Arthur J. Gallagher & Co. v. Lang

Filing 44

ORDER by Judge Claudia Wilken Granting 38 Motion to Dismiss. (ndr, COURT STAFF) (Filed on 12/3/2014)

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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
MOTION TO DISMISS
(Docket No. 38)

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 and Counterclaim-Defendant Arthur J. Gallagher &

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Co. brought this action against its former employee, Defendant and

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Counterclaimant Christopher Lang, for breach of contract and

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various business-related torts.

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denied in part Lang's motions to dismiss the complaint and the

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subsequently-filed amended complaint.

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amended complaint and filed a counterclaim asserting six causes of

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action.

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Lang opposes the motion.

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submissions, the Court grants Gallagher's motion, dismisses sua

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sponte the fifth cause of action and grants Lang leave to amend

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his counterclaim consistent with this Order.

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This Court granted in part and

Lang then answered the

Gallagher moves to dismiss four of Lang's counterclaims.
After considering the parties'

BACKGROUND

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Lang asserts the following facts in his counterclaim.

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Gallagher is an insurance brokerage firm with its principal

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place of business in Illinois.

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Gallagher entered into an employment agreement whereby Lang agreed

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to be employed as an insurance broker in Gallagher's San Francisco

In September 2008, Lang and

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office.

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from September 10, 2008 through August 31, 2011.

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August 26, 2011, Lang confirmed with his supervisor, Douglas

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Bowring, that the employment agreement would no longer be in place

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after August 31, 2011, and that Lang's employment after that time

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would continue on an "at-will" basis.

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informed Bowring that he was unhappy with Gallagher.

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month Gallagher proposed that Lang purchase his book of business

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from Gallagher for 1.5 times its value, or about $1,500,000.00.

The employment agreement specified a term of employment
On or about

In January 2014, Lang
Later that

United States District Court
For the Northern District of California

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On January 31, 2014, Lang tendered his resignation letter to James

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McFarlane, Chairman of the Western Region.

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how Gallagher would notify clients of Lang's departure; McFarlane

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instructed Lang not to contact any of the clients.

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January 31, 2014, Lang's clients began contacting him concerning

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his resignation.

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resignation from Gallagher's employees.

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February 13, 2014, Gallagher communicated to Lang that it

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considered the employment agreement to be valid and in force.

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Lang inquired as to

Beginning

Some of these clients said they heard of Lang's
In a letter dated

On February 28, 2014, Gallagher filed a Complaint against

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Lang.

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part and denied in part.

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complaint.

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Court granted the motion in part and denied it in part.

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now proceeds on three claims of breach of contract.

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Lang filed a motion to dismiss, which this Court granted in
Gallagher then filed an amended

Again Lang filed a motion to dismiss and again the
Gallagher

Lang's counterclaim asserts six causes of action: intentional

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interference with prospective economic advantage, negligent

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interference with prospective economic advantage, a violation of

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sections 17200 et seq. of the California Business and Professions
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Code, two counts of restraint of trade and a request for

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declaratory relief.

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relief.

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counterclaim on the basis that Gallagher's alleged actions are

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protected by California's litigation privilege and that Lang does

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not allege Gallagher engaged in sufficient conduct to support his

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causes of action.1

Lang seeks monetary damages and declaratory

To summarize briefly, Gallagher moves to dismiss Lang's

The Court addresses each argument in turn.

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

United States District Court
For the Northern District of California

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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.

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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).

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

However, this principle is inapplicable

Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)
When granting a motion to

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Gallagher's motion also offers the argument that Lang's
counterclaim should be dismissed in its entirety as untimely. In
response Lang points out that Gallagher cites no authority in
support of this argument. In its reply brief, Gallagher
apparently abandons the argument, so the Court will not address it
further.
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dismiss, the court is generally required to grant the plaintiff

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leave to amend, even if no request to amend the pleading was made,

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unless amendment would be futile.

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N. Cal. Collection Serv. Inc., 911 F.2d 242, 246–47 (9th Cir.

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1990).
DISCUSSION

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Cook, Perkiss & Liehe, Inc. v.

A.

Interference with Prospective Economic Advantage (First
and Second Causes of Action)

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Gallagher moves to dismiss Lang's first two causes of action,
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United States District Court
For the Northern District of California

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negligent and intentional interference with prospective economic

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advantage, for two reasons: first that the causes of action are

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barred by California's litigation privilege and second that Lang

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fails to state a claim because he does not allege an independent

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wrong.

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The Court agrees with Gallagher and will, accordingly,

grant its motion.
Gallagher first moves to dismiss these causes of action

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because they are barred by California's litigation privilege.
Under California Civil Code section 47(b), communications made in

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or related to judicial proceedings cannot give rise to tort

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liability.

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"to afford litigants . . . the utmost freedom of access to the

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courts without fear of being harassed subsequently by derivative

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The purpose of the so-called litigation privilege is

tort actions."

Silberg v. Anderson, 50 Cal. 3d 205, 213 (1990).

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The privilege is quite broad.

It covers "any publication required

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or permitted by law in the course of a judicial proceeding to
achieve the objects of the litigation, even though the publication
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is made outside the courtroom and no function of the court or its

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officers is involved."

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privilege to all tort claims, with the exception of malicious

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prosecution.

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Id.

Courts have applied the litigation

Edwards v. Centex, 53 Cal. App. 4th 15, 29 (1997).

The threshold issue in determining whether the litigation
privilege applies is whether the defendant's conduct was
communicative, in which case the privilege bars suit, or non-

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communicative, in which case it does not.

Kimmel v. Goland, 51

United States District Court
For the Northern District of California

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Cal. 3d 202, 211 (1990).

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the alleged injury resulted from an act that was "communicative in

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its essential nature."

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(2006).

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The relevant judicial inquiry is whether

Rusheen v. Cohen, 37 Cal. 4th 1048, 1058

In response to Gallagher's motion, Lang argues that his
counterclaims are founded in Gallagher's conduct: interfering with

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Lang's business relationships and attempting to intimidate the
clients into ceasing those relationships.

Gallagher replies that

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the essence of Lang's claims is that Gallagher allegedly said

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something during its contacts with the clients, and that the

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conduct Lang alleges is really communication.

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Lang's counterclaims do not allege non-communicative conduct that

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As currently plead,

falls outside of the litigation privilege.
First, Lang's counterclaims assert that Gallagher "contacted"

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his clients "for the purpose of intimidating" them to terminate

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their relationships with Lang.2

Lang cites no cases to support

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his position that talking to those who may be affected by

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litigation is non-communicative; indeed, in all of the cases he

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cites the courts are careful to distinguish communication from

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conduct going beyond communication.

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See Kimmel v. Goland, 51 Cal.

3d 202, 205 (1990) (illegal recording of telephone conversations
is non-communicative); Kupiec v. American Intl. Adjustment Co.,

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235 Cal. App. 3d 1326, 1333 (1991) (concealment, misrepresentation

United States District Court
For the Northern District of California

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and abuse of the discovery process are communicative where,

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"[s]ignificantly, there is no allegation of physical destruction

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of evidence"); LiMandri v. Judkins, 52 Cal. App. 4th 326, 345

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(1997) (preparation and execution of documents is non-

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communicative).

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Lang's counterclaim does not allege any conduct

other than "contact[ing]" the clients and, on the legal authority

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cited, the Court cannot conclude that this conduct is noncommunicative so as to escape the litigation privilege.

Further,

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as "[a]ny doubt about whether the privilege applies is resolved in

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favor of applying it," Kashian v. Harriman, 98 Cal. App. 4th 892,

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913 (2002), the Court grants Gallagher's motion to dismiss.

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Lang also asserts that Gallagher "filed legal action
against Lang to induce the Clients, and/or other potential
employers or businesses, to terminate their relationships. . . ."
As Gallagher argues, and as Lang essentially concedes in his
response, the litigation privilege certainly bars a cause of
action based on the filing of a lawsuit. Action Apartment Assoc.,
Inc. v. Santa Monica, 41 Cal. 4th 1232, 1249 (2007) ("the filing
of a legal action . . . by its very nature is a communicative
act.").
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Gallagher also moves to dismiss these causes of action on the

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ground that Lang fails to state a claim for relief.

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claim for intentional interference with prospective economic

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advantage, a plaintiff must allege "'(1) an economic relationship

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between the plaintiff and some third party, with the probability

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To state a

of future economic benefit to the plaintiff; (2) the defendant's
knowledge of the relationship; (3) intentional acts on the part of

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the defendant designed to disrupt the relationship; (4) actual

United States District Court
For the Northern District of California

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disruption of the relationship; and (5) economic harm to the

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plaintiff proximately caused by the acts of the defendant.'"

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Korea Supply Co. v. Lockheed Martin Corp., 29 Cal. 4th 1134, 1153

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(2003) (citations omitted).

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negligent interference with prospective economic advantage are the

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The elements to state a claim for

same, except instead of alleging intentional acts, the plaintiff

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must allege that the defendant knew or should have known that the
relationship would be disrupted if it failed to act with

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reasonable care; and that the defendant failed to act with

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reasonable care.

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

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

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Theme Promotions, Inc. v. News Am. Mktg., 546
In addition, for either tort, a

by some legal measure other than the fact of the interference
itself."

Korea Supply, 29 Cal. 4th at 1153.

"An act is

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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

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law, or other determinable legal standard."
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Id. at 1159.

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In the paragraphs describing his first two causes of action,

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Lang alleges that Gallagher knew of the economic relationships

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between the clients and Lang; that Lang had a prospective economic

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advantage because of these relationships; that Gallagher contacted

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the clients and filed a lawsuit with the intent to disrupt the

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prospective economic advantage; that the relationships were
disrupted; and that Lang was harmed by this disruption.

These

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allegations satisfy some of the main elements articulated above.

United States District Court
For the Northern District of California

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However, as Gallagher argues, the conduct Lang describes in the

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first two causes of action—contacting clients and filing a

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lawsuit—are not independently wrongful acts and Lang does not cite

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any legal authority upon which the Court could conclude otherwise.

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Instead, in response to Gallagher's argument, Lang cites

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subsequent paragraphs of his counterclaim, which allege causes of

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action predicated upon completely different conduct, namely the
parties' execution of the employment agreement.

Because of the

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counterclaim's disjointed and incongruous nature, it is difficult

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to tell exactly what conduct forms the bases of Lang's causes of

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action and thus the claims as currently written do not give

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Gallagher fair notice of the grounds on which the causes of action

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rest.

Twombly, 550 U.S. at 555.

As such, the Court must dismiss

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Lang's first and second causes of action for this reason as well.
The Court grants Lang leave to amend but only if he can plead a
counterclaim based on conduct that is not barred by the litigation

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United States District Court
For the Northern District of California

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privilege and that satisfies the independent wrong requirement of
these causes of action.
B.

Violation of California Business and Professions Code
Sections 17200 et seq. (Third Cause of Action)

Lang's third cause of action proceeds under California's
Unfair Competition Law, which prohibits "any unlawful, unfair or
fraudulent business act or practice."
§ 17200.

Cal. Bus. & Prof. Code

Lang alleges that Gallagher violated the Unfair

Competition Law by requiring Lang to execute the employment
agreement in this case, which he alleges contains unreasonable,
overbroad and unenforceable covenants not to compete and not to
solicit the business of Gallagher's clients.

Gallagher moves to

dismiss Lang's third cause of action for two reasons: first that
the cause of action is barred by California's litigation privilege
and second that Lang fails to state a claim because he does not
allege conduct that is independently unlawful, unfair or
fraudulent.3

For the reasons that follow, the Court grants

Gallagher's motion.
First, in response to Gallagher's assertion of the litigation
privilege, Lang argues that his cause of action asserts liability
predicated on non-communicative acts of requiring Lang to execute
the employment agreement and on Gallagher's vacillation on whether

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In response to Gallagher's second argument, Lang asserts
that his allegation of a violation of California Business and
Professions Code section 16600 serves as a basis for his Unfair
Competition Law claim. In its reply briefing, Gallagher does not
rebut this argument, and instead pursues only its litigation
privilege argument. Accordingly, the Court considers this
argument to be abandoned and analyzes only the litigation
privilege argument.
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or not the employment agreement applied beyond August 31, 2011.

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However, as Gallagher persuasively argues in its reply, the

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injurious action Gallagher committed, if any, is not the mere

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requirement that Lang execute the employment agreement, but rather

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the filing of the lawsuit seeking to enforce the agreement.

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Lang's alleged injury makes this clear: the injury Lang

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articulates is loss of income, loss of business and loss of

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goodwill, all injuries Lang would suffer if the allegedly anti-

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competitive provisions of the agreement were enforced, but which

United States District Court
For the Northern District of California

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Lang did not suffer due to merely signing the agreement.

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The California Court of Appeal illustrated this reasoning in

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Navellier v. Sletten, 106 Cal. App. 4th 763 (2003).

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defendant served as an independent trustee of a mutual fund

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established and advised by the plaintiffs.

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767.

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which the defendant signed a release discharging all claims

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against the plaintiffs other than contribution and indemnity.

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The plaintiffs then filed suit against the defendant in federal

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court and the defendant filed counterclaims.

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the entry of a federal judgment, the plaintiffs filed suit in

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state court, alleging that the defendant committed fraud by

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misrepresenting his intention to be bound by the release he

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executed and further asserting that he breached the release when

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he pursued his federal counterclaims.

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interposed an anti-SLAPP4 motion, predicated in relevant part on

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There, the

106 Cal. App. 4th at

There was some shuffling of advisors, during the course of

Id.

Id. at 768.

Id.

Subsequent to

The defendant

Anti-SLAPP refers to California's anti-Strategic Lawsuit
Against Public Participation statute. See Cal. Code Civ. Proc. §
425.16.
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the litigation privilege, and arguing that the plaintiffs could

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not maintain a suit in tort against him for the counterclaims he

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filed as part of the federal action.

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assessing the applicability of the litigation privilege to these

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facts, the Court of Appeal drew a distinction between a claim

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arising from the defendant's act of signing the release and a

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claim arising from the defendant's subsequent filing of the

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counterclaims.

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United States District Court
For the Northern District of California

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Id. at 771-72.

Id. at 768, 769-70.

In

The court explained:

While it is true that the alleged fraud occurred before
the counterclaims were filed, it is also true that
damages from the fraud were caused by the counterclaims'
assertion. Thus, as the [California Supreme Court]
majority observed [on prior appeal], "[defendant] is
being sued because of the affirmative counterclaims he
filed in federal court. In fact, but for the federal
lawsuit and [defendant's] alleged actions taken in
connection with that litigation, plaintiffs' present
claims would have no basis." Since the fraud claim is
predicated, at least in part, on privileged
counterclaims and, as has been noted, the privilege bars
all tort causes of action other than malicious
prosecution, plaintiffs cannot prevail on the fraud
claim and the motion to strike should have been granted
as to that cause of action.

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Id. (internal citations omitted).

This analysis applies neatly to

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the instant case.

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occurred at the time of the execution of the employment agreement,

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but any injury Lang can claim originates in Gallagher's litigation

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to enforce those provisions of of the agreement.

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filing of its lawsuit is a communicative act falling squarely

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within the litigation privilege and, thus, Gallagher is entitled

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to protection of the litigation privilege and dismissal of this

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cause of action.

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he can plead an anticompetitive action not barred by litigation

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privilege that is independently unlawful, unfair, or fraudulent.

The allegedly anticompetitive action may have

Gallagher's

The Court grants Lang leave to amend but only if

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C.

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United States District Court
For the Northern District of California

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Restraint of Trade - Terminated Employment Agreement
(Fourth Cause of Action)

Lang's fourth cause of action alleges that Gallagher
represented that the employment agreement was not in force, that
Lang relied on that representation and that Gallagher then filed
suit to enforce the employment agreement.

Lang asserts that these

actions restrained Lang from practicing his profession.

Gallagher

seeks dismissal of this cause of action as barred by the
litigation privilege because the basis of the cause of action is
Gallagher's lawsuit to enforce the employment agreement.

The

Court can only agree, based on the same logic as explained in
section B, above.

Accordingly, Gallagher is entitled to dismissal

of this cause of action.

The Court grants Lang leave to amend but

only if he can plead an act restraining his trade that is not
barred by the litigation privilege.
D.

Restraint of Trade - Contract Provisions (Fifth Cause of
Action)

Lang's fifth cause of action alleges that the employment
agreement contains provisions that restrained trade and prevented
Lang from engaging in his lawful profession.

Although Gallagher's

motion to dismiss does not seek dismissal of this cause of action,
the Court finds it prudent to dismiss it sua sponte.

The fifth

cause of action displays a frailty similar to the third and fourth
causes of action: the alleged injury occurred or is occurring due
to Gallagher's enforcement of the employment agreement in
litigation, not due to the mere execution of the agreement, and
thus the litigation privilege shields Gallagher from liability.
On this point, the Court finds that Lang is not entitled to relief

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on his cause of action as plead, and the Court may, therefore,

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dismiss the claim under Federal Rule of Civil Procedure 12(b)(6).

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Omar v. Sea Land Serv., Inc., 813 F.2d 986, 991 (9th Cir. 1987).

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Accordingly, the Court dismisses Lang's fifth cause of action.

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Lang is granted leave to amend, but only if he can plead a cause

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of action consistent with this Order.

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The Court thus dismisses causes of action one through five of

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Lang's counterclaim.

The Court also grants Lang leave to file an

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amended counterclaim within fourteen days of the date of this

United States District Court
For the Northern District of California

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Order.

Though Lang's sixth cause of action survives after this

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Order granting Gallagher's motion to dismiss, the Court reminds

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Lang of this District's Civil Local Rule 10-1, Amended Pleadings,

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which mandates that amended pleadings stand alone and may not

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incorporate any part of a prior pleading by reference.

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

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dismiss (Docket No. 38) is GRANTED.

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five of Lang's counterclaim are dismissed.

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leave to amend, and grants Lang fourteen days from the date of

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this Order to file an amended counterclaim, consistent with this

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Order.

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2:00 PM on Wednesday, February 25, 2015.

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a joint case management statement by February 18, 2015.

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Causes of action one through
The Court grants Lang

A case management conference will be held in this case at
The parties shall submit

IT IS SO ORDERED.
Dated:

December 3, 2014

CLAUDIA WILKEN
United States District Judge

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