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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1 2 3 4 IN THE UNITED STATES DISTRICT COURT 5 FOR THE NORTHERN DISTRICT OF CALIFORNIA 6 7 ARTHUR J. GALLAGHER & CO., Plaintiff, 8 9 United States District Court For the Northern District of California 10 11 No. C 14-0909 CW ORDER GRANTING IN PART MOTION TO DISMISS (Docket No. 12) v. CHRISTOPHER LANG, Defendant. ________________________________/ 12 Plaintiff Arthur J. Gallagher & Co. brought this action 13 against its former employee, Defendant Christopher Lang, for 14 breach of contract and various business-related torts. Defendant 15 moves to dismiss the complaint. Plaintiff opposes the motion. 16 After considering the parties’ submissions and oral argument, the 17 Court grants the motion in part and denies it in part and grants 18 Plaintiff leave to amend. 19 BACKGROUND 20 21 22 23 24 25 26 27 28 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 1 2 3 4 5 6 7 8 9 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 10 5(b) and 5(c) of the agreement contained various terms setting 11 forth the conditions under which either party could terminate the 12 employment relationship. 13 relevant here. The details of these terms are not 14 Another section of the agreement, Section 8, contained 15 various non-competition and non-solicitation provisions governing 16 Lang’s relationships with Gallagher’s clients and employees for up 17 to two years after he ceased working for the firm. 18 provisions precluded Lang from soliciting any “insurance related 19 business with any individual, partnership, corporation, 20 association or other entity or Prospective Account about which 21 [he] received trade secrets of [Gallagher] or any of its 22 affiliates.” 23 not “directly solicit, induce or recruit any employee of 24 [Gallagher] or its affiliates to leave the employ of [Gallagher] 25 or its affiliates.” 26 Id. at 16. One of these Another provision stated that Lang would Id. In January 2014, Lang submitted his resignation to Gallagher. 27 Shortly thereafter, he formed a new insurance brokerage firm with 28 two of Gallagher’s other former employees. 2 Several clients soon 1 ended their relationship with Gallagher and brought their business 2 to Lang’s new firm. 3 In February 2014, Gallagher filed this action against Lang, charging him with breaching the non-competition and non- 5 solicitation provisions of the employment agreement. 6 complaint, it also alleged that Lang breached the employment 7 agreement by, among other things, failing to provide written 8 notice of his resignation sixty days prior to leaving the firm, as 9 required by Section 5(d) of the agreement; refusing to meet with 10 United States District Court For the Northern District of California 4 the firm’s legal counsel after leaving the firm, as required by 11 Section 5(g); and failing to return certain materials to the firm, 12 as required by Section 7(c). 13 In its Gallagher asserts claims against Lang for breach of contract, 14 intentional interference with prospective economic advantage, 15 negligent interference with contracts and prospective economic 16 advantage, and unfair competition and unjust enrichment. 17 both monetary and injunctive relief. 18 19 It seeks LEGAL STANDARD A complaint must contain a “short and plain statement of the 20 claim showing that the pleader is entitled to relief.” 21 Civ. P. 8(a). 22 state a claim, dismissal is appropriate only when the complaint 23 does not give the defendant fair notice of a legally cognizable 24 claim and the grounds on which it rests. 25 Twombly, 550 U.S. 544, 555 (2007). 26 complaint is sufficient to state a claim, the court will take all 27 material allegations as true and construe them in the light most 28 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 3 1 896, 898 (9th Cir. 1986). 2 to legal conclusions; “threadbare recitals of the elements of a 3 cause of action, supported by mere conclusory statements,” are not 4 taken as true. 5 (citing Twombly, 550 U.S. at 555). 6 However, this principle is inapplicable Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) When granting a motion to dismiss, the court is generally 7 required to grant the plaintiff leave to amend, even if no request 8 to amend the pleading was made, unless amendment would be futile. 9 Cook, Perkiss & Liehe, Inc. v. N. Cal. Collection Serv. Inc., 911 United States District Court For the Northern District of California 10 F.2d 242, 246–47 (9th Cir. 1990). 11 amendment would be futile, the court examines whether the 12 complaint could be amended to cure the defect requiring dismissal 13 “without contradicting any of the allegations of [the] original 14 complaint.” 15 Cir. 1990). In determining whether Reddy v. Litton Indus., Inc., 912 F.2d 291, 296 (9th 16 DISCUSSION 17 A. 18 Lang contends that Gallagher has failed to state a claim for Breach of Contract (First Cause of Action) 19 breach of contract for two reasons. 20 the provisions of the employment agreement that Gallagher seeks to 21 enforce lapsed in August 2011, more than two years before he 22 allegedly breached them. 23 provisions remained in effect after August 2011, the agreement’s 24 non-competition and non-solicitation provisions -- which are the 25 focus of Gallagher’s contract claim -- are void as a matter of 26 California public policy. 27 turn. First, he argues that all of Second, he asserts that, even if those Each of these arguments is addressed in 28 4 1 1. Duration of the Employment Agreement 2 Lang asserts that the only provisions of the employment 3 agreement that remained in effect after August 2011 were Sections 4 5(b) and 5(c). 5 agreement. 6 “serve as an employee of [Gallagher] with the duties set forth in 7 Section 2” until August 2011, at which point he would become 8 employed “on an at will basis . . . subject to the requirements of 9 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 10 Although this provision set forth the terms by which each 11 party could terminate the employment relationship after August 12 2011, it was not intended to render every other provision of the 13 agreement unenforceable after that date. 14 the agreement, including the non-competition and non-solicitation 15 provisions at issue here, expressly state that they will apply for 16 a period following the conclusion of the employment relationship. 17 See, e.g., id. at 16 (providing that Lang’s non-competition and 18 non-solicitation obligations would remain in effect “for a period 19 equal to two (2) years following the termination of [Lang’s] 20 employment”). 21 that they will only apply “during the Contract Term” and “prior to 22 the end of the Contract Term,” id. at 2, 5, 7 (emphasis added). 23 Thus, the contract explicitly distinguishes between provisions 24 that lapse in August 2011 and provisions -- other than Sections 25 5(b) and 5(c) -- which apply after that date. Several provisions of Other provisions of the agreement expressly state 26 27 28 5 Because the Court 1 1 must give effect to these distinctions, 2 construction of the employment agreement as a matter of law. 3 4 2. it must reject Lang’s California Public Policy Lang contends that the non-competition and non-solicitation 5 provisions are void as a matter of California public policy. 6 cites California Business and Professions Code section 16600, 7 which provides that “every contract by which anyone is restrained 8 from engaging in a lawful profession, trade, or business of any 9 kind is to that extent void.” He Gallagher contends that section United States District Court For the Northern District of California 10 16600 does not apply here because the agreement contains a choice- 11 of-law provision stating that it “shall be governed by and 12 construed in accordance with the laws of the State of Illinois.” 13 Employment Agreement 23. 14 The Court must apply California’s choice-of-law rules to 15 determine whether to give force to the agreement’s choice-of-law 16 provision. 17 Cir. 2005) (“Federal courts sitting in diversity apply ‘the forum 18 state’s choice of law rules to determine the controlling 19 substantive law.’”). 20 provision, California courts apply the parties’ choice of law 21 unless the analytical approach articulated in § 187(2) of the 22 Restatement (Second) of Conflict of Laws . . . dictates a 23 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 24 1 25 26 27 28 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.”). 6 1 Franchise Corp., 622 F.3d 996, 1002 (9th Cir. 2010) (quoting 2 Hoffman v. Citibank (S.D.), N.A., 546 F.3d 1078, 1082 (9th Cir. 3 2008); alteration in original). 4 Under this approach, 5 The law of the state chosen by the parties to govern their contractual rights and duties will be applied . . . , unless either 6 (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. 7 8 9 United States District Court For the Northern District of California 10 11 12 13 14 15 Restatement (Second) of Conflict of Laws § 187(2). Here, the chosen state, Illinois, has a substantial 16 relationship to the parties because Gallagher has its principal 17 place of business there. 18 Court, 3 Cal. 4th 459, 467 (1992); Restatement (Second) of 19 Conflict of Laws § 187 cmt. f (recognizing that a “substantial 20 relationship” with the chosen state exists where “one of the 21 parties is domiciled or has his principal place of business” 22 there). 23 agreement’s choice-of-law provision unenforceable. 24 See Nedlloyd Lines B.V. v. Superior Subsection (a) therefore does not render the employment Subsection (b), however, does render the provision 25 unenforceable. 26 would contravene California’s fundamental public policy against 27 the enforcement of non-competition and non-solicitation 28 agreements. Applying Illinois law to the parties’ contract The California Supreme Court has recognized that 7 1 “California has a strong interest in protecting its employees from 2 noncompetition agreements under section 16600.” 3 Corp. v. Medtronic, Inc., 29 Cal. 4th 697, 706 (2002). 4 Furthermore, California has a materially greater interest in the 5 outcome of this case than Illinois because Lang is a California 6 resident who worked for Gallagher exclusively in California.2 7 “California’s interests would be more seriously impaired by 8 enforcement of the parties’ contractual choice of law provision 9 than would the interests of [the other state] if California law Advanced Bionics United States District Court For the Northern District of California 10 were applied.” 11 employment agreement in this case must be governed by California 12 rather than Illinois law. 13 Davis, 2007 WL 2288298, at *8. Accordingly, the Under California law, to the extent that the provisions of 14 the agreement preclude Lang from soliciting business from 15 Gallagher’s clients, they are void. 16 recently held that a non-solicitation provision, similar to one of 17 the provisions at issue here, was invalid under section 16600. 18 Edwards v. Arthur Andersen LLP, 44 Cal. 4th 937, 948 (2008). 19 that case, the employee, an accountant, had signed an agreement 20 21 22 23 24 25 26 27 28 2 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”). 8 1 “not to solicit (to perform professional services of the type [he] 2 provided) any client of the office(s) to which [he was] assigned” 3 for a certain period after he stopped working for his employer. 4 Id. at 942. 5 provision against the employee because it found that the provision 6 “restricted his ability to practice his accounting profession.” 7 Id. at 948. 8 the provision of its agreement that prohibits Lang from soliciting 9 business from its clients.3 United States District Court For the Northern District of California 10 The California Supreme Court refused to enforce this The same reasoning precludes Gallagher from enforcing In contrast, the provision of the agreement prohibiting Lang 11 from recruiting Gallagher’s employees is not void. 12 California courts recognize that an employer may not prohibit its 13 former employees from hiring the employer’s current employees, an 14 employer may lawfully prohibit its former employees from actively 15 recruiting or soliciting its current employees. 16 v. Moyes, 174 Cal. App. 3d 268, 280 (1985) (“Equity will not 17 enjoin a former employee from receiving and considering 18 applications from employees of his former employer, even though 19 20 21 22 23 24 25 26 27 28 3 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). 9 1 the circumstances be such that he should be enjoined from 2 soliciting their applications.”); Thomas Weisel Partners LLC v. 3 BNP Paribas, 2010 WL 546497, at *6 (N.D. Cal.) (recognizing that 4 section 16600 precludes restraints on hiring former colleagues but 5 permits restraints on solicitation). 6 employment agreement, which precludes Lang from “directly 7 solicit[ing], induc[ing] or recruit[ing]” Gallagher’s current 8 employees, is enforceable here and does not violate section 16600. 9 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 10 former colleagues to leave Gallagher -- rather than simply hiring 11 them after they independently decided to leave the firm -- it has 12 stated a valid claim for breach of Section 8(b) of the agreement. 13 Although Gallagher’s complaint focuses on the alleged breach 14 of the non-competition and non-solicitation provisions, it also 15 asserts that Lang breached other provisions of the employment 16 agreement. 17 breached Section 5(d), 5(g), and 7(c) of the agreement by failing 18 to give sixty days written notice of his resignation, refusing to 19 meet with the firm’s legal counsel following his resignation, and 20 failing to return all of the firm’s property and other materials. 21 Lang’s only argument for dismissal of Gallagher’s claims based on 22 these provisions is that these provisions lapsed in August 2011. 23 As explained above, that argument is unavailing. 24 Lang has failed to show that these provisions are unenforceable, 25 Gallagher has stated a valid contract claim based on Lang’s 26 alleged breach of these provisions. As noted above, the complaint alleges that Lang Thus, because 27 Gallagher suggested at the hearing that its contract claim 28 was also based on other provisions of the employment agreement, 10 1 including Section 5(h), which precludes Lang from making “any 2 false, defamatory or disparaging statements” following his 3 employment with the firm. 4 Gallagher has not plead sufficient facts to suggest that Lang 5 actually breached any of these provisions. 6 summarizes the content of some of these provisions, including 7 Section 5(h), it never specifically asserts that Lang breached any 8 of them nor does it allege sufficient facts to support an 9 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 10 Gallagher’s contract claim is based on any provisions of the 11 agreement other than Sections 5(d), 5(g), 7(c), and 8(b), it has 12 failed to state a valid claim for breach of contract based on 13 those other provisions. 14 based on any false statements that Lang made after leaving the 15 firm, it must plead those claims with particularity. 16 P. 9(b). 17 3. If Gallagher seeks to assert any claims Fed. R. Civ. Leave to Amend 18 Gallagher is granted leave to amend its contract claim in 19 order to plead sufficient facts to support its claim that Lang 20 breached provisions of the employment agreement other than 21 Sections 5(d), 5(g), 7(c), and 8(b). 22 showing that one of the statutorily recognized exceptions to 23 section 16600 applies to the agreement’s non-competition and non- 24 solicitation provisions. 25 assert a new claim for misappropriation of trade secrets. 26 noted above, Gallagher alleges that Lang breached a provision of 27 the employment agreement precluding him from soliciting any 28 clients “about which [he] received trade secrets of [Gallagher] or It may also plead new facts Finally, Gallagher is granted leave to 11 As 1 any of its affiliates.” 2 allegation is not sufficient to support a contract claim in light 3 of section 16600, it could potentially give rise to a claim for 4 misappropriation of trade secrets if it were augmented with 5 additional factual allegations. 6 4th at 1238 (“[S]ection 16600 bars a court from specifically 7 enforcing (by way of injunctive relief) a contractual clause 8 purporting to ban a former employee from soliciting former 9 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 10 to the employee’s new business, but a court may enjoin tortious 11 conduct (as violative of either the Uniform Trade Secrets Act 12 and/or the Unfair Competition Law) by banning the former employee 13 from using trade secret information to identify existing 14 customers, to facilitate the solicitation of such customers, or to 15 otherwise unfairly compete with the former employer.” (emphasis in 16 original)). 17 such a claim in its amended complaint, if it can truthfully do so. 18 19 20 21 22 23 24 25 26 27 28 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 12 1 Illinois.” (emphasis added)). 2 therefore governed by California law. 3 All of Gallagher’s tort claims are Because Gallagher plead its tort claims under Illinois common 4 law, these claims are dismissed. 5 amend in order to re-plead these claims under California law. 6 Gallagher is granted leave to CONCLUSION 7 For the reasons set forth above, Defendant’s motion to 8 dismiss (Docket No. 12) is GRANTED in part and DENIED in part. 9 Plaintiff has stated a claim for breach of contract based on United States District Court For the Northern District of California 10 Defendant’s alleged breaches of Sections 5(d), 5(g), 7(c), and 11 8(b) of the employment agreement. 12 are dismissed. 13 All of Plaintiff’s other claims Plaintiff may file an amended complaint within fourteen days 14 of this order. 15 leave to allege specific facts showing that: (1) Defendant 16 breached provisions of the employment agreement in addition to 17 Sections 5(d), 5(g), 7(c), and 8(b); (2) the employment 18 agreement’s non-competition and non-solicitation provisions fall 19 under a statutorily recognized exception to California Business 20 and Professions Code section 16600; and (3) Defendant 21 misappropriated Plaintiff’s trade secrets in violation of 22 California’s Uniform Trade Secrets Act. 23 plead its other business tort claims under California law. 24 // 25 // 26 // 27 // 28 // In the amended complaint, Plaintiff is granted 13 Plaintiff may also re- 1 In the future, the parties shall comply with Civil Local Rule 2 5-1(e)’s requirement that all documents be filed in a format that 3 permits electronic text searches. 4 IT IS SO ORDERED. 5 6 7 Dated: 5/23/2014 CLAUDIA WILKEN United States District Judge 8 9 United States District Court For the Northern District of California 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 14

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