Applied Underwriters, Inc. v. Sedgwick Claims Management Services, Inc.

Filing 14

MEMORANDUM AND ORDER - Sedgwick's partial motion to dismiss (filing 5 ) is granted. Applied's claims for breach of fiduciary duty; breach of the covenant of good faith and fair dealing; and unjust enrichment are dismissed with prejudice. On or before May 18, 2018, Applied may file an amended complaint, if it chooses, repleading its tortious interference claim with greater particularity. Sedgwick shall file a responsive pleading on or before June 1, 2018 or within 21 days after the filing of Applied's amended complaint, whichever is later. Ordered by Judge John M. Gerrard. (JAB)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEBRASKA
APPLIED UNDERWRITERS, INC.,
Plaintiff,

8:17-CV-401

vs.
MEMORANDUM AND ORDER
SEDGWICK CLAIMS
MANAGEMENT SERVICES, INC.,
Defendant.
This matter is before the Court on the defendant's partial motion to
dismiss pursuant to Fed. R. Civ. P. 12(b)(6). That motion will be granted.
BACKGROUND
The parties to this dispute are Applied Underwriters, Inc., and
Sedgwick Claims Management Services. The plaintiff, Applied, owns two
insurance companies that provide workers' compensation plans nationwide.
Filing 1-1 at 1. Sedgwick, the defendant, is a third-party administrator of
workers' compensation claims. Filing 1-1 at 1.
In 2016, Applied entered into a one-year service agreement with
Sedgwick, in which Sedgwick agreed to adjust workers' compensation claims
on Applied's behalf. See filing 1-1 at 2, 12-13. At some point during that
contractual term, however, Applied says that Sedgwick began soliciting its
employees. Filing 1-1 at 4. Specifically, Applied claims that Sedgwick's
recruiters "repeatedly" contacted its employees "in an effort to terminate
their employment with [Applied] and become claims adjusters [for
Sedgwick]." Filing 1-1 at 43. As a result of those efforts, Applied says that

seven of its former claim adjusters terminated their employment and
accepted similar positions with Sedgwick. Filing 1-1 at 4.
According to Applied, each of those seven employees had gone through
an "extensive proprietary training program" with Applied in which they had
been taught "special skills and knowledge." Filing 1-1 at 3. And each
employee had signed a "Proprietary Information Agreement," which generally
requires the signatory to hold Applied's proprietary information "in the
strictest of confidence[.]" See filing 1-1 at 4, 54. Notwithstanding those
agreements, Applied alleges that its former employees transmitted certain
proprietary information to Sedgwick at Sedgwick's request, and that
Sedgwick is currently using that information to advance its business
operations. Filing 1-1 at 5.
Applied has sued Sedgwick asserting claims for, among other things,
breach of fiduciary duty, tortious interference with contract, unjust
enrichment, and breach of the covenant of good faith and fair dealing. Filing
1-1.1 Sedgwick now moves to dismiss those claims (filing 5), arguing that
Applied has failed to state a claim upon which relief may be granted.
STANDARD OF REVIEW
To survive a motion to dismiss under Fed. R. Civ. P. 12(b)(6), a
complaint must contain sufficient factual matter, accepted as true, to state a
claim to relief that is plausible on its face. Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009). A claim has facial plausibility when the plaintiff pleads factual
content that allows the court to draw the reasonable inference that the
defendant is liable for the misconduct alleged. Id. While the Court must
1

Applied has also sued Sedgwick for conversion; unfair trade practices; and alleged

violations of the Nebraska Trade Secrets Act, Neb. Rev. Stat. § 87-501 et seq. Filing 1-1 at
7-8. Those claims, however, are not at issue here.

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accept as true all facts pleaded by the non-moving party and grant all
reasonable inferences from the pleadings in favor of the non-moving party,
Gallagher v. City of Clayton, 699 F.3d 1013, 1016 (8th Cir. 2012), a pleading
that offers labels and conclusions or a formulaic recitation of the elements of
a cause of action will not do. Iqbal, 556 U.S. at 678. Determining whether a
complaint states a plausible claim for relief will require the reviewing court
to draw on its judicial experience and common sense. Id. at 679.
DISCUSSION
Several of the claims at issue here relate to, or derive from, the two
contractual agreements referenced above. The first agreement is the parties'
2016 service contract, in which Sedgwick agreed to adjust workers'
compensation claims on Applied's behalf. See filing 1-1 at 12. As discussed
below, Applied argues that the agreement created a confidential or fiduciary
relationship between the parties, which Sedgwick allegedly breached in
soliciting Applied's employees. Filing 1-1 at 6. It also argues that Sedgwick,
in engaging in a "premeditated raid of Applied's claim adjusters," breached
the covenant of good faith and fair dealing. See filing 1-1 at 3, 9.
Applied also cites its "Proprietary Information Agreement." Filing 1-1
at 56. That agreement, generally speaking, requires employees to maintain
confidentiality with respect to the company's proprietary information. See
filing 1-1 at 4, 54. According to Applied, Sedgwick tortiously interfered with
that contract by, among other things, encouraging Applied's employees to
"obtain,

transmit,

communicate

and

deliver

to

Sedgwick

Applied's

proprietary information concerning workers' compensation forms, procedures,
methodologies, information, expert lists and training." Filing 1-1 at 5.
Applied's remaining claim for unjust enrichment is unrelated to either
contractual agreement. There, Applied claims that Sedgwick was unjustly
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enriched by hiring employees who had already undergone extensive training
while employed at Applied. Filing 1-1 at 7. By doing so, Applied alleges,
Sedgwick has built an experienced team of adjusters "without the necessity of
expending significant monies or time[.]" Filing 1-1 at 7.
2016 Service Agreement
Breach of Fiduciary Duty
Applied alleges that Sedgwick breached its fiduciary duty to Applied by
"soliciting and hiring Applied's well-trained claims adjusters." Filing 1-1 at 6.
To state a claim for relief on those grounds, Applied must sufficiently allege
(1) that Sedgwick owed Applied a fiduciary duty, (2) that Sedgwick breached
the duty, (3) that the breach was the cause of the injury to Applied, and (4)
that Applied was damaged. See McFadden Ranch, Inc. v. McFadden, 807
N.W.2d 785, 790 (Neb. 2011). Sedgwick moves to dismiss at step one, arguing
that it does not (and never did) owe a fiduciary duty to Applied. Filing 6 at 7.
A fiduciary duty arises out of a confidential relationship which exists
when one party gains the confidence of the other and purports to act or advise
with the other's interest in mind. Gonzalez v. Union Pacific R.R. Co., 803
N.W.2d 424, 446 (Neb. 2011). Such a relationship exists here, Applied argues,
because Sedgwick—in executing the 2016 service agreement—agreed to
provide certain insurance-related services on Applied's behalf. In other
words, Applied points to the 2016 service agreement itself as the source of the
fiduciary relationship. See filing 10 at 7.
But Applied's argument is misplaced, and its claim will therefore be
dismissed. Indeed, the express terms of the contract make clear that "the only
relationship among the parties shall be that of independent parties to a
contract." Filing 1-1 at 20. And there is nothing in the agreement to suggest
that Sedgwick assented to some general fiduciary duty that extends beyond
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the obligations set forth in the contract. Simply put, the parties' general
service agreement did not create the type of "confidential relationship" that,
under normal circumstances, gives rise to a fiduciary duty. See Gonzalez, 803
N.W.2d at 446. Accordingly, because no fiduciary duty exists, Applied's claim
will be dismissed with prejudice.
Covenant of Good Faith and Fair Dealing
Applied also claims that Sedgwick, in allegedly soliciting and hiring
Applied's former claim adjusters, breached the covenant of good faith and fair
dealing. Filing 1-1 at 9.
The implied covenant of good faith and fair dealing exists in every
contract and requires that none of the parties to the contract do anything
which will injure the right of another party to receive the benefit of the
contract. Spanish Oaks, Inc. v. Hy-Vee, Inc., 655 N.W.2d 390, 400 (Neb.
2003). A violation of the covenant occurs only when a party violates, nullifies,
or significantly impairs any benefit of the contract. RSUI Indem. Co. v.
Bacon, 810 N.W.2d 666, 674 (Neb. 2011). The covenant is read into contracts
in order to protect the express covenants or promises of the contract, not to
protect some general public policy interest not directly tied to the contract's
purpose. Spanish Oaks, 655 N.W.2d at 400.
Here, dismissal is warranted because, as Sedgwick correctly points out,
the 2016 service agreement says nothing about the parties' ability (or
inability) to hire each other's employees.2 In other words, the implied

2

The Court is aware of Applied's argument that the contract was modified by a letter it

received from Sedgwick, in which Sedgwick assures Applied that it has "taken steps to
ensure its recruiters do not unilaterally contact Applied Underwriters Inc.'s current
employees." Filing 10 at 16; see filing 1-1 at 5-6. But that allegation (i.e., that the letter

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covenant is not invoked in this case as a means of protecting express
covenants or promises in the contract. Rather, Applied cites the covenant of
good faith and fair dealing in connection with an interest (i.e., maintaining its
workforce) that is not—on these facts—"directly tied to the contract's
purpose." Spanish Oaks, 655 N.W.2d at 400. For that reason alone, the claim
must be dismissed. Id.
Even assuming, however, that Applied's claim is tied to a specific
provision of the contract, it has not alleged how (or if) Sedgwick's conduct
violated, nullified, or impaired a specific benefit of the agreement. See RSUI
Indem. Co., 810 N.W.2d at 674. Without such allegations, and in light of the
deficiencies discussed above, Applied's claim will be dismissed with prejudice.
Proprietary Information Agreement
Tortious Interference
As noted above, each of Applied's seven former claim adjusters signed a
"Proprietary Information Agreement" when they began their employment
with Applied. Filing 1-1 at 46-59. That agreement, generally speaking,
requires employees to hold Applied's proprietary information "in the strictest
of confidence." See filing 1-1 at 58. According to Applied, Sedgwick tortiously
interfered with those agreements by soliciting and hiring its employees, and
using Applied's confidential information to advance its business interests.
Filing 1-1 at 6.
A claim for tortious interference with a contract requires (1) a valid
contract, (2) knowledge by the defendant of the contract, (3) an unjustified
intentional act of interference on the part of the defendant, (4) proof that the

constitutes a modification of the parties' agreement) appears nowhere in the complaint, and
thus cannot—and will not—be considered here.

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interference caused the harm sustained, and (5) damage to the plaintiff. See
Vande Guchte v. Kort, 703 N.W.2d 611, 623 (Neb. Ct. App. 2005).
Sedgwick moves for dismissal on several grounds. First, Sedgwick
argues that Applied's claim necessarily fails because "the Employment
Agreement is not a valid contract." Filing 6 at 8. To support that argument,
Sedgwick points to the following provision of the agreement which, it argues,
amounts to an unlawful restraint on trade:
As a result of [Applied's proprietary information] and other
personal relationships fostered between Employee and other
Company employees with whom Employee may have contact,
Employee after Employee’s employment with Company
ends, will not directly or indirectly, whether for Employee
or any third party solicit or contact any current employee
of the Company for any business purpose, including but not
limited to employment nor shall Employee share or disseminate
any listing of Company employees. It is expressly understood and
agreed that Employee may maintain existing friendships, and
may continue to communicate with any employee of Company so
long as such communications do not in any way disparage
Company or address issues concerning the business of the
Company or anything related to Employee’s employment with
Company.
Filing 1-1 at 52; filing 6 at 9 (emphasis added).
The Nebraska Supreme Court has not yet considered the enforceability
of a non-recruitment clause. But this restriction shares a similar purpose
with more commonplace covenants not to compete and other provisions
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partially restraining trade—namely, to prevent former employees from
soliciting the employment of Applied personnel on behalf of a competitor. As
such, the Court looks to Nebraska's three-part test for determining the
provision's validity. See Gaver v. Schneider's O.K. Tire Co., 856 N.W.2d 121,
130 (Neb. 2014). Pursuant to that test, a partial restraint on trade is valid if
it is (1) not injurious to the public; (2) no greater than reasonably necessary
to protect the employer in some legitimate business interest; and (3) not
unduly harsh and oppressive on the party against whom it is asserted. H & R
Block Tax Servs. v. Circle A Enters., 693 N.W.2d 548, 553 (Neb. 2005)).
After reviewing the agreement, and considering the parties' arguments,
the Court is not convinced that dismissal is warranted on these grounds.
Indeed, the validity of such provisions can be fact-specific, so courts look not
only to the terms of the provisions, but to the evidence adduced. See Gaver,
856 N.W.2d at 132; H & R Block, 693 N.W.2d at 556-57; Polly v. Ray D.
Hilderman, 407 N.W.2d 751, 755 (Neb. 1987); Boisen v. Petersen Flying
Servs., 383 N.W.2d 29, 32-35 (Neb. 1986). And that evidence typically
includes detailed testimony regarding the nature of the former employee's job
responsibilities, see Boisen, 383 N.W.2d at 32, and the employer's justification
for the contested restraint, see H & R Block, 693 N.W.2d at 556. Here, given
the preliminary nature of this case, no such evidence exists—rather, the
Court is confined to the plaintiff's complaint and the exhibits necessarily
embraced by it. Mattes v. ABC Plastics, Inc., 323 F.3d 695, 697 n.4 (8th Cir.
2003). Accordingly, because facts are yet to be developed on this issue, the
defendant's motion to dismiss will be denied on those grounds.
There is a deficiency in Applied's complaint, however, that requires
dismissal: Applied does not allege that Sedgwick, at the time it solicited and
hired the claim adjusters, knew of the Proprietary Information Agreement.

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Accordingly, because Applied has not satisfied its prima facie burden, see
Vande Guchte, 703 N.W.2d at 623, its tortious interference claim will be
dismissed. However, the Court will grant Applied leave to replead this claim
with greater particularity.
Remaining Claim
Unjust Enrichment
Applied has sued Sedgwick for unjust enrichment, claiming that the
defendant

"obtain[ed]

the

benefit

of

Applied's

experienced

workers'

compensation claims adjusters without the necessity of expending significant
monies and time[.]" Filing 1-1 at 7. That claim is premised on the
"comprehensive training" programs that Applied provides to each of its
employees—training that, Applied suggests, its former claim adjusters now
utilize in their employment with Sedgwick. filing 1-1 at 4.
The Court assumes, as Applied asserts here, that Sedgwick benefits
from the experience and knowledge that its current employees gained while
working for Applied. But the fact that a recipient has obtained a benefit
without paying for it "does not itself establish that the recipient has been
unjustly enriched." Kalkowski v. Nebraska Nat'l Trails Museum Found., Inc.,
862 N.W.2d 294, 301-02 (Neb. 2015) (emphasis added) (quoting Restatement
(Third) of Restitution and Unjust Enrichment § 2, comment a. (2011)).
Rather, to state a viable claim, the benefit conferred must be "something in
which the claimant has a legally protected interest, and it must be acquired
or retained in a manner that the law regards as unjustified." Restatement
(Third) of Restitution and Unjust Enrichment § 2, comment a. (2011).
The Court, in applying those principles to the facts of this case, will
grant Sedgwick's motion to dismiss. Indeed, the transfer of experience and
knowledge as alleged in Applied's complaint is an "advantage[] of
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civilization," not unjust enrichment. Restatement (Third) of Restitution and
Unjust Enrichment § 2, comment a. (2011). As such, it cannot be said that
Sedgwick, in hiring well-trained personnel, acquired a benefit that the law
regards as unjustified. Accordingly, the Court will grant Sedgwick's motion
on these grounds, and Applied's unjust enrichment claim will be dismissed
with prejudice.
CONCLUSION
For those reasons, the Court will grant Sedgwick's partial motion to
dismiss. However, Applied will be granted leave to replead its tortious
interference claim (and that claim only) with greater particularity.
IT IS ORDERED:
1.

Sedgwick's partial motion to dismiss (filing 5) is granted.
Applied's claims for breach of fiduciary duty; breach of the
covenant of good faith and fair dealing; and unjust
enrichment are dismissed with prejudice.

2.

On or before May 18, 2018, Applied may file an amended
complaint, if it chooses, repleading its tortious interference
claim with greater particularity.

3.

Sedgwick shall file a responsive pleading on or before June
1, 2018 or within 21 days after the filing of Applied's
amended complaint, whichever is later.

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Dated this 4th day of May, 2018.
BY THE COURT:

John M. Gerrard
United States District Judge

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