Ids Life Ins. Co. v. Sunamerica, Inc., 95 C 1204.

CourtUnited States District Courts. 7th Circuit. United States District Court (Northern District of Illinois)
Citation958 F.Supp. 1258
Docket NumberNo. 95 C 1212.,No. 95 C 1204.,95 C 1204.,95 C 1212.
PartiesIDS LIFE INSURANCE COMPANY, Plaintiff-Appellee, v. SUNAMERICA, INC., Royal Alliance Associates Inc., SunAmerica Securities Inc. and Sun Life Insurance Company of America, Defendant-Appellants. AMERICAN EXPRESS FINANCIAL ADVISORS, INC., Plaintiff-Appellee, v. SUNAMERICA, INC., Royal Alliance Associates Inc., SunAmerica Securities Inc. and Sun Life Insurance Company of America.
Decision Date03 January 1997

Gary Michael Elden, Eric D. Brandfonbrener, Patrick Thomas Nash, Margaret E. Rice, Brian Lee Pengra, Grippo & Elden, Chicago, IL, for IDS Life Ins. Co.

Ronald P. Kane, Steven P. Gomberg, Gomberg, Kane & Fischer, Ltd., Chicago, IL, Pace Klein, Thomas M. Campbell, Smith, Campbell & Paduano, New York City, for SunAmerica, Inc., Royal Alliance Associates, SunAmerica Sec. Inc. and Sun Life Ins. Co. of America.


ANDERSEN, District Judge.

This case is before the court on the following motions: defendant SunAmerica, Inc.'s ("SunAmerica") motion to dismiss for lack of personal jurisdiction; plaintiffs IDS Life Insurance Company ("IDS") and American Express Financial Advisors, Inc. ("American Express") motion for preliminary and permanent injunctive relief; plaintiffs' motion in limine; and defendants, Royal Alliance Associates, Inc. ("Royal"), SunAmerica Securities, Inc. ("SunAmerica Securities"), SunAmerica, and Sun Life Insurance Company of America ("Sun Life") motion in limine.1 For the reasons stated below, we grant SunAmerica's motion to dismiss for lack of personal jurisdiction, grant in part and deny in part plaintiffs' motion for injunctive relief, deny plaintiffs' motion in limine, and grant in part and deny in part defendants' motion in limine.


Plaintiffs have filed two substantially identical amended complaints against defendants seeking injunctive relief. Plaintiffs assert five causes of action against defendants: unfair competition and tortious interference with contract; violations of § 43(a) of the Lanham Act, 15 U.S.C. § 1125(a); violations of the Copyright Act of 1976, 17 U.S.C. § 101 et seq.; misappropriation of trade secrets; and intentional interference with business relationships.

Plaintiffs claim that defendants are inducing plaintiffs' sales agents to leave plaintiffs and earn windfall profits for both the agents and defendants by switching plaintiffs' customers out of the insurance and securities products these customers hold through plaintiffs and re-selling these customers new insurance and securities products through defendants. Plaintiffs claim that such conduct is prohibited by the agents' contracts with plaintiffs and by state insurance laws. Plaintiffs further claim that defendants actively induce plaintiffs' agents to engage in this conduct by indemnifying the agents and otherwise assisting them and rewarding them for this conduct. As a result, plaintiffs claim that defendants have wrongfully destroyed thousands of plaintiffs' long-term customer relationships, injured plaintiffs' business reputation, and misused plaintiffs' confidential and trade secret information—all causing plaintiffs significant and irreparable harm. Plaintiffs claim that defendants' wrongful actions in this longstanding dispute have been occurring since the late 1980's through defendants' predecessor or present companies.

Prior to being hired by plaintiffs, applicants to be agents who will sell plaintiffs' financial products, receive an orientation and training program administered by plaintiffs. On-the-job training and formal course work continues during their first year with the company. During their first year, agents are assigned to work one-on-one with an experienced field trainer. Throughout their careers, plaintiffs continue to provide conferences, seminars, and other continuing education programs, including professional designation study and examinations, to update agents' knowledge and skills. Plaintiffs also provide a variety of computer software to their agents.

Applicants are provided with copies of the contract ("the Contract") which governs plaintiffs' relationship with its agents. As a condition of their appointment, all plaintiffs' agents are required to execute this Contract. Applicants are given as much time to review the proposed Contract as they wish and may seek counsel before entering into it. The Contract is counter-signed by plaintiffs and becomes effective when the applicant completes the pre-appointment process and decides to work for plaintiffs.

After the first year, the agents sell plaintiffs' products and services as independent contractors. The agents lease office space and the majority of equipment from plaintiffs, but employ their own staff and pay their own overhead and operating expenses. The Contracts with plaintiffs prohibit the agents from procuring or servicing investment products or insurance products that were not acquired through plaintiffs.

Plaintiffs' Contracts also contain several covenants. One covenant in the Contracts prohibits agents, for a one-year period after leaving plaintiffs employment, from soliciting or selling insurance or securities products in the territory where they worked for plaintiffs to the clients disclosed to them while working for plaintiffs. The Contracts provide that:

For one year after this Agreement ends, you agree that you will not, in the territory where you sought applications for Products or Services under this or any other agreement with IDS Life [American Express] or an Affiliate, directly or indirectly offer for sale, sell or seek an application for any Product or Service issued or provided by any company to or from a Client you contacted, dealt with or learned about while you represented IDS Life [American Express] or an Affiliate or because of that representation.

IDS and American Express Contracts at Section IV.1(g).

Other covenants in plaintiffs' Contracts prohibit agents, during and after their affiliation with plaintiffs, from disclosing the identities of plaintiffs' clients and from otherwise misusing confidential and trade secret information obtained through plaintiffs. Plaintiffs' Contracts provide that:

While this Agreement is in effect and after it ends, you agree that you will not reveal the contents of any IDS Life [American Express] property or allow them to be revealed, except in connection with carrying out your duties under the Agreement. You will not reveal the names or addresses of IDS Life [American Express] Clients or any other information about them, including financial information.

. . . . .

All [client] Records and Materials are the property of IDS Life [American Express], an Affiliate or one of their associated companies. All rights to Records and Materials that you prepare or create in connection with the performance of this Agreement are hereby assigned to IDS Life [American Express]. You agree that you will not allow the reproduction of the Records and Materials in any manner whatsoever, except pursuant to written policy or consent of IDS Life [American Express].

. . . . .

You agree that the identity of Clients and potential Clients is confidential information. For one year after this Agreement ends, you agree not to use any such information in connection with any business in competition with IDS Life [American Express] or an Affiliate.

IDS and American Express Contracts at sec. IV.1(e), (c) and (f).

Another covenant in plaintiffs' Contracts requires agents to return all confidential and proprietary business documents and files upon leaving plaintiffs employment. The Contracts provide:

You are responsible for the safekeeping of these items ... When this Agreement ends, all of these items remain IDS [American Express] property. You must return all of them, ... without demand or compensation.

IDS and American Express Contracts at sec. IV.1(d).

Except for the one-year limitation on sales of products and services to the clients formerly assigned to them and the restrictions on the use of plaintiffs' confidential and trade secret information, the covenants in plaintiffs' Contracts with its agents do not restrict to whom the agents may sell or where, how or for whom they may work after leaving plaintiffs.

Defendants claim that plaintiffs lose numerous agents every year to competitors. Defendants present the following evidence: In past years, agent defections from plaintiffs to their competitors have occurred at a rate of more than 500 per year; up to 70% of all agents appointed by plaintiffs leave the firm within four years; of the agents who leave annually, over 40% are acknowledged to join competitors; fewer than 2.3% of plaintiffs' agents who have re-affiliated with competitors in recent years have done so with defendants. Moreover, defendants claim that plaintiffs are thriving because they have a customer retention rate of 93.3% and their net income rose 20% to $428 million in 1994.

Plaintiffs seek to restrain defendants from continuing to convert plaintiffs' securities and insurance customers and customer assets. Plaintiffs are not seeking to enjoin defendants from hiring plaintiffs' agents, but merely to restrain defendants from taking its clients, client assets, trade secrets and copyrighted material in violation of the Contracts.

We have previously held that plaintiffs' claims against SunAmerica Securities, Inc. and Royal Alliance Associates, Inc. are subject to arbitration, while plaintiffs' claims against defendants SunAmerica, Inc. and Sun Life Insurance Company of America are not subject to arbitration. Plaintiffs seek a preliminary injunction as to the claims that are subject to arbitration and a permanent injunction as to the claims that are not subject to arbitration. However, we decline to address plaintiffs' motion for permanent injunctive relief at this...

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