Mutual Service Cas. Ins. Co. v. Brass, 00-2681.

• Decision Date: 14 March 2001
• Docket Number: No. 00-2681.,00-2681.
• Citation: 625 N.W.2d 648,242 Wis.2d 733,2001 WI App 92
• Parties: MUTUAL SERVICE CASUALTY INSURANCE COMPANY, Mutual Service Life Insurance Company, Modern Service Insurance Company and MSI Insurance Company, Plaintiffs-Appellants, v. Thomas P. BRASS, Defendant-Respondent.
• Court: Wisconsin Court of Appeals

242 Wis.2d 733

2001 WI App 92

625 N.W.2d 648

MUTUAL SERVICE CASUALTY INSURANCE COMPANY, Mutual Service Life Insurance Company, Modern Service Insurance Company and MSI Insurance Company, Plaintiffs-Appellants,¹ v. Thomas P. BRASS, Defendant-Respondent.

No. 00-2681.

Court of Appeals of Wisconsin.

Submitted on briefs January 18, 2001.

Decided March 14, 2001.

On behalf of the plaintiffs-appellants, the cause was submitted on the brief of Michael J. Hicks of Hills & Hicks, S.C., Brookfield.

On behalf of the defendant-respondent, the cause was submitted on the brief of James W. Hammes of Cramer, Multhauf & Hammes, LLP, Waukesha.

Before Brown, P.J., Nettesheim and Anderson, JJ.

¶ 1. ANDERSON, J.

Mutual Service Casualty Insurance Company, Mutual Service Life Insurance Company, Modern Service Insurance Company and MSI Insurance Company (collectively, MSI) appeal from a circuit court order granting Thomas P. Brass's motion for summary judgment and from a circuit court order for dismissal. We agree with the circuit court that MSI's covenant not to compete is void and unenforceable because it violates the restrictions set forth in WIS. STAT. § 103.465 (1999-2000).² We therefore affirm.

Facts

¶ 2. In 1993, MSI hired Brass as an insurance agent. On June 21, 1996, Brass entered into a career agent's contract with MSI. The contract contained provisions regarding Brass's activities after termination. These provisions stated that Brass was precluded from soliciting MSI customers to "lapse, cancel, or replace" any insurance contract in force with MSI in order to take that business to a competitor, for a period of not less than one year. The contract also provided that Brass not work for American National Insurance Company (American National) for three years after termination of the contract. Brass continued his employment as a career insurance agent until 1998. On December 30, 1998, Brass gave written notice to MSI of his intention to terminate his agency contract. Brass immediately began working for American National as an agent and proceeded to contact customers of MSI in this regard.

¶ 3. On January 15, 1999, MSI initiated a lawsuit against Brass claiming that he violated the noncompete terms of his agency contract. That same day, MSI petitioned the court to issue a temporary restraining order enjoining Brass from competing in any way with MSI. The circuit court entered an ex parte restraining order. Brass moved for relief from the order and the court then lifted the restraining order. On February 15, 1999, pending a hearing on MSI's motion for a temporary injunction, both parties submitted motions for summary judgment to the court. On August 31, 2000, the court denied MSI's motion and granted summary judgment in favor of Brass, dismissing MSI's claim. The court found that the contract failed because it was over broad in respect to time and geographical territory. The court found that the three noncompete provisions respecting conduct were interrelated and that all are united for purposes of enforcement. Thus, the court held that all terms and conditions of the contract that seek to restrict Brass of the activities in the insurance business are as a matter of law unenforceable. MSI appeals.

Standard of Review

[1]

¶ 4. This court applies the same summary judgment methodology as the circuit court. Farm Credit Servs. of N. Cent. Wis., ACA v. Wysocki, 2000 WI App 124, ¶ 6, 237 Wis. 2d 522, 614 N.W.2d 1. We first examine the complaint to determine whether it states a claim and then we review the answer to determine whether it joins a material issue of fact or law. Id. If we determine that the complaint and the answer join issue, we examine the moving party's affidavits to determine whether they establish a prima facie case for summary judgment. Id. If they do, we look to the opposing party's affidavits to determine whether there are any material facts in dispute which entitle the opposing party to a trial. Id.

[2,3]

¶ 5. Whether a covenant not to compete comports with the requirements of WIS. STAT. § 103.465 is a mixed question of law and fact. Farm Credit Servs., 2000 WI App 124 at ¶ 7. Additionally, whether a restrictive covenant is reasonably necessary to protect the employer depends on the totality of the circumstances and is a question of law to be resolved on the basis of either factual findings made by the circuit court or a stipulation of all the relevant facts by the parties. Id.

Analysis

[4]

¶ 6. Wisconsin law favors the mobility of workers; therefore, a contract that operates to restrict trade or competition is prima facie suspect and will be liberally construed in favor of the employee. Id. at ¶ 8. Such restrictions must withstand close scrutiny to pass legal muster as being reasonable; they will not be construed to extend beyond their proper import or further than the language of the contract absolutely requires. Streiff v. Am. Family Mut. Ins. Co., 118 Wis. 2d 602, 611, 348 N.W.2d 505 (1984). The legislature codified this policy in WIS. STAT. § 103.465, which provides:

Restrictive covenants in employment contracts. A covenant by an assistant, servant or agent not to compete with his or her employer or principal during the term of the employment or agency, or after the termination of that employment or agency, within a specified territory and during a specified time is lawful and enforceable only if the restrictions imposed are reasonably necessary for the protection of the employer or principal. Any covenant, described in this subsection, imposing an unreasonable restraint is illegal, void and unenforceable even as to any part of the covenant or performance that would be a reasonable restraint.

¶ 7. As noted, the agency contract between MSI and Brass contains three provisions not to compete. The issue is whether these restrictive provisions are unenforceable as applied to Brass's post-termination activities. These restrictions on post-termination activities are set forth in sections 13.E.(2) and 14 of the contract, as well as in Addendum - 3 to the contract. Section 13.E.(2) states:

E. The companies obligation to commence, and to continue, the payment of termination compensation to you are subject to the following conditions:

. . . .

(2) After termination of this contract, you do not either directly or indirectly induce, attempt to induce, or assist anyone else in inducing or attempting to induce policyholders to lapse, cancel, or replace any insurance contract in force with the companies; or furnish any other person or organization with the name of any policyholder of the companies so as to facilitate the solicitation by others of any such policyholder for insurance.

Failure to comply with condition (2) will result in the forfeiture of all termination compensation that remains unpaid at the time the condition is broken. ...

Section 14 states:

Your Activities After Termination. For a period of one year following termination of this contract, you will not either personally or through any other person, agency, or organization (i) induce or advise any policyholder of the companies credited to your account at the date of termination to lapse, surrender or cancel any insurance coverage in force with the companies or (ii) solicit any such policyholder to purchase any insurance coverage competitive with the insurance coverages sold by the companies. In the event the "period of one year" conflicts with any statutory provision, such period shall be the period permitted by statute.

¶ 8. The final noncompete provision, found in Addendum - 3 states in pertinent part:

Activities After Termination. Following termination of the Agent's Contract, Agent will not either directly or indirectly, by and for himself or as an Agent for another, or through others as their Agent, engage in or be licensed as an Agent, solicitor, representative, or broker, or in any way be connected with the property, casualty, health, or life insurance business as a representative or employee of the American National Insurance Company, its subsidiaries, affiliates or related companies, within a period of 3 years from the date of the voluntary or involuntary termination of this contract.

¶ 9. Brass argues that these restrictive provisions are over broad and therefore the entire restrictive covenant agreement is unenforceable under WIS. STAT. § 103.465. We agree with Brass. The supreme court's analysis in Streiff provides authoritative guidance. In Streiff, as here, the issue was whether or not under § 103.465³ the restrictive provisions of a particular agency contract were reasonable and enforceable. Streiff, like Brass, had entered into a career agent's agreement with his employer, American Family. The agreement provided that upon its termination, Streiff was entitled to "extended earnings" if he complied with all of the terms of the agreement. Streiff, 118 Wis. 2d at 604. Immediately after termination, Streiff publicly announced that he was no longer working for American Family, that he had made arrangements with other insurers, and that he would continue to do business as an insurance agent. Id. Streiff also communicated with his clients who had insurance with American Family and encouraged them to buy insurance with another insurer through him. Id.

[5]

¶ 10. Following Streiff's public announcement and his communication with his American Family clients, American Family refused to pay him his "extended earnings," asserting that he had failed to comply with two clauses of the contract: section 5h and section 5i(4).⁴Streiff, 118 Wis. 2d at 605. By the time the matter came to court, American Family had decided not to rely on a violation of section 5i(4) as justification for nonpayment, and to concede that section 5i(4) was overly broad and unreasonable as to the territory described, that it violated WIS. STAT. § 103.465, and that it was unenforceable.⁵Streiff, 118 Wis. 2d at 607. The supreme court refused to view section 5h...