American Family Mutual Insurance Company et al v. Graham et al

Filing 124

ORDER. IT IS HEREBY ORDERED: 1.The Court holds that section 6(u) of the Agent Agreement is a reasonable liquidated damages provision. 2.The Court holds that section 6(u) of the Agent Agreement is enforceable.3.The Court holds that, if the jury finds that Defendants have breached the Agent Agreement, section 6(u) of the Agent Agreement will apply, and the jury must award $523,153.70 in damages to Plaintiffs. (Written Opinion). Signed by Chief Judge Michael J. Davis on 10/17/13. (GRR)

UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA

AMERICAN FAMILY MUTUAL
INSURANCE COMPANY,
AMERICAN FAMILY LIFE
INSURANCE COMPANY,
and AMERICAN STANDARD
INSURANCE COMPANY,
Wisconsin corporations,
Plaintiffs,

v.

ORDER
Civil File No. 12-53 (MJD/SER)

STEVEN G. GRAHAM,
a Minnesota resident, and
STEVEN GRAHAM AGENCY, INC.,
a Minnesota corporation,
Defendants and Counterclaimants.
Martin S. Chester, Justin P. Krypel, and Colton D. Long, Faegre Baker Daniels
LLP, Counsel for Plaintiffs.
Geoffrey P. Jarpe, Maslon Edelman Borman & Brand LLP, Counsel for
Defendants and Counterclaimants.

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On October 17, 2013, the Court held a hearing on the limited issue of
whether section 6(u) of the Agent Agreement between Plaintiffs and Defendants
is an enforceable liquidated damages provision under Wisconsin law.
Under Wisconsin law, a liquidated damages measure must be upheld if it
is reasonable. Wassenaar v. Panos, 331 N.W.2d 357, 361 (Wis. 1983). There are
three factors that must be considered in deciding reasonableness of a liquidated
damages provision: (1) whether the parties intended to provide for damages, not
a penalty; (2) whether the injury was not capable of accurate estimation at the
time of contract; and (3) whether the damages calculated are a reasonable
forecast of the harm caused by the breach. Id. at 362-63. Wassenaar provides
that the “various factors and approaches to determine reasonableness are not
separate tests, each of which must be satisfied for a stipulated damages clause to
stand.” Id. at 364. Therefore, the reasonableness of a liquidated damages
provision “cannot be determined by a mechanical application of the three factors
cited above.” Id. Finally, the party contesting a liquidated damages provision
bears the burden of proving that it should not be enforced. Id. at 361, 367.
Weighing the factors accordingly, the Court concludes that section 6(u) of
the Agent Agreement is reasonable and therefore enforceable. First, the Court

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finds that Mr. Caves’ testimony from trial regarding the purpose of extended
earnings is credible. Mr. Caves stated that, because American Family agents are
not independent agents, providing them extended earnings when they leave the
company is a way of buying back their book of business, with the understanding
that agents do not induce their former clientele for a year. The Court concludes
that section 6(u)’s requirement that extended earnings be forfeited if agents
induce their former clients is logically connected to the purpose of extended
earnings so that the provision provides for damages, not a penalty. The Court
also concludes that use of the word “forfeit” in the provision does not necessarily
indicate intent to create a penalty. See Jarosch v. American Family Mutual
Insurance Co., 837 F. Supp. 2d 980, 999 (E.D. Wis. 2011).
Second, the Court finds that Mr. Kenyon’s report and testimony on
American Family’s potential actual damages is credible, and he has presented a
reasonable estimation of the damages range. His testimony shows that actual
damages were and are difficult to ascertain, especially due to the nature of the
alleged breach in this case and the number of uncertain factors both at the time of
contract and the time of the alleged breach. Plaintiffs’ expert, Mr. Kenyon, has
nevertheless provided a reasonable estimation of an actual damages range that is

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proportionate to the damages projected in section 6(u) of the Agent Agreement.
Despite the arguments and evidence presented by Defendants at the hearing, the
Court finds that Defendants have not met their burden in showing that section
6(u) is not a reasonable liquidated damages provision under the Wassenaar
factors. The totality of the evidence supports the Court’s conclusion that is very
difficult to calculate and forecast a damages amount in this case.
Accordingly, the Court concludes that section 6(u) of the Agent Agreement
is a reasonable, and therefore enforceable, liquidated damages provision.
Therefore, if the jury finds that Defendants have breached the Agent Agreement,
section 6(u) of the Agent Agreement will apply, and the jury must award
$523,153.70 in damages to Plaintiffs (i.e., the stipulated amount of extended
earnings paid by Plaintiffs to Defendants as of September 30, 2013). (See
Stipulation, Docket No. 119, ¶ 5.)
Accordingly, based upon the files, records, and proceedings herein, IT IS
HEREBY ORDERED:
1. The Court holds that section 6(u) of the Agent Agreement is a
reasonable liquidated damages provision.

2. The Court holds that section 6(u) of the Agent Agreement is
enforceable.
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3. The Court holds that, if the jury finds that Defendants have
breached the Agent Agreement, section 6(u) of the Agent
Agreement will apply, and the jury must award $523,153.70 in
damages to Plaintiffs.

Dated: October 17, 2013

s/ Michael J. Davis
Michael J. Davis
Chief Judge
United States District Court

Civil File No. 12-53 (MJD/SER)

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