Arthur J. Gallagher & Co. v. Lang

Filing 34

ORDER by Judge Cladia Wilken GRANTING IN PART 22 MOTION TO DISMISS. (ndr, COURT STAFF) (Filed on 9/2/2014)

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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.,

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Plaintiff,

ORDER GRANTING IN
PART MOTION TO
DISMISS (Docket
No. 22)

v.
CHRISTOPHER LANG,

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No. C 14-0909 CW

Defendant.
________________________________/

United States District Court
For the Northern District of California

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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.

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moves to dismiss the amended complaint.

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motion.

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grants the motion in part and denies it in part.

Plaintiff opposes the

After considering the parties' submissions, the Court

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Defendant

BACKGROUND
This Court granted in part Defendant's prior motion to

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dismiss, and granted Plaintiff leave to amend its complaint.

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following facts are alleged in the amended complaint.

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The

Gallagher is an insurance brokerage firm with its principal

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place of business in Illinois.

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California Insurance Center, the firm where Lang was employed

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immediately prior to his employment with Gallagher.

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of the acquisition, Lang signed an employment agreement with

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Gallagher.

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filed his amended complaint.

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In September 2008, it acquired the

On the date

A copy of that agreement was filed after Gallagher

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Section 5 of the employment agreement addressed termination

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of Lang's employment.

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terminate the employment agreement for any reason upon giving

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sixty days' notice to Gallagher;1 and Section 5(g) provided that,

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both during his employment and after the termination of his

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employment, Lang would make himself available to Gallagher's legal

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counsel to provide information relevant to any actual or potential

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legal proceeding.

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Agreement, at 10-11.

United States District Court
For the Northern District of California

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Section 5(d) provided that Lang could

Docket No. 21, Errata, Ex. A, Employment

Section 7 of the employment agreement stated that Gallagher

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provided Lang with confidential trade secret information, and that

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Lang agreed that, upon termination of his employment, he would

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return to Gallagher "all copies or tangible embodiments of

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materials" containing such information.

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Id. at 13-15.

Section 8 of the employment agreement included the non-

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competition and non-solicitation provisions that this Court

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previously held to be unenforceable as contrary to California

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public policy.

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Section 8(b) prohibited Lang from recruiting Gallagher's

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employees:

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Additionally,

The Executive [Lang] recognizes that employees
of the Corporation [Gallagher] and its
affiliates are a valuable resource of the
Corporation and its affiliates and are

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Docket No. 18, Order, at 6-11.

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In addition, Section 5(c) of the employment agreement
provided that Lang could terminate his employment without
providing sixty days' notice under certain conditions defined in
the employment agreement as constituting "Good Reason." Neither
party argues that those conditions are present in this case, or
that Lang terminated his employment pursuant to Section 5(c).
Employment Agreement 9-10.
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integral to their full enjoyment of the
goodwill and other assets acquired in the
Transaction. Accordingly, the Executive
agrees that, for a period equal to two (2)
years following the termination of the
employment of the Executive with the
Corporation or its affiliates (as applicable)
for any reason whatsoever, the Executive will
not directly solicit, induce or recruit any
employee of the Corporation or its affiliates
to leave the employ of the Corporation or its
affiliates.
Employment Agreement 17.
In January 2014, Lang submitted his resignation to Gallagher.
Shortly thereafter, he formed a new insurance brokerage firm with

United States District Court
For the Northern District of California

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two of Gallagher's other former employees, who had left their

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employment with Gallagher shortly before Lang himself left.

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Several clients soon ended their relationship with Gallagher and

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brought their business to Lang's new firm.

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"the amount of this lost business to Gallagher exceeds $400,000.

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If [Lang] had provided the required 60-days written notice prior

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to his departure, it is very likely that many, if not all, clients

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would have remained with Gallagher."

Gallagher alleges that

Am. Compl. ¶ 22.

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On June 6, 2014, Gallagher filed its amended complaint,

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charging Lang with breach of contract, to wit: failure to provide

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written notice of his resignation sixty days prior to leaving the

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firm, as required by Section 5(d); refusing to meet with the

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

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

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required by Section 7(c); and recruiting employees to leave the

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firm, in violation of Section 8(b).

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asserts claims for intentional interference with prospective

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economic advantage, negligent interference with contracts and

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The amended complaint also

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prospective economic advantage, unjust enrichment and unfair

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competition.2

It seeks both monetary and injunctive relief.

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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.

Fed. R.

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

Bell Atl. Corp. v.

United States District Court
For the Northern District of California

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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.

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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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In considering whether the

NL Indus., Inc. v. Kaplan, 792 F.2d

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

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F.2d 242, 246–47 (9th Cir. 1990).

However, where a court has

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Each of Gallagher's causes of action was advanced in its
initial complaint; however, in the initial complaint unjust
enrichment and unfair competition were asserted as a single cause
of action, while in the amended complaint each is asserted as an
independent cause of action. Compare Compl. ¶¶ 38-41, with Am.
Compl. ¶¶ 36-44.
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previously granted a plaintiff an opportunity to amend its

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complaint after a motion to dismiss, and the amended complaint

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still fails to state claims with the required particularity, the

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court may grant a motion to dismiss without granting the plaintiff

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leave to amend.

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1081 (N.D. Cal. 2012).

Arroyo v. Chattem, Inc., 926 F. Supp. 2d 1070,

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DISCUSSION

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A.

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Lang contends that Gallagher failed to state a claim for

Breach of Contract (First Cause of Action)

United States District Court
For the Northern District of California

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breach of contract for three reasons.

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Gallagher's allegations concerning damages are merely speculative,

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and therefore are not sufficient to state a claim.

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asserts that the facts alleged in the amended complaint fail to

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show a breach of the no-recruiting provision of Section 8(b).

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Third, Lang argues that Gallagher failed to plead with sufficient

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specificity its claim that Lang breached the employment agreement

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by failing to return materials.

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addressed in turn.

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First, he argues that

Second, he

Each of these arguments is

Sufficiency of Damages Claim

Lang asserts that Gallagher's claim that if he had provided

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sixty days' notice as required by Section 5(d), "it is likely that

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many, if not all, clients would have remained with Gallagher," is

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merely speculative and therefore fails to state a claim for breach

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of contract.

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"The elements of a cause of action for breach of contract

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are: 1) the existence of the contract; 2) performance by the

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plaintiff or excuse for nonperformance; 3) breach by the

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defendant; and 4) damages."

McNeary-Calloway v. JP Morgan Chase
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Bank, N.A., 863 F. Supp. 2d 928, 954 (N.D. Cal. 2012).

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to plead the damages prong sufficiently, a plaintiff must allege

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"appreciable and actual damage."

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Armstrong Tire Corp., 223 F.3d 1010, 1015 (9th Cir. 2000) (citing

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Patent Scaffolding Co. v. William Simpson Constr. Co., 256 Cal.

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App. 2d 506, 511 (1967) ("A breach of contract without damage is

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not actionable.")).3

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In order

See Aguilera v. Pirelli

The Court is not persuaded by Lang's argument that
Gallagher's damages claim is merely speculative.

At the pleading

United States District Court
For the Northern District of California

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stage, a plaintiff need only make a "short and plain statement"

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showing that it is entitled to relief.

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"'Lost profits' . . . are specific allegations of damage that are

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sufficient to satisfy the requirement to plead 'actual and

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appreciable' damages under California breach of contract law."

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Benedict v. Hewlett-Packard Co., 2014 U.S. Dist. LEXIS 7331, at

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*18 (N.D. Cal.).

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Lang's failure to provide sixty days' notice as required by the

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employment agreement, it lost more than a dozen clients accounting

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for more than $400,000 in revenue.

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allegations are sufficient to survive a motion to dismiss.

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Fed. R. Civ. P. 8(a)(2).

Here, Gallagher has alleged that, as a result of

Am. Compl. ¶ 22.

Gallagher's

Lang further argues that Gallagher has failed to claim any
specific damage from the alleged breaches of Sections 5(g)

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Although Aguilera was stating a summary judgment standard,
courts in this district have repeatedly used the "appreciable and
actual damage" standard to determine whether a plaintiff has plead
a breach of contract claim sufficiently. See, e.g., Yunker v.
Pandora Media, Inc., 2014 U.S. Dist. LEXIS 30829, at *15 (N.D.
Cal.); Belluomini v. CitiGroup, Inc., 2013 U.S. Dist. LEXIS
103882, at *13 (N.D. Cal.); Architectural Res. Grp., Inc. v. Hks,
Inc., 2013 U.S. Dist. LEXIS 20247, at *8-9 (N.D. Cal.).
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(failure to meet with Gallagher's counsel), 7(c) (failure to

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return materials to Gallagher), and 8(b) (recruiting away two

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Gallagher employees).

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"The Supreme Court has emphasized that analyzing the

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sufficiency of a complaint's allegations is a 'context-specific

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task that requires the reviewing court to draw on its judicial

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experience and common sense.'"

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694 F.3d 1045, 1051 (9th Cir. 2012) (quoting Iqbal, 556 U.S. at

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679).

Sheppard v. David Evans & Assocs.,

"[T]he complaint should be read as a whole, not parsed

United States District Court
For the Northern District of California

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piece by piece to determine whether each allegation, in isolation,

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is plausible."

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(8th Cir. 2009).

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breach of contract, alleging multiple breaches, and claiming that

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it sustained damages as a result of those alleged breaches.

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this stage, such allegations are sufficient to state a claim for

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breach of contract.

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2.

Braden v. Wal-Mart Stores, Inc., 588 F.3d 585, 594
Here, Gallagher has asserted a single claim for

At

No-Recruiting Provision

Lang contends that Gallagher has failed to allege breach of

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contact sufficiently with regard to the no-recruiting provision in

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Section 8(b) of the employment agreement, first, because the

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amended complaint does not allege that Lang recruited Gallagher's

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employees after he resigned his employment, and second, because

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even if Lang did breach the no-recruiting provision the amended

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complaint fails to allege that such a breach resulted in any

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damages to Gallagher.

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Under California law, "[t]he whole of a contract is to be

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taken together, so as to give effect to every part, if reasonably

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practicable, each clause helping to interpret the other."
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Cal.

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Civ. Code § 1641.

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to govern its interpretation, if the language is clear and

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explicit, and does not involve an absurdity."

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1638.

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manner that leads to an absurd result."

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Prods., Inc., 236 F.3d 487, 491 (9th Cir. 2000) (citing Cal. Civ.

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Code § 1638).

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In addition, "[t]he language of a contract is

Cal. Civ. Code §

In other words, a court "may not read [a] contract in a
Kassbaum v. Steppenwolf

Lang argues that "[t]here is no allegation that Lang
solicited Plaintiff's employees following the termination of his

United States District Court
For the Northern District of California

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employment. . . .

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from soliciting the employees prior to his termination."

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(Memorandum, 4 (citations to amended complaint omitted)).

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other words, Lang asks the Court to interpret Section 8(b) of the

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employment agreement as barring him from recruiting Gallagher

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employees after he had left Gallagher, but allowing him to recruit

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employees while he was still employed by Gallagher.

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urges that the employment agreement prohibited Lang from

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recruiting Gallagher employees both during the term of his

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employment and after he left.

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question at this stage; the Court need only determine whether

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Gallagher has stated a claim for breach of contract.

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finds Gallagher's interpretation of the contract to be reasonable,

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and therefore finds that he has plead breach of contract

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sufficiently with regard to Section 8(b) of the employment

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agreement.

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3.

The Employment Agreement does not prohibit Lang

In

Gallagher

The Court need not decide this

The Court

Return of Materials

Lang argues that Gallagher has failed to allege sufficiently
any breach of Section 7(c) because it does not specifically
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identify the materials that Lang allegedly failed to return.
The Court is not persuaded.

The employment agreement

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expressly requires that Lang "return to the Corporation

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[Gallagher] all materials and all copies or tangible embodiments

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of materials" and property of Gallagher.

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Gallagher alleges that Lang did not do so, and that it has been

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harmed by Lang's failure to do so.

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claim for breach of contract.

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United States District Court
For the Northern District of California

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Employment Agreement 15.

That is sufficient to state a

For these reasons, with respect to Gallagher's breach of
contract claim, Lang's motion to dismiss is DENIED.
B.

Intentional and Negligent Interference with Prospective
Economic Advantage (Second and Third Causes of Action)

Lang argues that Gallagher failed to state claims for
intentional and negligent interference with prospective economic
advantage because he did not allege any independent wrongful act.
To state a claim for intentional interference with
prospective economic advantage, a plaintiff must allege "'(1) an
economic relationship between the plaintiff and some third party,
with the probability of future economic benefit to the plaintiff;
(2) the defendant's knowledge of the relationship; (3) intentional
acts on the part of the defendant designed to disrupt the
relationship; (4) actual disruption of the relationship; and
(5) economic harm to the plaintiff proximately caused by the acts
of the defendant.'"

Korea Supply Co. v. Lockheed Martin Corp., 29

Cal. 4th 1134, 1153 (2003) (citations omitted).

The elements to

state a claim for negligent interference with prospective economic
advantage are the same, except instead of alleging intentional
acts, the plaintiff must allege that the defendant knew or should
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have known that the relationship would be disrupted if it failed

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to act with reasonable care; and that the defendant failed to act

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with reasonable care.

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546 F.3d 991, 1004 (9th Cir. 2008).

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a plaintiff must allege that the defendant's conduct was "wrongful

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by some legal measure other than the fact of the interference

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itself."

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independently wrongful if it is unlawful, that is, if it is

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proscribed by some constitutional, statutory, regulatory, common

United States District Court
For the Northern District of California

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Theme Promotions, Inc. v. News Am. Mktg.,
In addition, for either tort,

Korea Supply, 29 Cal. 4th at 1153.

law, or other determinable legal standard."

"An act is

Id. at 1159.

In its opposition to the motion, Gallagher argues that Lang

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committed an independent wrongful act by violating his duty of

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loyalty and his fiduciary duty set forth in sections 2860 and 2863

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of the California Labor Code.

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complaint contains no allegations of any duty of loyalty or of

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fiduciary duty that Lang owed Gallagher, and contains no reference

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whatsoever to California Labor Code sections 2860 or 2863.

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Gallagher has failed to state a claim sufficiently.

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However, Gallagher's amended

Thus,

More important, Gallagher seeks to use the same factual

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allegations to support both its breach of contract claim and its

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claims for intentional and negligent interference with economic

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advantage.

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in tort."

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Eyes, Inc., No. C-07-2424, Order at 5 (Docket No. 30) (N.D. Cal.

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Sept. 5, 2007) (citing JRS Prods., Inc. v. Matsushita Elec. Corp.

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of Am., 115 Cal. App. 4th 168, 181-82 (2004); Khoury v. Maly's of

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California, Inc., 14 Cal App. 4th 612, 618 (1993) ("If a contract

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plaintiff could plead in a conclusory way that the defendant

Thus, Gallagher's "allegations sound in contract, not
First Advantage Background Servs. Corp. v. Private

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maliciously intended to drive the plaintiff out of business, the

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tort of interference with prospective business advantage would be

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routinely pleaded in breach of contract cases.")).

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Accordingly, the Court dismisses Gallagher's claims for

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intentional and negligent interference with prospective economic

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advantage.

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not specify any additional facts it could provide in a subsequent

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amended complaint that would state a claim.

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(Docket No. 29).

Gallagher requests leave to amend; however, it does

Pl.'s Opp. at 10

Because the Court previously afforded Gallagher

United States District Court
For the Northern District of California

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an opportunity to re-plead this claim under California law, and

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the claim is still insufficiently plead, this dismissal is without

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leave to amend.

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C.

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Lang argues that Gallagher cannot state a claim for unjust

Unjust Enrichment (Fourth Cause of Action)

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enrichment because California law does not recognize such an

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action.

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The relationship between Gallagher and Lang is governed by a

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contract.

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action, under California law, "unjust enrichment is an action in

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quasi-contract, which does not lie when an enforceable, binding

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agreement exists defining the rights of the parties."

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Fin., Inc. v. GE Capital Corp., 96 F.3d 1151, 1167 (9th Cir. 1996)

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(citing Wal-Noon Corp. v. Hill, 45 Cal. App. 3d 605, 613 (1975)).

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Gallagher, in its response to the motion, makes no defense of its

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unjust enrichment claim.

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Even if unjust enrichment is a recognized cause of

Paracor

Accordingly, the Court dismisses Gallagher's unjust

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enrichment claim.

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defect, the dismissal is without leave to amend.

Because the claim cannot be amended to cure the

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D.

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California's Unfair Competition Law (UCL) prohibits "any

Unfair Competition (Fifth Cause of Action)

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unlawful, unfair or fraudulent business act or practice."

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Bus. & Prof. Code § 17200.

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treats violations of those laws as unlawful business practices

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independently actionable under state law.

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Life Ins. Co., 225 F.3d 1042, 1048 (9th Cir. 2000).

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almost any federal, state or local law may serve as the basis for

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a UCL claim.

Cal.

The UCL incorporates other laws and

Chabner v. United Omaha
Violation of

Saunders v. Superior Court, 27 Cal. App. 4th 832,

United States District Court
For the Northern District of California

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838-39.

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fraudulent in violation of the UCL even if the practice does not

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violate any law."

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827 (2003).

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In addition, a business practice may be "unfair or

Olszewski v. Scripps Health, 30 Cal. 4th 798,

Gallagher's fifth cause of action alleges that Lang violated

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section 17200 by "unfairly and improperly inducing employees to

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leave Gallagher in contravention of defendant's contractual

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obligations, and by engaging in other wrongful acts."

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¶ 41.

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that by recruiting employees away from Gallagher, Lang both

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violated the Employment Agreement and breached his duty of loyalty

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and fiduciary duty owed to Gallagher pursuant to California Labor

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Code sections 2860 and 2863.

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Am. Compl.

In its opposition to the motion, Gallagher further argues

"A breach of contract claim may form the predicate for a

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section 17200 claim, provided it also constitutes conduct that is

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unlawful, unfair, or fraudulent."

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Corp., 517 F.3d 1137, 1152 (9th Cir. 2008) (quoting Nat'l Rural

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Telecoms. Coop. v. DIRECTV, Inc., 319 F. Supp. 2d 1059, 1074 (C.D.

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Cal. 2003)) (internal alteration, citation and quotations
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Sybersound Records, Inc. v. UAV

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omitted).

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even allege, much less state a claim sufficiently, that Lang

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violated any duty of loyalty or fiduciary duty to Gallagher.

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Gallagher's generic assertion that Lang violated section 17200 "by

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engaging in other wrongful acts" is not sufficient to state a

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claim.

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As previously noted, the amended complaint does not

Accordingly, the Court dismisses Gallagher's claim for unfair

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competition.

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not specify any additional facts it could provide in a subsequent

Gallagher requests leave to amend; however, it does

United States District Court
For the Northern District of California

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amended complaint that would state a claim.

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(Docket No. 29).

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an opportunity to re-plead this claim under California law, and

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the claim is still insufficiently plead, this dismissal is without

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leave to amend.

Because the Court previously afforded Gallagher

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Pl.'s Opp. at 10

CONCLUSION
For the reasons set forth above, Defendant's motion to

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dismiss (Docket No. 22) is GRANTED IN PART and DENIED IN PART.

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Plaintiff has stated a claim for breach of contract based on

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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 without leave to amend.

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All of Plaintiff’s other claims

IT IS SO ORDERED.

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Dated: 9/2/2014

CLAUDIA WILKEN
United States District Judge

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