Arthur J. Gallagher & Co. v. Lang

Filing 18

ORDER by Judge Claudia Wilken GRANTING IN PART 12 MOTION TO DISMISS. (ndr, COURT STAFF) (Filed on 5/23/2014)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE NORTHERN DISTRICT OF CALIFORNIA

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ARTHUR J. GALLAGHER & CO.,
Plaintiff,

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United States District Court
For the Northern District of California

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No. C 14-0909 CW
ORDER GRANTING IN
PART MOTION TO
DISMISS (Docket
No. 12)

v.
CHRISTOPHER LANG,
Defendant.
________________________________/

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Plaintiff Arthur J. Gallagher & Co. brought this action
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against its former employee, Defendant Christopher Lang, for
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breach of contract and various business-related torts.

Defendant

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moves to dismiss the complaint.

Plaintiff opposes the motion.

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After considering the parties’ submissions and oral argument, the
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Court grants the motion in part and denies it in part and grants
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Plaintiff leave to amend.
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BACKGROUND

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The following facts are alleged in the complaint.
Gallagher is an insurance brokerage firm with its principal
place of business in Illinois.

In September 2008, it acquired the

California Insurance Center, the firm where Lang was employed
immediately prior to his employment with Gallagher.

On the date

of the acquisition, Lang signed an employment agreement with
Gallagher.
complaint.

A copy of that agreement is attached to Gallagher’s

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Section 1 of the employment agreement provided as follows:
The Corporation [Gallagher] employs the
Executive [Lang] and the Executive agrees to
serve as an employee of the Corporation with
the duties set forth in Section 2 for a term
(the “Contract Term”) beginning on September
10, 2008 and ending on August 31, 2011 unless
earlier terminated under Section 5.
Employment of the Executive shall not
necessarily cease as of the expiration of the
Contract Term; however, employment thereafter
shall be on an at will basis but shall be
subject to the requirements of Section 5(b)
and Section 5(c) hereof.
Docket No. 1, Compl., Ex. A, Employment Agreement, at 2.

Sections

United States District Court
For the Northern District of California

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5(b) and 5(c) of the agreement contained various terms setting

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forth the conditions under which either party could terminate the

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employment relationship.

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relevant here.

The details of these terms are not

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Another section of the agreement, Section 8, contained

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various non-competition and non-solicitation provisions governing

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Lang’s relationships with Gallagher’s clients and employees for up

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to two years after he ceased working for the firm.

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provisions precluded Lang from soliciting any “insurance related

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business with any individual, partnership, corporation,

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association or other entity or Prospective Account about which

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[he] received trade secrets of [Gallagher] or any of its

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affiliates.”

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not “directly solicit, induce or recruit any employee of

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[Gallagher] or its affiliates to leave the employ of [Gallagher]

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or its affiliates.”

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Id. at 16.

One of these

Another provision stated that Lang would

Id.

In January 2014, Lang submitted his resignation to Gallagher.

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Shortly thereafter, he formed a new insurance brokerage firm with

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two of Gallagher’s other former employees.
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Several clients soon

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ended their relationship with Gallagher and brought their business

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to Lang’s new firm.

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In February 2014, Gallagher filed this action against Lang,
charging him with breaching the non-competition and non-

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solicitation provisions of the employment agreement.

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complaint, it also alleged that Lang breached the employment

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agreement by, among other things, failing to provide written

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notice of his resignation sixty days prior to leaving the firm, as

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required by Section 5(d) of the agreement; refusing to meet with

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United States District Court
For the Northern District of California

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the firm’s legal counsel after leaving the firm, as required by

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Section 5(g); and failing to return certain materials to the firm,

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as required by Section 7(c).

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In its

Gallagher asserts claims against Lang for breach of contract,

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intentional interference with prospective economic advantage,

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negligent interference with contracts and prospective economic

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advantage, and unfair competition and unjust enrichment.

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both monetary and injunctive relief.

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It seeks

LEGAL STANDARD
A complaint must contain a “short and plain statement of the

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claim showing that the pleader is entitled to relief.”

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Civ. P. 8(a).

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state a claim, dismissal is appropriate only when the complaint

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does not give the defendant fair notice of a legally cognizable

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claim and the grounds on which it rests.

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Twombly, 550 U.S. 544, 555 (2007).

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complaint is sufficient to state a claim, the court will take all

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material allegations as true and construe them in the light most

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favorable to the plaintiff.

Fed. R.

On a motion under Rule 12(b)(6) for failure to

Bell Atl. Corp. v.

In considering whether the

NL Indus., Inc. v. Kaplan, 792 F.2d
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896, 898 (9th Cir. 1986).

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to legal conclusions; “threadbare recitals of the elements of a

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cause of action, supported by mere conclusory statements,” are not

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taken as true.

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(citing Twombly, 550 U.S. at 555).

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However, this principle is inapplicable

Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)

When granting a motion to dismiss, the court is generally

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required to grant the plaintiff leave to amend, even if no request

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to amend the pleading was made, unless amendment would be futile.

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Cook, Perkiss & Liehe, Inc. v. N. Cal. Collection Serv. Inc., 911

United States District Court
For the Northern District of California

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F.2d 242, 246–47 (9th Cir. 1990).

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amendment would be futile, the court examines whether the

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complaint could be amended to cure the defect requiring dismissal

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“without contradicting any of the allegations of [the] original

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complaint.”

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Cir. 1990).

In determining whether

Reddy v. Litton Indus., Inc., 912 F.2d 291, 296 (9th

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DISCUSSION

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A.

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Lang contends that Gallagher has failed to state a claim for

Breach of Contract (First Cause of Action)

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breach of contract for two reasons.

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the provisions of the employment agreement that Gallagher seeks to

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enforce lapsed in August 2011, more than two years before he

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allegedly breached them.

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provisions remained in effect after August 2011, the agreement’s

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non-competition and non-solicitation provisions -- which are the

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focus of Gallagher’s contract claim -- are void as a matter of

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California public policy.

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turn.

First, he argues that all of

Second, he asserts that, even if those

Each of these arguments is addressed in

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1.

Duration of the Employment Agreement

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Lang asserts that the only provisions of the employment

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agreement that remained in effect after August 2011 were Sections

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5(b) and 5(c).

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agreement.

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“serve as an employee of [Gallagher] with the duties set forth in

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Section 2” until August 2011, at which point he would become

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employed “on an at will basis . . . subject to the requirements of

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Section 5(b) and Section 5(c).”

For support, he points to Section 1 of the

That section, as noted above, provided that Lang would

Employment Agreement 2.

United States District Court
For the Northern District of California

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Although this provision set forth the terms by which each

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party could terminate the employment relationship after August

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2011, it was not intended to render every other provision of the

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agreement unenforceable after that date.

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the agreement, including the non-competition and non-solicitation

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provisions at issue here, expressly state that they will apply for

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a period following the conclusion of the employment relationship.

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See, e.g., id. at 16 (providing that Lang’s non-competition and

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non-solicitation obligations would remain in effect “for a period

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equal to two (2) years following the termination of [Lang’s]

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employment”).

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that they will only apply “during the Contract Term” and “prior to

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the end of the Contract Term,” id. at 2, 5, 7 (emphasis added).

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Thus, the contract explicitly distinguishes between provisions

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that lapse in August 2011 and provisions -- other than Sections

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5(b) and 5(c) -- which apply after that date.

Several provisions of

Other provisions of the agreement expressly state

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Because the Court

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must give effect to these distinctions,

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construction of the employment agreement as a matter of law.

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2.

it must reject Lang’s

California Public Policy

Lang contends that the non-competition and non-solicitation

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provisions are void as a matter of California public policy.

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cites California Business and Professions Code section 16600,

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which provides that “every contract by which anyone is restrained

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from engaging in a lawful profession, trade, or business of any

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kind is to that extent void.”

He

Gallagher contends that section

United States District Court
For the Northern District of California

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16600 does not apply here because the agreement contains a choice-

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of-law provision stating that it “shall be governed by and

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construed in accordance with the laws of the State of Illinois.”

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Employment Agreement 23.

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The Court must apply California’s choice-of-law rules to

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determine whether to give force to the agreement’s choice-of-law

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provision.

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Cir. 2005) (“Federal courts sitting in diversity apply ‘the forum

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state’s choice of law rules to determine the controlling

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substantive law.’”).

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provision, California courts apply the parties’ choice of law

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unless the analytical approach articulated in § 187(2) of the

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Restatement (Second) of Conflict of Laws . . . dictates a

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different result.’”

Fields v. Legacy Health System, 413 F.3d 943, 950 (9th

“‘When an agreement contains a choice of law

Bridge Fund Capital Corp. v. Fastbucks

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This rule applies regardless of whether the contract is construed
under California or Illinois law. See Cal. Civ. Code § 1641 (“The whole
of a contract is to be taken together, so as to give effect to every
part, if reasonably practicable, each clause helping to interpret the
other.”); Berkeley Properties, Inc. v. Balcor Pension Investors, 227
Ill. App. 3d 992, 1002 (1992) (“It is presumed that parties do not
insert meaningless words and phrases into contracts; therefore, no part
of a contract should be rejected as meaningless or surplusage.”).

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Franchise Corp., 622 F.3d 996, 1002 (9th Cir. 2010) (quoting

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Hoffman v. Citibank (S.D.), N.A., 546 F.3d 1078, 1082 (9th Cir.

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2008); alteration in original).

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Under this approach,

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The law of the state chosen by the parties to
govern their contractual rights and duties
will be applied . . . , unless either

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(a)

the chosen state has no substantial
relationship to the parties or the
transaction and there is no other
reasonable basis for the parties’ choice,
or

(b)

application of the law of the chosen
state would be contrary to a fundamental
policy of a state which has a materially
greater interest than the chosen state in
the determination of the particular issue
and which . . . would be the state of the
applicable law in the absence of an
effective choice of law by the parties.

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United States District Court
For the Northern District of California

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Restatement (Second) of Conflict of Laws § 187(2).
Here, the chosen state, Illinois, has a substantial

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relationship to the parties because Gallagher has its principal

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place of business there.

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Court, 3 Cal. 4th 459, 467 (1992); Restatement (Second) of

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Conflict of Laws § 187 cmt. f (recognizing that a “substantial

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relationship” with the chosen state exists where “one of the

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parties is domiciled or has his principal place of business”

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there).

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agreement’s choice-of-law provision unenforceable.

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See Nedlloyd Lines B.V. v. Superior

Subsection (a) therefore does not render the employment

Subsection (b), however, does render the provision

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unenforceable.

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would contravene California’s fundamental public policy against

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the enforcement of non-competition and non-solicitation

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agreements.

Applying Illinois law to the parties’ contract

The California Supreme Court has recognized that
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“California has a strong interest in protecting its employees from

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noncompetition agreements under section 16600.”

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Corp. v. Medtronic, Inc., 29 Cal. 4th 697, 706 (2002).

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Furthermore, California has a materially greater interest in the

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outcome of this case than Illinois because Lang is a California

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resident who worked for Gallagher exclusively in California.2

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“California’s interests would be more seriously impaired by

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enforcement of the parties’ contractual choice of law provision

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than would the interests of [the other state] if California law

Advanced Bionics

United States District Court
For the Northern District of California

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were applied.”

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employment agreement in this case must be governed by California

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rather than Illinois law.

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Davis, 2007 WL 2288298, at *8.

Accordingly, the

Under California law, to the extent that the provisions of

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the agreement preclude Lang from soliciting business from

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Gallagher’s clients, they are void.

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recently held that a non-solicitation provision, similar to one of

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the provisions at issue here, was invalid under section 16600.

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Edwards v. Arthur Andersen LLP, 44 Cal. 4th 937, 948 (2008).

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that case, the employee, an accountant, had signed an agreement

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The California Supreme Court

In

See Davis v. Advanced Care Technologies, Inc., 2007 WL 2288298,
at *7 (E.D. Cal.) (finding that “California has a ‘materially greater
interest’ in the outcome of this case because it has a greater
connection to the facts of this case” in light of the fact that the
plaintiff “is a resident of California and currently works out of
California”); United Rentals, Inc. v. Pruett, 296 F. Supp. 2d 220, 232
(D. Conn. 2003) (finding that, even though the defendant-employer was
headquartered in Connecticut, “California [] has a materially greater
interest in the outcome of this litigation than does Connecticut”
because the plaintiff-employee was a California resident employed in
California); Prod. Res. Grp., LLC v. Oberman, 2003 WL 22350939, at *10
(S.D.N.Y.) (finding “California has a materially greater interest than
New York in resolving the issue of the validity of the non-competition
agreement” because the plaintiff was “a California resident working out
of California” and “the work he now seeks to do is centered in
California”).

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“not to solicit (to perform professional services of the type [he]

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provided) any client of the office(s) to which [he was] assigned”

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for a certain period after he stopped working for his employer.

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Id. at 942.

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provision against the employee because it found that the provision

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“restricted his ability to practice his accounting profession.”

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Id. at 948.

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the provision of its agreement that prohibits Lang from soliciting

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business from its clients.3

United States District Court
For the Northern District of California

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The California Supreme Court refused to enforce this

The same reasoning precludes Gallagher from enforcing

In contrast, the provision of the agreement prohibiting Lang

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from recruiting Gallagher’s employees is not void.

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California courts recognize that an employer may not prohibit its

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former employees from hiring the employer’s current employees, an

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employer may lawfully prohibit its former employees from actively

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recruiting or soliciting its current employees.

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v. Moyes, 174 Cal. App. 3d 268, 280 (1985) (“Equity will not

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enjoin a former employee from receiving and considering

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applications from employees of his former employer, even though

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Although

See Loral Corp.

Gallagher suggested at the hearing that this provision is
enforceable because it protects against theft of trade secrets. The
Edwards court expressly declined to “address the applicability of the
so-called trade secret exception to section 16600,” 44 Cal. 4th at 956
n.4, and the California Court of Appeal has recently expressed “doubt”
as to its “continued viability.” Dowell v. Biosense Webster, Inc., 179
Cal. App. 4th 564, 577 (2009); see also Retirement Group v. Galante, 176
Cal. App. 4th 1226, 1238 (2009) (refusing to recognize the existence of
a “judicially-created [trade secrets] ‘exception’ to section 16600’s ban
on contractual nonsolicitation clauses”). Nonetheless, even assuming
that the exception remains viable, it would not apply here because the
provision at issue in this case is too broad: it precludes Lang from
soliciting any “insurance related business with any individual,
partnership, corporation, association or other entity or Prospective
Account about which [he] received trade secrets,” regardless of whether
he actually solicits that business using Gallagher’s trade secrets.
Employment Agreement 16 (emphasis added).

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the circumstances be such that he should be enjoined from

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soliciting their applications.”); Thomas Weisel Partners LLC v.

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BNP Paribas, 2010 WL 546497, at *6 (N.D. Cal.) (recognizing that

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section 16600 precludes restraints on hiring former colleagues but

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permits restraints on solicitation).

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employment agreement, which precludes Lang from “directly

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solicit[ing], induc[ing] or recruit[ing]” Gallagher’s current

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employees, is enforceable here and does not violate section 16600.

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Because Gallagher has alleged that Lang actively induced his

Thus, Section 8(b) of the

United States District Court
For the Northern District of California

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former colleagues to leave Gallagher -- rather than simply hiring

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them after they independently decided to leave the firm -- it has

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stated a valid claim for breach of Section 8(b) of the agreement.

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Although Gallagher’s complaint focuses on the alleged breach

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of the non-competition and non-solicitation provisions, it also

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asserts that Lang breached other provisions of the employment

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agreement.

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breached Section 5(d), 5(g), and 7(c) of the agreement by failing

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to give sixty days written notice of his resignation, refusing to

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meet with the firm’s legal counsel following his resignation, and

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failing to return all of the firm’s property and other materials.

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Lang’s only argument for dismissal of Gallagher’s claims based on

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these provisions is that these provisions lapsed in August 2011.

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As explained above, that argument is unavailing.

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Lang has failed to show that these provisions are unenforceable,

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Gallagher has stated a valid contract claim based on Lang’s

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alleged breach of these provisions.

As noted above, the complaint alleges that Lang

Thus, because

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Gallagher suggested at the hearing that its contract claim

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was also based on other provisions of the employment agreement,
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including Section 5(h), which precludes Lang from making “any

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false, defamatory or disparaging statements” following his

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employment with the firm.

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Gallagher has not plead sufficient facts to suggest that Lang

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actually breached any of these provisions.

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summarizes the content of some of these provisions, including

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Section 5(h), it never specifically asserts that Lang breached any

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of them nor does it allege sufficient facts to support an

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inference that he did.

Employment Agreement 11.

However,

Although its complaint

Accordingly, to the extent that

United States District Court
For the Northern District of California

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Gallagher’s contract claim is based on any provisions of the

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agreement other than Sections 5(d), 5(g), 7(c), and 8(b), it has

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failed to state a valid claim for breach of contract based on

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those other provisions.

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based on any false statements that Lang made after leaving the

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firm, it must plead those claims with particularity.

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P. 9(b).

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3.

If Gallagher seeks to assert any claims

Fed. R. Civ.

Leave to Amend

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Gallagher is granted leave to amend its contract claim in

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order to plead sufficient facts to support its claim that Lang

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breached provisions of the employment agreement other than

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Sections 5(d), 5(g), 7(c), and 8(b).

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showing that one of the statutorily recognized exceptions to

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section 16600 applies to the agreement’s non-competition and non-

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solicitation provisions.

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assert a new claim for misappropriation of trade secrets.

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noted above, Gallagher alleges that Lang breached a provision of

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the employment agreement precluding him from soliciting any

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clients “about which [he] received trade secrets of [Gallagher] or

It may also plead new facts

Finally, Gallagher is granted leave to

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As

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any of its affiliates.”

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allegation is not sufficient to support a contract claim in light

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of section 16600, it could potentially give rise to a claim for

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misappropriation of trade secrets if it were augmented with

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additional factual allegations.

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4th at 1238 (“[S]ection 16600 bars a court from specifically

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enforcing (by way of injunctive relief) a contractual clause

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purporting to ban a former employee from soliciting former

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customers to transfer their business away from the former employer

Employment Agreement 16.

While this

Retirement Group, 176 Cal. App.

United States District Court
For the Northern District of California

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to the employee’s new business, but a court may enjoin tortious

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conduct (as violative of either the Uniform Trade Secrets Act

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and/or the Unfair Competition Law) by banning the former employee

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from using trade secret information to identify existing

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customers, to facilitate the solicitation of such customers, or to

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otherwise unfairly compete with the former employer.” (emphasis in

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original)).

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such a claim in its amended complaint, if it can truthfully do so.

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B.

Accordingly, Gallagher is granted leave to assert

Business Tort Claims (Second, Third, and Fourth Causes
of Action)

Gallagher argues that its remaining business tort claims
should be construed according to Illinois law in light of the
contract’s choice-of-law provision.

Even if the choice-of-law

provision were enforceable here -- which it is not for reasons
explained above -- it would not govern Gallagher’s tort claims.
The choice-of-law provision, by its own terms, governs only the
construction of the employment agreement itself.

See Employment

Agreement 23 (“This Agreement is made in and shall be governed by
and construed in accordance with the laws of the State of
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Illinois.” (emphasis added)).

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therefore governed by California law.

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All of Gallagher’s tort claims are

Because Gallagher plead its tort claims under Illinois common

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law, these claims are dismissed.

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amend in order to re-plead these claims under California law.

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Gallagher is granted leave to

CONCLUSION

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For the reasons set forth above, Defendant’s motion to

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dismiss (Docket No. 12) is GRANTED in part and DENIED in part.

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Plaintiff has stated a claim for breach of contract based on

United States District Court
For the Northern District of California

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Defendant’s alleged breaches of Sections 5(d), 5(g), 7(c), and

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8(b) of the employment agreement.

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are dismissed.

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All of Plaintiff’s other claims

Plaintiff may file an amended complaint within fourteen days

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of this order.

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leave to allege specific facts showing that: (1) Defendant

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breached provisions of the employment agreement in addition to

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Sections 5(d), 5(g), 7(c), and 8(b); (2) the employment

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agreement’s non-competition and non-solicitation provisions fall

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under a statutorily recognized exception to California Business

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and Professions Code section 16600; and (3) Defendant

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misappropriated Plaintiff’s trade secrets in violation of

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California’s Uniform Trade Secrets Act.

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plead its other business tort claims under California law.

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//

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//

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//

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//

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//

In the amended complaint, Plaintiff is granted

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Plaintiff may also re-

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In the future, the parties shall comply with Civil Local Rule

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5-1(e)’s requirement that all documents be filed in a format that

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permits electronic text searches.

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IT IS SO ORDERED.

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Dated: 5/23/2014

CLAUDIA WILKEN
United States District Judge

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United States District Court
For the Northern District of California

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