United Statesi Ins. Servs. Nat'l, Inc. v. Ogden

• Decision Date: 06 March 2019
• Docket Number: NO. C17-1394RSL,C17-1394RSL
• Citation: 371 F.Supp.3d 886
• Parties: USI INSURANCE SERVICES NATIONAL, INC., Formerly Known as Wells Fargo Insurance Services USA, Inc., Plaintiff, v. Stanley OGDEN, et al., Defendants.
• Court: U.S. District Court — Western District of Washington

371 F.Supp.3d 886

USI INSURANCE SERVICES NATIONAL, INC., Formerly Known as Wells Fargo Insurance Services USA, Inc., Plaintiff,

v.Stanley OGDEN, et al., Defendants.

NO. C17-1394RSL

United States District Court, W.D. Washington, at Seattle.

Signed March 6, 2019

James G. Zissler, Jeremy F. Wood, Thomas Patrick Holt, Anne E. Reuben, Emily R. Cardenas, Littler Mendelson, Seattle, WA, for Plaintiff.

Aviva Kamm, Jaime Cuevas, Jr., Lance A. Pelletier, Justo Gonzalez, Stokes Lawrence, Seattle, WA, for Defendants.

ORDER REGARDING MOTIONS FOR SUMMARY JUDGMENT

Robert S. Lasnik, United States District Judge

This matter comes before the Court on "Plaintiff USI Insurance Services National, Inc.'s Motion for Summary Judgment" (Dkt. # 70) and "Defendants' Motion for Summary Judgment" (Dkt. # 75). Plaintiff, the 2017 purchaser of Wells Fargo's insurance services operations, sued seven former Wells Fargo employees and their current employer, ABD Insurance and Financial Services, Inc. The employees left Wells Fargo's employ in 2016 and 2017 to take positions with ABD. Plaintiff alleges that the employees breached their employment agreements and fiduciary duties and that ABD tortiously interfered with the employment contracts and/or Wells Fargo's business expectancy.

Summary judgment is appropriate when, viewing the facts in the light most favorable to the nonmoving party, there is no genuine issue of material fact that would preclude the entry of judgment as a matter of law. The party seeking summary dismissal of the case "bears the initial responsibility of informing the district court of the basis for its motion" ( Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986) ) and "citing to particular parts of materials in the record" that show the absence of a genuine issue of material fact ( Fed. R. Civ. P. 56(c) ). Once the moving party has satisfied its burden, it is entitled to summary judgment if the non-moving party fails to designate "specific facts showing that there is a genuine issue for trial." Celotex Corp., 477 U.S. at 324, 106 S.Ct. 2548. The Court will "view the evidence in the light most favorable to the nonmoving party ... and draw all reasonable inferences in that party's favor." Krechman v. County of Riverside, 723 F.3d 1104, 1109 (9th Cir. 2013). Although the Court must reserve for the jury genuine issues regarding credibility, the weight of the evidence, and legitimate inferences, the "mere existence of a scintilla of evidence in support of the non-moving party's position will be insufficient" to avoid judgment. City of Pomona v. SQM N. Am. Corp., 750 F.3d 1036, 1049 (9th Cir. 2014) ; Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). Factual disputes whose resolution would not affect the outcome of the suit are irrelevant to the consideration of a motion for summary judgment. S. Cal. Darts Ass'n v. Zaffina, 762 F.3d 921, 925 (9th Cir. 2014). In other words, summary judgment should be granted where the nonmoving party fails to offer evidence from which a reasonable jury could return a verdict in its favor. FreecycleSunnyvale v. Freecycle Network, 626 F.3d 509, 514 (9th Cir. 2010).

Having reviewed the memoranda, declarations, and exhibits submitted by the parties, and having carefully analyzed the various contract provisions signed by the individual defendants and the record evidence regarding their actions, the Court finds as follows:

A. Stanley Ogden

In 1994, Mr. Ogden was a shareholder in a firm called Pettit-Morry Co. On April 1st of that year, Pettit-Morry entered into a stock purchase agreement whereby Acordia, Inc., purchased all of Pettit-Morry's outstanding stock. As part of that transaction, Mr. Ogden signed a covenant not to compete. Dkt. # 1-2 at 32-38.

The provision of the agreement on which plaintiff relies for its breach of contract claims precluded Mr. Ogden from encouraging other Pettit-Morry employees from leaving the company, from making commercial use of expiration dates or other information disclosed by the employer, and from "solicit[ing] the insurance business of, or participat[ing] directing or indirectly in the handling of the insurance business of, contract[ing] with or attempt[ing] to contract with any ... person, firm or entity which has been a client or customer of" Pettit-Morry for a period of three years after his employment with Pettit-Morry terminated. Dkt. # 1-2 at 33 (¶ 1). Mr. Ogden points out that this non-compete is triggered by the termination of his employment with "the Corporation," a defined term meaning Pettit-Morry, and that when the parties intended provisions of the agreement to apply to more entities than just Pettit-Morry, they so stated. See"Prohibition on Disclosure of Information, Etc." provision, Dkt. # 1-2 at 34 (¶ 5). Mr. Ogden therefore argues that the three-year window barring solicitation and the handling of insurance business for former clients was triggered by the termination of his employment with Pettit-Morry and expired in April 1997.

Mr. Ogden acknowledges that the agreement also contains a provision allowing Pettit-Morry to assign or transfer its rights under the covenant to a successor in connection with a merger, sale, or transfer of the business. Dkt. # 1-2 at 35 (¶ 8(a). He argues, however, that (a) there is no evidence that the contract was actually assigned from Pettit-Morry to Acordia (or, for that matter, from Wells Fargo to plaintiff¹ ) and (b) even if the noncompete transferred to Acordia in the merger, the covenant does not grant to a subsequent purchaser the power to further assign its rights.

USI has not provided any evidence of an assignment, instead conceding that "these contracts were never ‘assigned.’ " Dkt. # 109 at 4. It maintains, however, that it has the right to enforce the covenant not to compete because the covenant passed to it "through an uninterrupted line of corporate succession through a series of all-stock merger transactions." Dkt. # 109 at 4-5. Pursuant to RCW 23B.11.060(a) and (b), when a merger takes effect, the participating corporations merge into a single surviving entity into which "[t]he title to all real estate and other property owned by each corporation party to the merger is vested ... without reversion or impairment." Thus, Pettit-Morry's property, including its contracts with its shareholders/ employees and every interest in those contracts, transferred to Acordia post-merger through operation of law. Mr. Ogden has not identified any case that rejects this straightforward construction of the merger statute, either in Washington or elsewhere. The only case the Court found, Acordia of Ohio, LLC v. Fishel, 133 Ohio St.3d 345, 978 N.E.2d 814 (2012), was reversed on reconsideration at Acordia of Ohio, LLC v. Fishel, 133 Ohio St.3d 356, 978 N.E.2d 823, 826 (2012). The Supreme Court of Ohio ultimately held that "[t]he merged company has the ability to enforce noncompete agreements as if the resulting company had stepped into the shoes of the absorbed company" even in the absence of any "successors or assigns" language in the noncompete agreement. See also Equifax Servs., Inc. v. Hitz, 905 F.2d 1355, 1361 (10th Cir. 1990) ; First Fin. Bank, N.A. v. Bauknecht, 71 F.Supp.3d 819, 833 (C.D. Ill. 2014) ; HD Supply Facilities Maint., Ltd. v. Bymoen, 125 Nev. 200, 210 P.3d 183, 187 (2009). In light of RCW 23B.11.060's broad transfer of all property postmerger, the Court finds that Acordia succeeded to Pettit-Morry's interests, rights, and liabilities under the covenant not to compete, essentially stepping into "the Corporation" role. One of the rights to which it succeeded was the right to assign or transfer the contract in connection with a merger, sale, or other disposition of the insurance business. Its subsequent merger with USI therefore effected another transfer of the contract by operation of law, with or without an express assignment of the contract.

Mr. Ogden further argues that the noncompete agreement is non-transferrable because it is a personal services contract. A basic tenet of commercial law is that all contracts are assignable unless such assignment is expressly prohibited by statute, contract, or is in contravention of public policy. Berschauer/Phillips Const. Co. v. Seattle Sch. Dist. No. 1, 124 Wash.2d 816, 829, 881 P.2d 986 (1994) ; Puget Sound Nat. Bank v. State Dep't of Revenue, 123 Wash.2d 284, 288, 868 P.2d 127 (1994). In Washington, courts have found that contracts for personal service are an exception to the general rule in favor of assignability. Because a contract that depends on the integrity, qualifications, or skill of a particular individual for performance would be materially impaired if performed by another, such contracts are not assignable without the consent of the party to whom performance is owed.

Panhandle Lumber Co. v. Mackay, 21 F.2d 916, 917 (9th Cir. 1927) ; Fin. Servs. of Puget Sound, Inc. v. Phenneger & Morgan, Inc., 98 Wash. App. 1018, 1999 WL 1081267 at *4 (1999).

There are a number of reasons why the personal services argument is unpersuasive. First, the agreement signed in 1994 is not an employment contract and does not obligate Mr. Ogden to provide any services—personal or otherwise—to Pettit-Morry or Acordia. Rather, Mr. Ogden simply agreed to abstain from certain activities following the termination of his employment. Second, even if a covenant not to sue could be considered a promise to perform personal services, defendant provides no authority for the proposition that the judge-made equitable rule against unconsented assignment of such contracts would trump RCW 23B.11.060's automatic transfer of all property owned by the merging entities. Third, the transfer at issue here does not impinge on the interests the personal service contract exception is meant to protect. The exception applies when the parties intend to have a particular, designated person perform the contractual undertakings: those duties may...