Farm Bureau Life Ins. Co. v. Dolly

• Decision Date: 21 March 2018
• Docket Number: 28273
• Parties: FARM BUREAU LIFE INSURANCE COMPANY and Farm Bureau Property & Casualty Insurance Company, Plaintiffs and Appellants, v. Ryan DOLLY, Defendant and Appellee.
• Court: South Dakota Supreme Court

910 N.W.2d 196

FARM BUREAU LIFE INSURANCE COMPANY and Farm Bureau Property & Casualty Insurance Company, Plaintiffs and Appellants,

v.Ryan DOLLY, Defendant and Appellee.

28273

Supreme Court of South Dakota.

CONSIDERED ON BRIEFS ON JANUARY 8, 2018

OPINION FILED March 21, 2018

CASSIDY M. STALLEY of Lynn, Jackson, Shultz & Lebrun, P.C., Rapid City, South Dakota, Attorneys for plaintiffs and appellants.

SARAH E. BARON HOUY, KELSEY B. PARKER of Bangs, McCullen, Butler, Foye & Simmons, LLP, Rapid City, South Dakota, Attorneys for defendant and appellee.

GILBERTSON, Chief Justice

[¶ 1.] Farm Bureau Life Insurance Co. and Farm Bureau Property and Casualty Insurance Co. appeal the circuit court’s partial denial of their request for preliminary injunctive relief against their former agent Ryan Dolly. They argue the court erred by enjoining Dolly only from soliciting business from Farm Bureau’s existing customers without also enjoining Dolly from selling to those customers. We affirm.

Facts and Procedural History

[¶ 2.] On December 10, 2012, Dolly entered into two agency contracts with Farm Bureau Life Insurance Co. and Farm Bureau Property and Casualty Insurance Co. (collectively, "Farm Bureau"). Under the contracts, Dolly operated as a captive agent—an independent contractor limited to selling insurance and financial products produced or approved by Farm Bureau. Unlike an independent insurance agent, Dolly did not obtain ownership of renewals on the policies he sold; Farm Bureau retained ownership. Dolly’s contracts with Farm Bureau were terminated on January 12, 2017, after Dolly notified Farm Bureau that he was leaving to work for a competing insurer, American National Insurance Co.

[¶ 3.] The contracts at issue contain provisions that expressly restrain Dolly’s post-termination conduct. Paragraph 11 of the contracts states, in part:

It is hereby understood and agreed that upon the termination of this ... [c]ontract for any reason, [Dolly] will neither sell nor solicit, directly or indirectly, or initiate replacements or exchanges of any insurance or annuity product, with respect to any policyholder of [Farm Bureau], its subsidiaries or affiliates or any company with which [Farm Bureau] has a marketing agreement, within any counties in which [Dolly] sold or serviced any products pursuant to this [c]ontract. ... This provision will be enforceable for a period of eighteen (18) months following the termination of this [c]ontract.

And paragraph 18 states, in part:

In performing his ... duties as an [a]gent, [Dolly] will have access to and receive certain confidential or proprietary information from or on behalf of [Farm Bureau] (hereinafter "Confidential Information"). [Dolly] shall take all reasonable steps necessary to protect the confidential and proprietary nature of all Confidential Information .... [Dolly] shall not directly or indirectly disclose or make available to any third party any Confidential Information. [Dolly] agrees not to appropriate any Confidential Information for his ... own use either during the course of or subsequent to termination of this [c]ontract. Confidential Information shall include, but not be limited to, any information received by [Dolly] from or on behalf of [Farm Bureau], including but not limited to customer and consumer information.

Less than three months after leaving Farm Bureau, Dolly sold American National insurance policies to clients to whom he had previously sold Farm Bureau policies.

[¶ 4.] On April 7, 2017, concluding that Dolly had breached paragraphs 11 and 18 of the agency contracts, Farm Bureau filed an action against Dolly seeking damages and injunctive relief. That same day, Farm Bureau also filed a motion requesting a temporary restraining order and a preliminary injunction. On April 11, the circuit court granted Farm Bureau’s request for a temporary restraining order and enjoined Dolly from "selling or soliciting, or initiating replacements or exchange of any insurance or annuity product, directly or indirectly, to [Farm Bureau’s] policyholders within the counties Dolly sold [Farm Bureau’s] insurance products for a period of eighteen months from January 12, 2017."

[¶ 5.] On April 18, 2017, the circuit court held an evidentiary hearing to consider Farm Bureau’s request for a preliminary injunction. Dolly testified at the hearing. On cross-examination, he admitted to having direct contact with, and selling replacement policies to, Farm Bureau’s existing customers:

[Farm Bureau’s attorney] : Okay. Since leaving Farm Bureau, you’ve been posting to Facebook, signing customers to American National, and you’ve had direct contact with Farm Bureau policyholders; right?

[Dolly’s attorney] : I’m going to object. It’s compound.

[Circuit court] : Sustained.

[Farm Bureau’s attorney] : You’ve texted, e-mailed, and contact—directly contacted Farm Bureau policyholders; right?

[Dolly’s attorney] : I’m going to object to the extent the question is vague and doesn’t seek to clarify who initiated the contact.

[Circuit court] : Well, she said you have. Set a time frame.

[Farm Bureau’s attorney] : Since leaving Farm Bureau.

[Dolly] : Yes.

[Farm Bureau’s attorney] : And you’ve sold and initiated replacements of American National policies to Farm Bureau policyholders since you’ve left Farm Bureau; right?

[Dolly] : Yes.

On direct examination, Dolly clarified that while he sold American National policies to Farm Bureau’s existing customers, he had not solicited those sales:

[Dolly’s attorney] : You left Farm Bureau in January of 2017; right?

[Dolly] : Uh-huh.

[Dolly’s attorney] : Okay. Since that time have you reached out to any Farm Bureau customer and sought to persuade them to leave Farm Bureau?

[Dolly] : No.

[Dolly’s attorney] : Any contact that you have had with an existing Farm Bureau policyholder, who has initiated that contact?

[Dolly] : The customer.

After considering the testimony and other evidence presented, the court readopted its earlier factual findings and legal conclusions but explicitly struck the word selling from its order. Thus, while the temporary restraining order prohibited Dolly from selling or soliciting to Farm Bureau’s existing customers, the preliminary injunction prohibited Dolly only from soliciting to Farm Bureau’s existing customers. In the court’s view, the portions of the agency contracts that prohibited Dolly from selling to Farm Bureau’s existing customers was an invalid restraint on trade under SDCL chapter 53-9.

[¶ 6.] Farm Bureau appeals, raising the following issue: Whether an agreement between an insurance company and its former captive agent that precludes the agent from soliciting or selling other insurance products to the company’s existing customers for a period of 18 months is valid under SDCL chapter 53-9.

Standard of Review

[¶ 7.] The central issue presented in this appeal is the interpretation of a statute. "Questions of statutory interpretation and application are reviewed under the de novo standard of review with no deference to the circuit court’s decision." Deadwood Stage Run, LLC v. S.D. Dep’t of Revenue , 2014 S.D. 90, ¶ 7, 857 N.W.2d 606, 609 (quoting Argus Leader v. Hagen , 2007 S.D. 96, ¶ 7, 739 N.W.2d 475, 478 ).

Analysis and Decision

[¶ 8.] Farm Bureau argues the circuit court erred by enjoining Dolly only from soliciting business from Farm Bureau’s existing customers without also enjoining Dolly from selling to those customers. Since before statehood, the general rule in South Dakota is that "[a ]ny contract restraining exercise of a lawful profession, trade, or business is void to that extent, except as provided by §§ 53-9-9 to 53-9-12, inclusive." SDCL 53-9-8 (emphasis added).¹ In 2005, the Legislature enacted SDCL 53-9-12, which contains an exception to this general rule for contracts between an insurance company and "[a]ny independent contractor who is an insurance producer as defined in subdivision 58-1-2(16) and is a captive agent who is not an independent agent and who works exclusively for a single insurance company or an affiliated group of insurance companies[.]" Under this exception, the captive agent may agree

(1) Not to engage directly or indirectly in the same business or profession as that of the insurer for any period not exceeding two years from the date of termination of the independent contractor’s agreement with the insurer; and

(2) Not to solicit existing customers of the insurer within a specified county, first or second class municipality, or other specified area for any period not exceeding two years from the date of termination of the agreement, if the insurer continues to carry on a like business within the specified area.

Id. Farm Bureau contends that the legislative history of SDCL 53-9-12 suggests that a captive agent and an insurance company may enter into an agreement prohibiting the agent from soliciting or selling (unsolicited) to existing customers. Farm Bureau also contends that a literal reading of SDCL 53-9-12 is absurd because it "nullifies" what Farm Bureau perceives to be the legislative intent.

[¶ 9.] Farm Bureau’s reliance on legislative history is misplaced. "This [C]ourt assumes that statutes mean what they say and that legislators have said what they meant." In re Petition of Famous Brands, Inc. , 347 N.W.2d 882, 885 (S.D. 1984). "[R]esorting to legislative history is justified only when legislation is ambiguous...." Id. "When interpreting a statute, we begin with the plain language and structure of the statute." Magellan Pipeline Co. v. S.D. Dep’t of Revenue & Reg. , 2013 S.D. 68, ¶ 9, 837 N.W.2d 402, 404 (quoting In re Pooled Advoc. Tr. , 2012 S.D. 24, ¶ 32, 813 N.W.2d 130, 141 ). "When the language in a statute is clear, certain[,] and unambiguous, there is no reason for construction, and the Court’s only function is to declare the meaning of the statute as clearly expressed." Rowley v. S.D. Bd. of Pardons & Paroles , 2013 S.D. 6, ¶ 7, 826 N.W.2d 360, 363-64 (quoting In re Estate of Hamilton , 2012 S.D. 34, ¶ 7, 814...