not engage in certain activities, including the solicitation of other AEFA employees and advisors or AEFA clients for one year following the termination of his affiliation. Pl.Ex. A at 28-29; Pl.Ex. B at 41-45. Specifically, Section 19 of the Franchise Agreement provides in relevant part:
Independent Advisor specifically acknowledges that, pursuant to this Agreement, Independent Advisor will receive additional substantive rights as a franchisee of AEFA. Independent Advisor also recognizes he or she will receive valuable and confidential information, including, without limitation, information regarding the operational, sales, promotional, and marketing methods and techniques of AEFA and the System. In recognition of and in consideration for these and other benefits, to protect the confidentiality of AEFA's Client information and to protect AEFA's goodwill, Independent Advisor covenants that (a) during the term of this Agreement and (b) for one year after the expiration or termination of this Agreement in the geographic area within which Independent Advisor operates or operated, Independent Advisor agrees to not, either directly or indirectly, for itself, or through, on behalf of, or in conjunction with any person or entity:
(a)(1) Encourage, assist, participate, induce, or attempt to induce any Client or prospective business or customer to terminate an agreement with AEFA, AEFA's affiliates, Issuers, or any financial advisor business under the System;
(2) Encourage, assist, participate, induce, or attempt to induce any Client or prospective business or customer to terminate, surrender, redeem or cancel any action related to Products & Services acquired or ordered from or through AEFA, AEFA's affiliates, Issuers, or any financial advisor business under the System, except as provided in the Manuals or with AEFA's written approval and consent;
(3) Solicit any Clients that Independent Advisor contacted, serviced or learned about while operating under this Agreement to open an account other than an AEFA account or to sell any investment, financial or insurance products or services other than through AEFA with AEFA's written approval and consent; or
(4) Open an account for, or provide or offer to provide any investment, financial, or insurance products or services to any Clients that Independent Advisor contacted, serviced or learned about while operating under this Agreement.
(b)...
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