Variable Annuity Life Ins. Co. v. Coreth

• Decision Date: 21 April 2021
• Docket Number: Case No. 3:21cv223
• Citation: 535 F.Supp.3d 488
• Parties: The VARIABLE ANNUITY LIFE INSURANCE COMPANY, et al., Plaintiffs, v. Charles CORETH, et al., Defendants.
• Court: U.S. District Court — Eastern District of Virginia

535 F.Supp.3d 488

The VARIABLE ANNUITY LIFE INSURANCE COMPANY, et al., Plaintiffs,

v.Charles CORETH, et al., Defendants.

Case No. 3:21cv223

United States District Court, E.D. Virginia, Richmond Division.

Signed April 21, 2021

Charles Michael Sims, O'Hagan Meyer PLLC, Richmond, VA, Matthew Irvin Penfield, Pro Hac Vice, Bressler, Armery & Ross, PC, Birmingham, AL, for Plaintiffs.

Henry Irving Willett, III, Lauren Elizabeth Fisher White, Christian & Barton LLP, Richmond, VA, for Defendants.

MEMORANDUM OPINION

M. Hannah Lauck, United States District Judge

This matter comes before the Court on Plaintiffs’ The Variable Annuity Life Insurance Company ("VALIC") and VALIC Financial Advisors, Inc. ("VFA") (collectively, the "VALIC Companies") Motion and Application for Temporary Restraining Order (the "Motion"). (ECF No. 5.) In the Motion, the VALIC Companies move this Court to enter a temporary restraining order ("TRO") and preliminary injunction against Defendants Charles Coreth, Thomas Robertson, and Michael Rawls (collectively, the "Former Advisors") to prevent them from misappropriating the VALIC Companies’ trade secrets and soliciting the VALIC Companies’ clients. (Mot. 2, ECF No. 5.) The Former Advisors responded to the Motion, (ECF No. 17), and the VALIC Companies replied, (ECF No. 18). The Parties appeared before the Court on April 16, 2021, for a hearing on the Motion.

This matter is ripe for disposition. The Court exercises jurisdiction pursuant to 28 U.S.C. §§ 1331¹ and 1332(a) and (d).² For the reasons that follow, the Court will grant in part the Motion.

I. Factual and Procedural Background

This eight-count action arises from three former employees’ conduct before and after their resignations from VFA, which coincided with the departure of dozens of clients from the VALIC Companies to the former employees’ new employer, a direct competitor of the VALIC Companies. The VALIC Companies allege that before their departure, the Former Advisors misappropriated trade secrets and continue to use that information to solicit the VALIC Companies’ clients. (Compl. ¶¶ 1–71.) The VALIC Companies seek injunctive relief as to three counts: breach of contract (Count I); violation of the Virginia Uniform Trade Secrets Act (the "VUTSA") (Count II); and violation of the federal Defend Trade Secrets Act (the "DTSA") (Count III).³

A. Factual Background

1. The VALIC Companies’ Business

VALIC specializes in marketing "retirement plans, including fixed and variable annuity contracts," to tax-exempt organizations under § 403(b) of the Internal Revenue Code in the healthcare, education (such as school systems), and government sectors. (Compl. ¶ 7.) According to Elise Cosby, the District Vice President of VFA's Richmond office, "VALIC's model in working with 403(b) clients is unique in the industry." (Mem. Supp. Mot. Ex. 1 "Declaration of Elise Cosby" ¶¶ 1, 10, ECF No. 6-1.). Andrew Meinbresse, the Regional Vice President of the Atlantic Region for VFA, continues, "[A]nnuity products become profitable only after they have been held by a client for several years," so "maintenance of long-term relationships with clients is vital to VALIC's success." (Mem. Supp. Mot. Ex. 2 "Declaration of Andrew Meinbresse" ¶ 16,⁴ ECF No. 6-2.) Accordingly, "VALIC has spent considerable time and resources over the decades to establish its client base in the annuities market." (Compl. ¶ 9.)

VALIC employs financial advisors and "appoints them to service the VALIC Companies’ clients in a defined territory." (Id. ¶ 8.) Financial advisors advise "clients on products and services that are available within a client's applicable plan." (Id. ) "They also offer other advice based on each client's needs through VALIC's wholly-owned subsidiary, VFA, a broker-dealer." (Id. )

To support their advisors, the VALIC Companies grant them access to "confidential and proprietary information," including "compilations of personal and financial information of the VALIC Companies’ clients embodied in computer software systems and databases." (Id. ) One such database is AGILEnet, which "compiles and updates on a daily basis client information." (Id. ¶ 19.) The client information stored on AGILEnet includes "contact information, social security numbers, account balances, surrender values, maturity dates, flow status, past and present product investments, investment performance data, investment histories, demographic information, and consumer preferences." (Id. )

The VALIC Companies aver that their "detailed client information, which is compiled over many years at substantial expense, constitutes the VALIC Companies’ trade secrets and confidential and proprietary information." (Id. ¶ 20.) According to VALIC, a "competitor armed with this information, such as maturity dates, account balances, and the like, can target the VALIC Companies’ most valuable and valued clients." (Id. ¶ 21.)

To keep their compilations of client information confidential, the VALIC Companies deploy certain safeguards. For instance, "[s]everal layers of passwords protect the VALIC Companies’ databases, and employee access to these databases is limited to a need-to-know basis." (Id. ¶ 22.) The databases also restrict each advisor's access to only "those customers assigned to an advisor within his or her respective territory." (Id. ) Further, when an advisor attempts to export information from AGILEnet, the system prompts the advisor with a warning message. (Id. ) AGILEnet also requires financial advisors to state a business reason when exporting data from the database. (Id. 42.) Finally, as a condition of employment, each advisor must execute a financial professional agreement ("FPA"), which includes several provisions to preserve the confidentiality of proprietary client information belonging to the VALIC Companies. (See id. ¶¶ 25–33.)

2. The Former Advisors’ Employment at the VALIC Companies

The VALIC Companies previously employed the Former Advisors. In 1987, Robertson began his employment with VALIC as a financial advisor. (Resp. Ex. 2 "Declaration of Thomas Robertson" ¶ 3, ECF No. 17-2.) On June 29, 2020, Robertson executed an FPA with the VALIC Companies.⁵ (Compl. Ex. 1 "Robertson FPA" 19, ECF No. 1-1.) In November 2008, Coreth began his employment with VALIC as a financial advisor. (Resp. Ex. 3 "Declaration of Charles Coreth" ¶ 3, ECF No. 17-3.) On June 24, 2020, Coreth executed an FPA with the VALIC Companies. (Compl. Ex. 2 "Coreth FPA" 19, ECF No. 1-2.) In February 2014, Rawls began his employment with VALIC as a financial advisor. (Resp. Ex. 4 "Declaration of Michael Rawls" ¶ 3, ECF No. 17-4.) On June 29, 2020, Rawls executed an FPA with the VALIC Companies. (Compl. Ex. 3 "Rawls FPA" 19, ECF No. 1-3.)⁶

"By affixing their signatures to the FPAs, [the Former Advisors] acknowledged and agreed that during the term of the FPA, they would have access to and become familiar with" the VALIC Companies’ "trade secrets and confidential and proprietary information." (Compl. ¶ 27.) In consideration of their continued access to this valuable information, the Former Advisors agreed to and acknowledged four provisions of the FPAs relevant to the present dispute.

First, the Former Advisors "promised that they would not [Misappropriate] confidential and proprietary information or trade secrets during the term of the FPAs or at any time after their termination " (the "Misappropriation Provision").⁷ (Id. ¶ 28 (emphasis added).) The FPAs define "Misappropriate" as the acquisition, disclosure, or use of the VALIC Companies’ "Trade Secret, Confidential and Proprietary Information, and/or Nonpublic Personal Information acquired through Improper Means." (FPAs § IX.J.) The agreements further define "Improper Means" as any "acquisition or use of a Trade Secret, Confidential and Proprietary Information, and/or Nonpublic Personal Information ... for any purpose other than in furtherance of the Financial Professional's duties undertaken on behalf of a Protected Company," which includes VALIC and VFA. (Id. § IX.H.) As defined in the FPAs, "Trade Secret" includes "customer names," "contact information," and "account balances." (Id. § IX. W.) In addition, the Misappropriation Provision specifically provides:

It shall be deemed a violation of this Agreement for Financial Professional to ... copy ..., by any means, format, or device, the Property of the Protected Companies in any manner whatsoever ..., except in the performance of Financial Professional's authorized duties.

(Id. § V.C.3.) "Property shall include anything and everything Financial Professional acquires by virtue of Financial Professional's employment or other relationship with a Protected Company, except compensation due to Financial Professional from Financial Professional's employer." (Id. § IX.M.)

Second, the Former Advisors "agreed that they would not, during the term of the FPAs and for a period of one year after their termination, ‘Solicit or Induce, or attempt to Solicit or Induce, directly or indirectly ... any Protected Customer to end or alter Protected Customer's relationship with any Protected Company’ " (the "Nonsolicitation of Customers Provision").⁸ (Compl. ¶ 29.) The FPAs define "Solicit" as "to ask for, to make petition, to endeavor or try to obtain, to call, awake, or excite to action, to appeal to, ... [or] to invite." (FPAs § IX.S.) "Induce" in the FPAs means "to affect, encourage, entice, influence, invite, motivate, persuade, recommend, sway, aid, abet, bring about, cause, effectuate, initiate, instigate, prompt, provoke, or trigger." (Id. § IX.G.)

Third, the Former Advisors "agreed that they would not, during the term of the FPA[s] and for a period of one year after their termination, ‘directly or indirectly Solicit or Induce or attempt to Solicit or Induce ... any Financial Professional or other Protected Employee to terminate such Financial Professional or Protected Employee's relationship with Protected Companies" (the "Nonsolicitation of Employees...