Willis Re Inc. v. Herriott

• Decision Date: 22 July 2021
• Docket Number: 21-CV-487 (JMF)
• Parties: WILLIS RE INC., et al., Plaintiffs, v. Paul HERRIOTT, Defendant.
• Court: U.S. District Court — Southern District of New York

550 F.Supp.3d 68

WILLIS RE INC., et al., Plaintiffs,

v.Paul HERRIOTT, Defendant.

21-CV-487 (JMF)

United States District Court, S.D. New York.

Signed July 22, 2021

George Charles Morrison, White and Williams LLP, New York, NY, Scott H. Casher, White and Williams LLP, Pleasantville, NY, for Plaintiffs.

Christine A. Amalfe, Kevin William Weber, Genna Autumn Conti, Gibbons P.C., Newark, NJ, Mark Stephen Sullivan, Joshua Nicholas Colangelo-Bryan, Dorsey & Whitney LLP, New York, NY, Bryant D. Tchida, John P. Boyle, Megan Renslow, Moss & Barnett, P.A., Payton E. George, Dorsey & Whitney LLP, Minneapolis, MN, for Defendant.

FINDINGS OF FACT AND CONCLUSIONS OF LAW

JESSE M. FURMAN, United States District Judge:

In January 2021, Defendant Paul Herriott, a reinsurance broker, left his position at Willis Re Inc. ("Willis Re") for a competitor, TigerRisk Partners ("TigerRisk"). Soon thereafter, he began soliciting Willis Re clients. Perhaps not surprisingly, litigation followed, first in the form of this lawsuit, brought by Willis Re and Willis Towers Watson Public Limited Company ("WTW"), Willis Re's parent company, against Herriott and then, two days later, in the form of a lawsuit brought by Herriott and TigerRisk against Willis Re in California. On February 9, 2021, the Court entered a temporary restraining order ("TRO") enjoining Herriott from pursuing the California lawsuit and soliciting or servicing "Relevant Clients" on the ground that these actions violated agreements he had entered with Willis Re. Thereafter, the Court held two evidentiary hearings, one with respect to a motion to hold Herriott in contempt for violating the TRO and one with respect to a motion for a preliminary injunction. For the reasons that follow, the Court concludes, based on the record developed at these hearings, that Plaintiffs Willis Re and WTW are entitled to preliminary injunctive relief relating to both the California action and the solicitation or servicing of "Relevant Clients." Significantly, however, the Court concludes that the term "Relevant Clients" is substantially narrower than Plaintiffs assert.

FINDINGS OF FACT

Pursuant to Rule 52(a)(2) of the Federal Rules of Civil Procedure, the Court makes the following findings of fact based on the testimony and exhibits at the hearing.

A. Background

Willis Re — an indirect subsidiary of WTW, see ECF No. 64 ("Bradshaw Contempt Aff."), ¶ 1 n.1 — is a reinsurance broker that, among other things, secures treaty casualty reinsurance for its clients. Treaty casualty reinsurance "is coverage purchased by primary casualty insurers to cover a block of risks held in the primary casualty insurer's book of business. The insurance company pays an annual premium, and Willis Re, as the broker, receives a percentage of that premium." Id. ¶ 3. Willis Re currently has approximately 150 individual reinsurance brokers. ECF No. 125, ex. A ("Stip."), ¶ 79. Herriott was employed as a reinsurance broker by Willis Re from May 2, 2003, to January 21, 2021, during which time he was based in the company's San Francisco office. Id. ¶ 1.

At all relevant times, Herriott's title was Executive Vice President and National Sales Director. Id. ¶ 3. He was also a member of Willis Re's North American Executive Committee, which establishes and "implements sales and client management strategies across North America." Id. ¶ 4. As Sales Director for Willis Re in North America, Herriott "managed Willis Re's sales software rollout and usage across North American branches of the online client relationship management tool that Willis Re uses for client development and ongoing care and management of clients"; managed Willis Re's sales support staffing and products accessed by all North American branches across Willis Re; managed Willis Re's sales conferences; and tracked and reported on Willis Re's sales pipeline across all branch offices in North America to the Willis Re Executive Committee. Id. ¶¶ 6-8. His duties also included "reinsurance brokerage services for Willis Re clients in its healthcare and professional liability segments, which includes, among other things, placing reinsurance requested by insurance clients with reinsurance companies on the best terms available, advising clients on how to structure their reinsurance coverage, marketing clients’ reinsurance programs to reinsurers, managing clients’ reinsurance programs, and helping clients process reinsurance claims." Id. ¶ 5.

Herriott was also a member of Willis Re's "[h]ealthcare [s]egment," which "serve[s] as [a] clearinghouse[ ] of ideas and insight for brokers whose clients or divisions of clients’ line(s) of business fit within" the healthcare space. ECF No. 77 ("Strenge Contempt Aff."), ¶ 4. Notably, however, any Willis Re broker can participate in any segment of the business; neither the healthcare segment nor any other segment has formal membership structures. Id. The healthcare segment held regular internal meetings "focused on market developments and to brainstorm how certain challenges might be addressed," id. ¶ 6, which, after the COVID-19 pandemic started in March 2020, typically took the form of weekly calls, see Apr. 15, 2021 Tr. 94-95 (testimony of Herriott).¹ Scott Strenge, then the leader of the healthcare segment, typically led the meetings, but he would ask others to lead when he was unable to attend; on a handful of occasions in 2020, he tapped Herriott to do so. Id. ¶¶ 2, 6; Apr. 15, 2021 Tr. 94-95 (testimony of Herriott). Over the course of 2020, all or nearly all of the health care segment clients were discussed at some point. Apr. 15, 2021 Tr. 34 (testimony of Herriott); id. at 119-22 (testimony of Scott Strenge) ("It is fair to say that the majority of the clients would have come up during discussions."). Total annual revenue in 2020 for the healthcare segment exceeded $15 million. Stip. ¶ 15.

The individual broker who is responsible for a client account will, among other things, negotiate the terms and conditions of the client's reinsurance coverage with the reinsurers operating in the broker market. ECF No. 76 ("First Herriott Contempt Aff."), ¶ 4. After placing the client's reinsurance, the broker acts as a conduit for communications relating to the reinsurance contracts between the ceding company and the reinsurer, including in connection with premiums and loss payments. Id. At Willis Re, the broker with primary responsibility for a given account was often described as the "client advocate." See Apr. 15, 2021 Tr. 171 (testimony of Neil Morrell). During the final year of his employment at Willis Re, Herriott served as client advocate for the following Willis Re clients: Minnesota Lawyers Mutual ("MLM"), Cooperative of American Physicians/Mutual Protection Trust ("CAP"), California Health Insurance Company ("CHI"), NORCAL, Berkley Design Professional ("Berkley Design"), Berkley Healthcare, and Hawaii Association of Physicians for Indemnification ("HAPI"). Stip. ¶¶ 26, 34, 41, 63, 70, 74; Tr. 105 (testimony of Jim Bradshaw).²

B. The Parties’ Agreements

The present dispute implicates several agreements between Herriott and Willis Re (or WTW). These include an agreement Herriott signed upon commencing his employment with Willis Re in 2003; stock incentive awards and attached restrictive covenant agreements entered into in 2018, 2019, and 2020; and additional incentive agreements entered into in July and December of 2020. The Court will summarize the salient provisions of each in turn.

First, on May 2, 2003, when Herriott began working at Willis Re in May 2003, he and Willis Re entered into an Employment Agreement. ECF No. 31 ("Herriott TRO Decl."), ¶ 8; ECF No. 31-1 ("Employment Agreement"). To the extent relevant here, the Employment Agreement provided that Willis Re "wishe[d] to employ" Herriott "at its San Francisco, California location." Employment Agreement 1. It further provided that it was "the entire agreement" between Willis Re and Herriott; that it could be "modified only by a written instrument signed by both parties"; and that it was to "be governed by California law without giving effect to its conflicts of law principles." Employment Agreement § 8.

Next, in April 2018, Herriott and WTW entered into a Phantom Stock Unit Agreement ("PSUA") — "an award of extraordinary compensation offered only to select employees." Bradshaw Aff. ¶ 17; Herriott Aff. ¶ 8; ECF No. 31-2 (DX2) ("2018 PSUA"). Herriott executed another PSUA in April 2019, Bradshaw Aff. ¶ 18; Herriott Aff. ¶ 8; ECF No. 31-3 (DX3) ("2019 PSUA"), and a similar Performance-Based Restricted Share Unit Agreement ("PRSU") in April 2020, Bradshaw Aff. ¶ 19; Herriott Aff. ¶ 8; ECF No. 31-4 (DX4) ("PRSU").³ These stock awards (which the Court will refer to collectively as the "Stock Agreements"), together have a current value of approximately $450,000, which — had Herriott remained employed with Willis Re — would have vested in April 2021, April 2022, and April 2023. Bradshaw Aff. ¶ 20. Because Herriott left Willis Re in January 2021, however, he has "never received any compensation as a result of executing the [Stock Agreements]." Herriott Aff. ¶ 8.

In their preambles, the Stock Agreements explained that WTW had "determined that it would be to the advantage and best interest of [WTW] ... to grant an award of [certain shares] to [Herriott] as an incentive for increased efforts during [Herriott's] employment with" Willis Re. PRSU 1. The Stock Agreements specified that they "will not be interpreted to form an employment agreement or service contract with [WTW or any subsidiary] and the terms of any separate employment agreement to which [Herriott] is a party shall remain in effect and will control to the extent that there are any inconsistencies with th[ese] [Stock] Agreement[s]." Id. § 2.3. In addition, each Stock Agreement included, a Restrictive Covenant Agreement ("RCA"), attached as a "Schedule" to the Stock Agreement. See ECF No. 8-1 (PX1) ("2018 RCA"); ECF No. 8-2 (PX2) ("2019 RCA"); ...