Gab v. Lindsey & Newsom Claim Services

• Decision Date: 29 August 2000
• Docket Number: No. G021350.,G021350.
• Citation: 99 Cal.Rptr.2d 665,83 Cal.App.4th 409
• Court: California Court of Appeals Court of Appeals
• Parties: GAB BUSINESS SERVICES, INC., Plaintiff and Appellant, v. LINDSEY & NEWSOM CLAIM SERVICES, INC. et al., Defendants and Appellants.

99 Cal.Rptr.2d 665

83 Cal.App.4th 409

GAB BUSINESS SERVICES, INC., Plaintiff and Appellant, v. LINDSEY & NEWSOM CLAIM SERVICES, INC. et al., Defendants and Appellants.

No. G021350.

Court of Appeal, Fourth District, Division 3.

August 29, 2000.

As Modified September 14, 2000.

As Modified on Denial of Rehearing September 26, 2000.

Review Denied Dec. 13, 2000.

Ballard, Rosenberg & Golper, Kenneth R. Ballard, Universal City, Reed E. Schaper, John J. Manier, Universal City, Allderdice and Denman, Linda Auerbach Allderdice, Los Angeles, Greines, Martin, Stein & Richland, Kent L. Richland and Barbara W. Ravitz, Beverly Hills, for Plaintiff and Appellant.

Cummings & Kemp, Thomas B. Cummings, Riverside, and Christine Baran, for Defendant and Appellant Lindsey & Newsom Claims Services, Inc.

Tomaryn & O'Reilly, Charles B. O'Reilly, Marina Del Rey, and Paul O'Reilly, for Defendant and Appellant C. Randall Neal.

OPINION

SILLS, P.J.

Introduction

GAB Business Services, Inc. (GAB) sued its former officer and employee, C. Randall (Randy) Neal, and Neal's new employer, Lindsey & Newsom Claim Services, Inc. (Lindsey), for their respective roles in soliciting 17 key GAB employees to resign en mass in order to join Neal in new positions at Lindsey. GAB claimed Neal breached his fiduciary duty in orchestrating the exodus while still an officer at GAB. GAB accused its competitor Lindsey of unfair competition in assisting and benefiting from Neal's breach of fiduciary duty. GAB also sued both Neal and Lindsey on the novel claim of intentional interference with an employer's contract with its employees, along with misappropriation of trade secrets and other torts. A jury unanimously rejected all of GAB's claim. GAB complains, rightly, of instructional error. We reverse in part.

FACTS

GAB is an independent adjusting company, operating since 1885. In 1991, when the relevant events took place, GAB employed over 3000 people in about 120 branch offices nationwide. Randy Neal began his career at GAB in 1970 in an entry-level position. He steadily marched up the corporate ladder and by 1986, when GAB was acquired by a Swiss company, Neal was manager of the Los Angeles region. Two years later GAB restructured its operations, consolidating its 22 regions into eight. The board of directors elected Neal and seven others to the newly created corporate office of "regional vice-president."

The regional vice-presidents reported directly to the president of GAB. Each was the "top line manager" for his region, responsible for "overall regional planning, sales, quality control, budgeting and the performance of the region."

Neal was reelected by the board to the regional vice-president position in 1989, 1990 and 1991. The parties agree Neal was a highly valued employee. Briefs from both sides use the same language to describe him: "an active manager and a charismatic leader—hardworking, demanding, inspiring loyalty."

In September of 1990, GAB board member Bill Bergs became the corporation's president and chief operating officer. Within a month, Bergs and Neal had a falling-out and, unbeknownst to GAB, Neal began looking for a job elsewhere.

Lindsey had operated exclusively in Texas until 1988. By 1991, it had branched out into various regions of the United States, and though it had several small offices in California, it still had no western region. In April 1991, Lindsey offered Neal the new position of western regional manager. That same month, the GAB board of directors reelected Neal to the office of regional vice-president.

Offer in hand, Neal quietly approached two close friends at GAB, Greg Martin, GAB's Sacramento branch manager, and John Orzes, an executive general adjuster for GAB. Neal invited the two to explore the Lindsey opportunity with him. In June 1991, Lindsey flew the three men to its corporate headquarters in Texas where they met with Lindsey's president, Terry Grant, who explained the company's plans to become the largest independent adjusting firm in America, with offices in every state.

In the ensuing weeks, Neal, Martin and Orzes conducted a financial analysis of GAB and Lindsey, and ultimately decided to pursue employment with Lindsey. Neal asked Grant for information on Lindsey's benefit plan, and for "a couple dozen" employment kits. Grant sent about 14 kits that contained an employment application, a description of benefits, benefit enrollment cards, a noncompetition agreement, and other information concerning Lindsey's policies.

In late August 1991, Neal, Martin and Orzes compiled a list of 14 other GAB employees they thought might want to join them in moving to Lindsey. The employees all worked under Neal's supervision at GAB. Between September 5 and 13, Neal approached the 14 employees (a 15th was contacted two days later) and presented each with the opportunity to come with him to work for Lindsey, which Neal represented as being in a "growth mode." Martin and Orzes participated with Neal in some of the solicitations.

Neal asked each employee what his salary was, and what amount would be necessary to get him to move to Lindsey. Neal settled on a desired new salary amount with each employee. The employees' proposed new salaries exceeded their GAB salaries by an average of 35 percent.

Neal assured his 15 "recruits" that their employment would be presented to Lindsey as an "all-or-nothing deal." If Lindsey refused to hire any one of the 18, or if any one of the 18 decided against going to Lindsey, then no one, including Neal, would go. All the employees Neal approached agreed to leave GAB for Lindsey. He instructed the group to keep its planned defection secret.

Up to that point, Lindsey knew nothing of Neal's plan to bring 17 GAB employees with him to Lindsey. On September 14 Neal called Lindsey's president, Grant, and accepted the offer of employment on the condition that he be allowed to bring about "a dozen-and-a-half friends to the company with him. Grant was "very surprised" and said he only wanted Neal. Neal told Grant "it was all or nothing," and Grant said he would have to think about it.

Two days later Grant told Neal, "We'll take you and the group." Grant did not want to know what salaries Neal proposed for the 17 employees he was bringing with him to Lindsey. Grant told Neal that responsibility for the region, including salaries, was up to Neal.

On September 17, Neal and the other 17 employees simultaneously announced their resignations. Their mass departure left some big holes at GAB: The group included seven branch managers and three regional adjusters, all of whom were considered to be the best in the region. Within the group were managers and "producers" (adjusters) from throughout California. As one of the departing employees stated in his deposition, "We were the team that made the western region run and hum."

Ten days after the mass resignation, GAB sued Neal and Lindsey for damages and injunctive relief. GAB asserted eight causes of action, including breach of fiduciary duty, misappropriation of trade secrets, tortious interference with contract and prospective economic advantage, conspiracy, and unfair competition. GAB obtained a temporary restraining order and preliminary injunction against Lindsey's use of GAB's customer lists, pricing information, or other proprietary and confidential information, as well as against any interference with GAB's existing customer contracts or employment relationships.

Trial lasted two and a half months. The cornerstone of GAB's case was that Neal, by virtue of his position as an officer of GAB, owed GAB a fiduciary duty of loyalty. GAB asserted Neal breached that duty by soliciting key fellow employees to leave GAB in a mass resignation to work for GAB's competitor, Lindsey. GAB asserted Lindsey engaged in unfair competition by assisting in and reaping the benefits of Neal's breach of fiduciary duty. The court refused to instruct the jury that Neal owed the fiduciary duty to GAB as a matter of law. The court also refused to instruct on GAB's theory of intentional interference with existing employment relationships.

By special verdict, the jury found Neal did not owe any fiduciary duty to GAB, that GAB did not own any trade secrets, that neither defendant intentionally prevented GAB's performance of any contract with a customer, or intentionally or negligently interfered with any economic relationship between GAB and a customer, or engaged or agreed to engage in any unlawful, unfair or fraudulent business practice toward GAB.

GAB filed unsuccessful motions for a new trial and for JNOV (judgment notwithstanding the verdict), and then timely appealed. Neal and Lindsey sought and were awarded costs and attorney's fees. GAB filed an appeal and defendants filed a cross-appeal from the attorney fees award. We consolidated all the appeals.

Discussion

I. Instructional Error Concerning Neal's Fiduciary Duty to GAB

GAB argues the trial court committed a colossal error in failing to instruct the jury that Neal owed GAB a fiduciary duty by virtue of his position as a corporate officer. Instead, the court treated the existence of a fiduciary duty as a question of fact for the jury. Of course, this decision proved to have disastrous consequences for GAB. Both GAB's breach of fiduciary duty and unfair competition claims were premised on the existence of a fiduciary duty on Neal's part. The jury found Neal owed GAB no such duty, dashing GAB's hope of prevailing on either claim.

A. Finding a Corporate Officer's Fiduciary Duty as a Matter Of Law

There are two kinds of fiduciary duties—those imposed by law and those undertaken by agreement. (Maglica v. Maglica (1998) 66 Cal.App.4th 442, 447, 78 Cal.Rptr.2d 101; see also Committee on Children's Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 221, 197 Cal.Rptr. 783, 673 P.2d 660.) Fiduciary duties are imposed by law in certain technical, legal relationships such as those between partners or...