Deming v. Nationwide Mut. Ins. Co., No. 17459.
| Decision Date | 05 September 2006 |
| Docket Number | No. 17459. |
| Citation | 905 A.2d 623,279 Conn. 745 |
| Court | Connecticut Supreme Court |
| Parties | Diane P. DEMING v. NATIONWIDE MUTUAL INSURANCE COMPANY, et al. Robert H. Bardin v. Nationwide Mutual Insurance Company, et al. Edward J. McMahon v. Nationwide Mutual Insurance Company, et al. |
Richard P. Weinstein, with whom was Nathan A. Schatz, West Hartford, for the appellants (plaintiff in each case).
Michael D. Blanchard, with whom were Deborah S. Freeman and, on the brief, Ann M. Siczewicz, Hartford, for the appellees (named defendant et al. in each case).
BORDEN, KATZ, PALMER, VERTEFEUILLE and ZARELLA, Js.
The plaintiffs in this joint appeal, Diane P. Deming, Robert H. Bardin and Edward J. McMahon, individually brought actions against the defendants, six companies affiliated with Nationwide Insurance Company (Nationwide),1 alleging that the defendants wrong-fully had withheld policy renewal commissions and deferred compensation, valued by the plaintiffs at more than $2 million collectively,2 which were owed to them after the termination of their relationship as insurance agents for the defendants. The plaintiffs appeal from the judgments of the trial court rendering summary judgment in favor of the defendants on the plaintiffs' claims of conversion, theft, breach of contract and violations of the Connecticut Unfair Trade Practices Act, General Statutes §§ 42-110a through 42-110q (CUTPA). With respect to the deferred compensation, the plaintiffs' principal claim is that the trial court improperly concluded that a provision in their contracts, under which they would forfeit their deferred compensation if they engaged in certain competitive conduct after cancellation of the contract, was a valid forfeiture for competition clause and not an unreasonable covenant not to compete. With respect to the renewal commissions, the plaintiffs claim that the trial court improperly concluded that the counts pertaining to the commissions were time barred and that the defendants' failure to pay the commissions in accordance with General Statutes § 38a-709 (c)3 did not constitute conversion, theft or a breach of contract as a matter of law. We conclude that the trial court improperly rendered summary judgment in favor of the defendants on the plaintiffs' claims for breach of contract as to both the deferred compensation and the renewal commissions, and on their claim for violations of CUTPA. Accordingly, we reverse the trial court's judgments as to those counts and affirm the judgments as to the conversion and theft counts.
The record reveals the following undisputed facts and procedural history. The plaintiffs are licensed to sell various types of insurance in Connecticut. Bardin, McMahon and Deming respectively began their employment relationship with the defendants in 1972, 1980 and 1983. Each plaintiff executed a contract with the defendants in which he or she was deemed an independent contractor and agreed to sell only Nationwide insurance products, except under certain conditions. Paragraph eleven of the contract set forth the terms for "Agency Security Compensation," one component of which was deferred compensation. In essence, this section provided that deferred compensation incentive credits would be calculated as a percentage of each agent's earnings. After five years of service, the deferred compensation would be payable, upon a qualified cancellation of the agreement,4 following: retirement; death or permanent total disability; or cancellation of the agreement for any other reason. The exact amount of the accrued benefit to be paid depended on, inter alia, which circumstance had led to the qualified cancellation of the agreement. Paragraph 11(f) of the contract set forth three events, principally relating to certain competitive conduct, that would cause the defendants' liability for deferred compensation to cease. See footnote 13 of this opinion for the text of paragraph 11(f).
Thereafter, in letters dated November 3, 1999, January 1, 2000, and January 30, 2000, McMahon, Deming and Bardon, respectively tendered their resignations to the defendants.5 The defendants thereafter notified each plaintiff that they were canceling his or her agent agreement and intended to enforce the forfeiture provision, if applicable. After terminating their relationship with the defendants, the plaintiffs continued to work from their existing offices as insurance agents, selling other insurance companies' products.
On December 5, 2002, after the defendants failed to pay the deferred compensation that had accrued in McMahon's account, McMahon commenced an action against the defendants. On January 2, 2003, Bardin and Deming individually commenced actions against the defendants, alleging facts and claims essentially identical to those in McMahon's complaint. In their fourth amended complaint,6 filed on August 16, 2004, the plaintiffs asserted nine counts. Three counts related to the defendants' control over and access to the plaintiffs' "book of business,7 including the renewals in violation of [§ ] 38a-709 (c)": misappropriation (conversion); theft in violation of General Statutes § 52-564;8 and breach of contract, including the covenant of good faith and fair dealing. Three counts related to the defendants' failure to pay the deferred compensation: misappropriation (conversion); theft; and breach of contract. Finally, the plaintiffs asserted counts alleging tortious interference with business relationships, wanton infliction of emotional distress, and violations of CUTPA predicated on the conduct alleged in the other counts.
Thereafter, the defendants moved for summary judgment. The trial court rendered summary judgment in favor of the defendants on all counts except the third count, alleging tortious interference, and the ninth count, to the extent that the CUPTA violation was predicated on the tortious interference count. Specifically with respect to the counts based on the defendants' failure to pay deferred compensation, the trial court concluded that, under the plain language of the contract, the plaintiffs were not entitled to the funds because they had worked in the insurance business under circumstances that violated paragraph 11(f) of the contract, which the court determined was a valid forfeiture for competition clause. The trial court rejected the plaintiffs' challenge to the reasonableness of the restrictions therein, noting that several other courts had analyzed that same clause and had found it to be reasonable under the traditional test applied to restrictive covenants. The court concluded that it did not need to consider the reasonableness of all of the restrictions under paragraph 11(f) because the plaintiffs had to engage in only one of the conditions to trigger the forfeiture, and the contract contained a severability provision.
The plaintiffs then filed a motion for reconsideration of the summary judgment ruling and/or motion for leave to amend the complaint, and a motion for a determination to allow an immediate appeal, pursuant to Practice Book § 61-4. The court denied the motion for reconsideration and for a § 61-4 determination, but granted leave to amend the complaint.
On February 9, 2005, the plaintiffs filed a fifth amended complaint, the operative complaint for purposes of this appeal. Therein, the plaintiffs revised the allegations in support of the three counts relating to their book of business to assert specifically that these counts of conversion, theft and breach of contract were predicated on the defendants' failure to pay renewal commissions. They also revised the CUTPA count to incorporate these allegations. The plaintiffs simply repleaded their allegations from the fourth amended complaint as to the three counts related to deferred compensation (misappropriation, theft and breach of contract) on which the court had granted summary judgment in order to preserve those counts for appellate review. The plaintiffs thereafter abandoned the count alleging infliction of emotional distress and withdrew the count alleging tortious interference on which the trial court previously had denied summary judgment.
The defendants then filed a supplemental motion for summary judgment as to the revised counts, which the trial court granted. The court concluded that the revised counts pertaining to the renewal commissions were time barred because the fifth amended complaint had been filed after the applicable three year limitations period had expired,9 and the claims did not relate back to the fourth amended complaint, which had been filed timely.10 In support of its conclusion that the claims did not relate back, the court determined that the plaintiffs' fourth and fifth amended complaints asserted different theories: the fourth amended complaint alleged that the defendants had engaged in wrongdoing with respect to their control over and access to the plaintiffs' book of business, containing their list of customers and policy expiration dates, whereas the fifth amended complaint alleged that the defendants had engaged in wrongdoing with respect to their failure to pay renewal commissions as required by § 38a-709. The court characterized the plaintiffs' reference in their earlier complaint to the defendants' "misappropriation of the plaintiffs' book of business, including the renewals in violation of ... [§ ] 38a-709," as essentially an afterthought to the statute and unsupported by any facts that would tend to prove the underlying elements of any cause of action under the statute.
The court also stated several alternative grounds to support its decision. First, with respect to the claims for conversion and theft of the renewal commissions, the plaintiffs never had alleged that they owned or ever were in possession of the funds, and thus the claim was only for money owed, which is insufficient to establish conversion...
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