Insureone Indep. Ins. Agency, LLC v. Hallberg

• Decision Date: 10 October 2012
• Docket Number: 1–10–0428.,Nos. 1–09–2385,s. 1–09–2385
• Citation: 364 Ill.Dec. 451,976 N.E.2d 1014,2012 IL App (1st) 092385
• Parties: INSUREONE INDEPENDENT INSURANCE AGENCY, LLC; American Agencies General Agency, Inc.; and Affirmative Insurance Holdings, Inc., Plaintiffs–Appellants and Cross–Appellees, v. James P. HALLBERG; William J. Hallberg; Casmira Lens, as Trustee of the James P. Hallberg 1994 Gift Trust; and Casmira Lens, as Trustee of the Patricia L. Hallberg 1994 Gift Trust, Defendants–Appellees and Cross–Appellants.
• Court: United States Appellate Court of Illinois

2012 IL App (1st) 092385

976 N.E.2d 1014

364 Ill.Dec. 451

INSUREONE INDEPENDENT INSURANCE AGENCY, LLC; American Agencies General Agency, Inc.; and Affirmative Insurance Holdings, Inc., Plaintiffs–Appellants and Cross–Appellees,

v.James P. HALLBERG; William J. Hallberg; Casmira Lens, as Trustee of the James P. Hallberg 1994 Gift Trust; and Casmira Lens, as Trustee of the Patricia L. Hallberg 1994 Gift Trust, Defendants–Appellees and Cross–Appellants.

Nos. 1–09–2385, 1–10–0428.

Appellate Court of Illinois, First District, Third Division.

June 27, 2012.

Rehearing Denied Oct. 10, 2012.

Pedersen & Houpt, Chicago (Charles M. Gerig, of counsel), for appellants.

Sullivan Hincks & Conway, Oak Brook (Patrick Michael Hincks, Desmond Patrick Curran, Michael Anthony Faccenda, and Kevin O'Brien Gerow, of counsel), for appellees.

OPINION

Justice SALONEdelivered the judgment of the court, with opinion.

[364 Ill.Dec. 456]¶ 1 This is a consolidated appeal from a bench trial conducted in the circuit court of Cook County resolving disputes among the purchasers and sellers of the assets of several insurance companies.

¶ 2Plaintiffs, InsureOne Independent Insurance Agency, LLC(New Insure One), American Agencies General Agency, Inc., and Affirmative Insurance Holdings, Inc.(Affirmative),¹ purchased the assets of several insurance companies owned or controlled by James P. Hallberg(Hallberg).The trial court entered judgment in favor of the purchasers on their claims that Hallberg, his nephew William Hallberg, and two gift trusts had violated noncompetition and nonsolicitation agreements, awarding the purchasers $7,670,210 in damages.The trial court also awarded the purchasers reasonable attorneys fees and costs associated with these claims.The court, however, declined to award prejudgment interest on this amount.

¶ 3The trial court also entered judgment in favor of Hallberg on his counterclaim that the purchasers had not paid the full amount due on one component of the purchase price—known as the “contingent purchase price”(CPP)—awarding him $130,168 in damages plus prejudgment interest.The court also conditionally awarded Hallberg reasonable attorneys fees and costs in connection with this claim in the event that he can establish that his recovery exceeds five percent of the relevant component of the purchase price.

¶ 4 In case No. 1–09–2385, the purchasers now appeal from the trial court's decision awarding Hallberg damages on the counterclaim and conditional attorney fees.In addition, plaintiffs also contend that they should have been awarded prejudgment interest on their judgment against defendants for breaching the restrictive covenants.For the reasons that follow, we reverse the judgment of the circuit court on each of these issues.With respect solely to the issue of prejudgment interest on plaintiffs' award, we remand this cause to the circuit court for further proceedings.

¶ 5 In case No. 1–10–0428, defendant sellers have filed a separate appeal, which has been consolidated with that of the purchasers.The sellers appeal from the trial court's judgment in favor of the purchasers on their non-competition and nonsolicitation claims.For the reasons that follow, we affirm the judgment of the circuit court in all respects.

¶ 6 BACKGROUND

¶ 7 In January 2002, plaintiffs purchased from sellers the assets of several insurance companies that were owned or controlled by Hallberg.²These companies owned a book of nonstandard auto insurance.³The transaction was governed by a document titled “Asset Purchase Agreement”(APA) and dated January 7, 2002.Pursuant to section 8.1 of the APA, Hallberg agreed not to compete with the purchasers or solicit any of the purchasers' employees or customers for a period of five years.

¶ 8The parties' plan was for Hallberg to run the resulting company.The purchasers hired Hallberg as the president of New Insure One pursuant to an employment agreement dated January 16, 2002.Pursuant to section 5.2 of this agreement, Hallberg promised not to compete with or solicit employees or customers of New Insure One both during the period of his employment as president of New Insure One, and for a period following termination of his employment of either one or three years, depending upon the circumstances of his termination.The purchasers retained many of the sellers' former employees, including Hallberg's nephew, William Hallberg, who signed a separate covenant not to compete with, or solicit employees of, New Insure One for 12 months following the termination of his employment.

¶ 9 However, soon after the transaction closed, Hallberg and the purchasers had several disagreements which made it impossible for them to work together.Hallberg and Affirmative's chief executive officer, Thomas Mangold, disagreed about many aspects of the new company's operations.Among other things, they disagreed about the role Hallberg would play, if any, in calculating that portion of the purchase price known as the “contingent purchase price”(CPP).The APA provided guidelines for the calculation and payment of the CPP, which was to be based on certain percentages of renewal business that New Insure One carried over from Hallberg's former entities, and which was to be finalized more than a year after the closing.

¶ 10 Because of their disagreements over operating the new company, the parties decided that Hallberg would leave the company.In March 2003, the parties entered into a “Settlement Agreement and Mutual Release”(Settlement Agreement), which was to be effective as of May 7, 2003.The Settlement Agreement states that the parties are “desirous of reconfirming and clarifying the scope of the restrictivecovenants contained in Section 5.2 of the Employment Agreement and Section 8.1 of the Asset Purchase Agreement.”As stated, those restrictive covenants included Hallberg's noncompetition and nonsolicitation agreements.In August 2003, William Hallberg also left plaintiffs' employ and soon thereafter created the Hallberg Insurance Agency.

¶ 11 On December 16, 2005, plaintiffs filed suit against Hallberg and, inter alia, his nephew, William, and two gift trusts, alleging a number of claims, including breaches of the covenants not to compete and not to solicit employees which were contained in the APA and the employment agreements.Plaintiffs alleged that soon after Hallberg's departure from New Insure One, defendants set up the Hallberg Insurance Agency and other related entities which began competing directly with plaintiffs in their respective markets.Plaintiffs also alleged that Hallberg used the two gift trusts that he controlled to establish these competing businesses while attempting to mask his own involvement and avoid obvious violations of his noncompetition and nonsolicitation agreements.Plaintiffs contended that the trusts provided funding to these entities at interest rates significantly below market, and received funding through other Hallberg-controlled entities that could not compete directly with plaintiffs.Plaintiffs also alleged that other Hallberg entities provided office space and services to the competing businesses without any reimbursement.In addition, plaintiffs contended that defendants solicited plaintiffs' employees, recruiting them to work in their competing entities.

¶ 12 In response, Hallberg filed a verified answer, affirmative defenses and counterclaims to the pleading at issue here: the fifth amended verified complaint for injunctive relief and damages.⁴In his counterclaim, Hallberg alleged that plaintiffs materially breached the APA by failing to provide him with accountings and notices related to the CPP, and by failing to pay him the full amount of the CPP.

¶ 13The trial court conducted a bench trial on all claims.The record reflects that this trial took place between August 2005 and March 2006, during which more than 20 witnesses testified, several hundred exhibits were offered, and a 3,500–page trial transcript was generated.

¶ 14 On January 20, 2009, the trial court entered a detailed, 31–page revised memorandum order and judgment, as well as an Illinois Supreme Court Rule 304(a)(eff. Feb. 26, 2010) certification.In the order and judgment, the court found that: (1) Hallberg “intentionally violated APA Art. 8.1(ii)andEmployment Agreement, Arts. 5.1[and] 5.2(ii)”; (2) that “James Hallberg and William Hallberg, as well as others acting at James Hallberg's direction or suggestion, solicited and hired plaintiffs' employees”; and that (3)defendants“hired some 29 former employees of [plaintiffs], 15 before this suit was filed and 14 while this suit was pending.”

¶ 15The court further found that the evidence established that defendants were liable to plaintiffs for $7,670,210 in damages resulting from their breaches of the various noncompetition and nonsolicitation provisions at issue.The court also awarded plaintiffs their reasonable attorney fees and costs relating to these claims, but did not award them pre- or postjudgment interest.

[364 Ill.Dec. 459]¶ 16 With respect to Hallberg's counterclaim, the court entered judgment in Hallberg's favor on Count I, which related to the purchasers' payment of the CPP.Noting that the CPP called for “complex calculations,”the trial court held that plaintiffs underpaid Hallberg but determined that plaintiffs' miscalculation of this amount and their delay in making these calculations was not intentional.The court awarded Hallberg $130,168 on this claim, plus pre- and postjudgment interest.Further, the court found that Hallberg may be entitled to attorney fees if he ultimately shows that the purchasers underpaid the CPP in an amount exceeding 5% of the total amount of the CPP.

¶ 17 On February 19, 2009, the parties filed posttrial motions, each requesting that portions of the order and judgment be set aside.Plaintiffs requested that the court reconsider its rulings on Hallberg's CPP counterclaim, its award of...