Overholt Crop Ins. Service Co. v. Travis
| Decision Date | 09 September 1991 |
| Docket Number | Nos. 90-5453,90-5454,s. 90-5453 |
| Parties | OVERHOLT CROP INSURANCE SERVICE COMPANY, Appellee, v. Richard TRAVIS, John Salzsiedler, James Nielsen, Appellants. IGF Insurance Company. OVERHOLT CROP INSURANCE SERVICE COMPANY, Appellee, v. Richard TRAVIS, John Salzsiedler, James Nielsen, IGF Insurance Company, Appellant. |
| Court | U.S. Court of Appeals — Eighth Circuit |
William Srstka, Jr., Pierre, S.D., and John Templer, Jr. of West Des Moines, Iowa, argued, for appellants; Daniel Graves, Pierre, S.D., on the brief.
John Krenn, Minneapolis, Minn., argued, for appellee; Timothy Burke, Minneapolis, Minn., and Robert Anderson, Pierre, S.D., on the brief.
Before MAGILL and BEAM, Circuit Judges and HEANEY, Senior Circuit Judge.
Overholt Crop Insurance Company (Overholt) brought this diversity action against Richard Travis, John Salzsiedler, James Nielsen, and IGF Insurance Company (IGF) for wrongfully taking from Overholt and delivering to IGF a substantial portion of Overholt's South Dakota crop insurance business. A jury found for Overholt and awarded damages in excess of one million dollars. The defendants appeal, and we affirm.
Overholt is a general insurance agency which sells crop insurance policies to farmers. It serves as the general agency for Home Farmers Mutual Insurance and sells that companies' policies through insurance agents called "special representatives." Representing Overholt within an assigned territory, Overholt's special representatives are full-time employees with all the attendant benefits.
Richard Travis, Overholt's special representative to several hundred Overholt policyholders in north-central South Dakota, began negotiating a retirement compensation plan with Overholt in 1986. John Salzsiedler, a friend of Travis and a seasonal adjuster for Overholt, was aware that Travis was contemplating retirement. Beginning in January 1989, Salzsiedler and Travis discussed the possibility of Salzsiedler replacing Travis and assuming Travis' territorial assignment as an Overholt special representative. Apparently, this plan was rejected, and instead, Travis and Salzsiedler eventually agreed in September 1989 that Salzsiedler would become an agent for IGF and use Travis' knowledge of Overholt's client base to increase Salzsiedler's sales for IGF. To compensate Travis for his cooperation in facilitating Salzsiedler's sales, Travis and Salzsiedler devised a commission-sharing plan.
Travis' contract with Overholt contained a restrictive covenant. The covenant included a nonsolicitation agreement, which prevented Travis from attempting to persuade Overholt's clients to switch insurers. The covenant also included a nondisclosure clause, which prevented Travis from exploiting Overholt's confidential information after he left Overholt. The restrictive covenant bound Travis for two years following the end of his employment with Overholt.
During the period in which Salzsiedler and Travis were crafting their agreement, James Nielsen attempted to recruit Salzsiedler as an independent agent for IGF. Before joining IGF in a managerial capacity, Nielsen had sold crop insurance for Overholt from 1982 until 1988. Like Travis, Nielsen had entered into a restrictive covenant with Overholt as a condition of his employment. Salzsiedler notified Travis of this recruitment, and Nielsen discussed with Travis the possibility of Salzsiedler becoming an IGF agent.
In the spring of 1989, Salzsiedler decided to join IGF as a crop insurance agent. Accordingly, Nielsen arranged for IGF to provide Salzsiedler with a $4,000 per month draw against his future commissions. Salzsiedler began receiving this draw in June 1989, although he did not officially commit to IGF until August 1989.
During the summer of 1989, Salzsiedler and Travis adjusted claims for Overholt. While adjusting, they would tell the claimants, most of whom had grown accustomed During July and August of 1989, Travis helped Salzsiedler compile a list of prospective customers and drafted a letter of introduction promoting Salzsiedler to these prospective customers. In his letter of introduction, Travis stated his intent to "continue to be active in crop insurance acting as a consultant to John." Travis and Salzsiedler worked together to address and mail these letters. Many of the prospective customers were insured by Overholt. When Salzsiedler began making sales for IGF, Travis assisted Salzsiedler in processing the crop insurance applications and used Overholt's files to obtain information necessary to transfer insurance carriers from Overholt to IGF. Overholt continued to employ Travis during this period.
to Travis being their Overholt representative, that Travis was retiring at the end of the year, that Salzsiedler was going to become an independent insurance agent, and that Travis would be acting as a consultant to Salzsiedler. They never mentioned IGF to these customers even though Travis knew that Salzsiedler was receiving a draw from IGF. Similarly, although Travis knew about Salzsiedler's relationship with IGF, he did not mention it to Overholt
On August 10, 1989, Overholt learned that Travis was promoting Salzsiedler and consequently reassigned most of Travis' territory to other Overholt agents. One of the agents Overholt assigned to Travis' former territory resigned from Overholt on August 17, 1989, and joined IGF four days later. This defection left Overholt with no representative other than Travis in most of Travis' former territory.
Travis finally notified Overholt in mid-September that he planned to resign effective the end of the crop year. From August 1 to September 15, 1989, Travis did not write a single application for crop insurance on behalf of Overholt. Salzsiedler, on the other hand, made 223 sales. All but three of the 223 IGF insurance policies were sold to Overholt customers who had formerly been serviced by Travis. During the same period the year before, Travis had written at least seventeen applications for Overholt. Additionally, although Travis knew that Salzsiedler was successfully soliciting Overholt customers during this six-week period, he did not notify Overholt that it was losing customers to IGF, despite the fact that Overholt had no representative other than Travis in the counties where Salzsiedler operated.
In mid-September, Travis and Salzsiedler orally agreed to their commission-sharing plan. Salzsiedler agreed to share his commissions on non-Overholt customers immediately and to begin sharing his commissions on Overholt customers after the expiration of Travis' two-year restrictive covenant. As early as July 1989, Salzsiedler had informed a colleague of the contours of what became the commission-sharing plan between Salzsiedler and Travis and stated to this colleague that he considered the arrangement to be a "done deal."
Around the time that he agreed to this commission-sharing plan, Salzsiedler told Nielsen that they were discussing such an arrangement. Until this time, IGF contends that neither Nielsen nor IGF knew of this plan or of Travis' activities promoting Salzsiedler. Nielsen's telephone records indicate, however, that he had at least two conversations totaling forty-nine minutes with Travis immediately before the date on which IGF offered Salzsiedler a $4,000 draw. Both Nielsen and Travis claim to have forgotten the subject of these calls. After Travis left Overholt in mid-September 1989, he signed an independent agent contract with IGF. In October 1989, Nielsen received a $1,000 per month raise in his draw.
Overholt claims that the damage caused by Travis' scheme was devastating. In the fall of 1989, Overholt's total policy cancellation rate was roughly ten percent. In Travis' territory, however, the cancellation rate was about eighty percent on multiperil crop insurance policies and forty-five percent on crop hail policies. During previous years, the cancellation rate in Travis' territory was approximately five percent. Overholt claims it will continue to suffer from the effects of this dramatic surge in the cancellation rate, because crop insurance policies renew automatically every year unless On October 20, 1989, Overholt filed an action against Travis, Salzsiedler, Nielsen, and IGF. A jury found each of the defendants jointly and severally liable to Overholt, awarding damages in excess of one million dollars. 1 The district court enjoined each of the defendants from future wrongful interference with Overholt's business and also ordered defendants to compensate Overholt for its attorneys' fees.
canceled and because the renewal rate of policies is extremely high.
We initially consider whether the restrictive covenants that Overholt entered into with Travis and Nielsen were valid under state law. In a diversity case, the district court "follow[s] the choice of law rules of the state in which it sits." United States Fidelity & Guar. Co. v. Louis A. Roser Co., 585 F.2d 932, 935 n. 2 (8th Cir.1978).
The contracts, which are identical, provide: "Any and all matters of dispute of any nature whatsoever arising out of, or in any way connected with this agreement or the relationship between the parties hereto" shall be determined in accordance with Minnesota law. The Supreme Court of South Dakota generally honors contractual choice-of-law stipulations. See Baldwin v. Heinold Commodities, Inc., 363 N.W.2d 191, 195 (S.D.1985). Public policy concerns, however, limit this general acceptance. "[F]oreign laws will not be given effect if, by doing so, contract provisions would be enforced which would be contrary to the settled public policy of [South Dakota]." State ex. rel. Meierhenry v. Spiegel, Inc., 277 N.W.2d 298, 300 (S.D.1979).
Travis and Nielsen claim that an overriding South Dakota public...
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