Paterno v. Wells Fargo Insurance Services, Inc.

Filing 29

MEMORANDUM OPINION AND ORDER denying defendants' 6 Motion to Dismiss. Signed by Judge Thomas E. Johnston on 3/21/2013. (cc: attys; any unrepresented party) (taq)

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF WEST VIRGINIA
CHARLESTON DIVISION

ANDREW J. PATERNO,
Plaintiff,
v.

CIVIL ACTION NO. 2:12-cv-04692

WELLS FARGO INSURANCE SERVICES, INC., et al.
Defendants.

MEMORANDUM OPINION AND ORDER

Pending is Defendants’ motion to dismiss [ECF 6]. For the reasons that follow, the
motion is DENIED.
I.
A.

BACKGROUND

Factual Background

The following facts are drawn from Plaintiff’s Complaint or its exhibits and, for purposes
of the instant motion to dismiss, are regarded as true. Andrew J. Paterno (“Plaintiff”) was
employed by Defendants Wells Fargo Insurance Services, Inc. and Wells Fargo Insurance
Services USA, Inc. (collectively “WFIS”) as Vice Chairman and as a member of WFIS’s Board of
Directors until September 30, 2011.

Plaintiff and WFIS consensually terminated their

employment relationship on that date, and from that point on their relationship was governed by a
Departure Agreement and Release of Claims (“Departure Agreement”), which was executed on
August 30, 2011. Under the Departure Agreement, Plaintiff agreed to release any and all claims
arising from his employment with WFIS in exchange for 15 monthly payments of $46,493.33 and
a lump sum severance payment of $280,000. The 15-month period immediately following the

termination of Plaintiff’s employment (the “Paid Leave Period”) would terminate on December
31, 2012, after which WFIS agreed to process and distribute the lump sum severance payment “as
soon as administratively possible.” (ECF 1-3 at ¶ 5(c).) The Departure Agreement contained a
non-competition clause which would remain in effect during the Paid Leave Period and under
which Plaintiff agreed not to:
a)

Engage in or consult with any business which competes directly, or
indirectly, with WFIS’s insurance brokerage or agency business or the third
party administrative business, which includes but is not limited to, the sale
or arrangement of, and/or administration of, claims for health insurance,
employee benefits of any kind, and workers compensation[] (the
“Restricted Business”);

b)

Aid or assist anyone in engaging in or entering in to the Restricted Business;

c)

Directly or indirectly solicit an employee to leave the employ of WFIS, its
parent companies, predecessors, successors, affiliates, subsidiaries (“the
Company”) or induce a consultant to sever the consultant’s relationship
with the Company;

d)

Directly or indirectly solicit business from any of the Company’s clients,
customers, or prospective customers whose identity became known to
[Plaintiff] during [his] employment with the Company;

e)

Reestablish or reopen any business substantially the same as all or any part
of the Restricted Business; and

f)

In any manner become interested directly or indirectly, as employee, owner,
partner, shareholder, director, officer or otherwise, in a Restricted Business.
Provided, however, that for purposes of this paragraph, the term
“shareholder” shall not include any investment in an organization where
[Plaintiff] own[s] less than 5% of the stock issued and outstanding.

(ECF 1-3 ¶ 8.)

On May 29, 2012—during the Paid Leave Period—Plaintiff commenced

employment with Huntington National Bank as a Regional President. As a condition of his
employment, Huntington National Bank agreed that Plaintiff would continue to abide by the
non-competition and non-solicitation provisions contained within Paragraph Eight of the
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Departure Agreement. On June 7, 2012, WFIS terminated the Departure Agreement and ceased
making the payments called for therein. Plaintiff claims that he faithfully fulfilled his obligations
under the Departure Agreement and is entitled to the unpaid amounts owed him.
B.

Procedural History

On July 20, 2012, Plaintiff filed suit against WFIS for breach of contract in the Circuit
Court of Kanawha County, West Virginia. WFIS was served on July 25, 2012 and removed the
case to federal court on the basis of diversity jurisdiction on August 24, 2012. WFIS’s Rule
12(b)(6) motion to dismiss followed on August 29, 2012.
WFIS’s motion to dismiss relies entirely on a document referenced in the Departure
Agreement—the Wells Fargo Team Member Code of Ethics and Business Conduct (“Code of
Ethics”)—to which Plaintiff agreed to be bound during the Paid Leave Period. WFIS contends
that the Court may consider the Code of Ethics in resolving the motion to dismiss because it is part
of the Departure Agreement incorporated in Plaintiff’s Complaint. According to WFIS, the Code
of Ethics placed further obligations on Plaintiff beyond the non-compete and non-solicitation
provisions referenced in Plaintiff’s Complaint. Plaintiff allegedly violated these obligations by
accepting employment with Huntington National Bank. Since the Departure Agreement gave
WFIS the right to withhold payments if Plaintiff failed to fulfill his contractual duties, WFIS
contends that Plaintiff’s own breach of contract bars his claim for relief.
Plaintiff responds that WFIS’s motion does not simply test the legal sufficiency of his
Complaint but requires the Court to resolve a factual dispute over the scope of the Departure
Agreement’s non-compete provisions. He claims that WFIS impermissibly attempts to broaden
the non-compete restrictions set forth in the Departure Agreement by construing select language

3

from the Code of Ethics as an additional covenant not to compete. Resolution of these conflicting
provisions, Plaintiff contends, is improper on a Rule 12(b)(6) motion to dismiss.
II.
A.

LEGAL STANDARDS

Motion to Dismiss Standard

A motion to dismiss for failure to state a claim upon which relief can be granted tests the
legal sufficiency of a civil complaint. Fed. R. Civ. P. 12(b)(6).

“[I]t does not resolve contests

surrounding the facts, the merits of a claim, or the applicability of defenses.” Republican Party of
N. C. v. Martin, 980 F.2d 943, 952 (4th Cir. 1992) (citing 5A Charles Alan Wright & Arthur R.
Miller, Federal Practice and Procedure § 1356 (1990)). “To survive a motion to dismiss, 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) (quoting Bell Atlantic Corp. v.
Twombly, 550 U.S. 544, 570 (2007)). A complaint is legally sufficient when it meets the pleading
requirements of Federal Rule of Civil Procedure 8(a)(2). Under Rule 8(a)(2), a complaint must
contain “a short and plain statement of the claim showing that the pleader is entitled to relief[.]”
Allegations “must be simple, concise, and direct” and “[n]o technical form is required.” Fed. R.
Civ. P. 8(d)(1). A court decides whether this standard is met by separating the legal conclusions
from the factual allegations, assuming the truth of only the factual allegations, and then
determining whether those allegations allow the court to reasonably infer that “the defendant is
liable for the misconduct alleged.” Iqbal, 556 U.S. at 678.
B.

Consideration of External Evidence on a Motion to Dismiss

In reviewing the sufficiency of a complaint, a court is generally limited to the four corners
of that document and “documents incorporated into the complaint by reference.” Katyle v. Penn
Nat'l Gaming, Inc., 637 F.3d 462, 466 (4th Cir. 2011) (citation omitted); Fed. R. Civ. P. 10(c).
4

Consideration of extrinsic evidence converts a motion to dismiss into a motion for summary
judgment. Fed. R. Civ. P. 12(d). The Fourth Circuit recognizes an exception to this general rule,
providing that a court may consider documents attached to a motion to dismiss so long as they are
“integral to and explicitly relied on in the complaint and . . . the plaintiffs do not challenge [their]
authenticity.” Am. Chiropractic Ass’n v. Trigon Healthcare, Inc., 367 F.3d 212, 234 (4th Cir.
2004) (quoting Phillips v. LCI Int’l Inc., 190 F.3d 609, 618 (4th Cir. 1999)); Broder v. Cablevision
Systems Corp., 418 F.3d 187, 196 (2d Cir. 2005) (finding that on review of a 12(b)(6) motion, a
court may consider a contract that is integral to the plaintiff’s claims and upon which the plaintiff
relied in framing his complaint). This exception “prevent[s] parties from surviving a motion to
dismiss by artful pleading or by failing to attach relevant documents.” 188 LLC v. Trinity Indus.,
Inc., 300 F.3d 730, 735 (7th Cir. 2002) (citing Beddall v. State St. Bank & Trust Co., 137 F.3d 12,
17 (1st Cir. 1998)).
Plaintiff’s Complaint expressly incorporates the parties’ Departure Agreement, which
Plaintiff has attached as an exhibit to his complaint. See Fed. R. Civ. P. 10(c) (“A copy of a
written instrument that is an exhibit to a pleading is a part of the pleading for all purposes.”). In
support of its motion to dismiss, WFIS has attached and requests the Court to consider the Code of
Ethics, a document which is neither referenced in nor appended to Plaintiff’s Complaint but which
WFIS argues is part of the parties’ agreement. Paragraph Five of the Departure Agreement states
that “[d]uring the Paid Leave Period, you will continue to be bound by WFIS’ policies, including
its Code of Ethics and Business Conduct.” (ECF 1-3 at ¶ 5(b)).
Plaintiff does not contest the authenticity of the Code of Ethics. Therefore, the Court may
consider the Code of Ethics if it is integral to and explicitly relied on in Plaintiff’s Complaint. See
Am. Chiropractic Ass’n, 367 F.3d at 234. The Departure Agreement is certainly integral to
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Plaintiff’s claims and, as an exhibit to the Complaint, is treated as part of the Complaint itself.
Plaintiff admits that he agreed to be bound by the Code of Ethics as a condition of the Departure
Agreement. By attaching the Code of Ethics to its motion to dismiss, WFIS has in effect alleged
that Plaintiff has presented to the Court only the portions of the parties’ agreement that benefit his
position. See 188 LLC, 300 F.3d at 735. The Court is authorized by law to review the entirety of
that agreement in evaluating the sufficiency of Plaintiff’s complaint, and may consider the Code of
Ethics without converting WFIS’s motion into one for summary judgment.
III.

DISCUSSION

In West Virginia, a plaintiff establishes a breach of contract claim by alleging “facts
sufficient to support the following elements: the existence of a valid, enforceable contract; that the
plaintiff has performed under the contract; that the defendant has breached or violated its duties or
obligations under the contract; and that the plaintiff has been injured as a result.” Exec. Risk
Indem., Inc. v. Charleston Area Med. Ctr., Inc., 681 F. Supp. 2d 694, 714 (S.D. W. Va. 2009)
(citing 23 Williston on Contracts § 63:1 (Richard A. Lord, ed. 4th ed. West 2009)). WFIS does
not point to any factual deficiency on the face of Plaintiff’s Complaint. Instead, WFIS argues in
support of its motion to dismiss that because Plaintiff violated certain contractual provisions set
forth in the Code of Ethics and incorporated in Paragraph 5 of the Departure Agreement, he has
breached the parties’ agreement and WFIS was justified in terminating payments.
WFIS alleges that Plaintiff failed to abide by a section of the Code of Ethics entitled
“Activities Outside the Company”. This section is approximately two pages long and precludes
WFIS employees from, among other things, becoming interested in a for-profit business outside
the company without prior approval and accepting certain competing or conflicting outside
employment. The pertinent section states:
6

You may not accept competing or conflicting outside employment. Competing or
conflicting outside employment or business activities include any position that:
•

Competes with a service or business provided by Wells Fargo, including but not
limited to working for a:
o
o
o
o
o
o
o
o

Bank
Mortgage company
Savings and loan association
Credit union
Trust company
Insurance agency
Broker/dealer [or]
Financial services company[.]

(ECF 6-1 at 16.)

Without question, these non-competition provisions placed far greater

restrictions on Plaintiff than those set forth in Paragraph Eight of the Departure Agreement.1
Paragraph Eight of the Departure Agreement precludes Plaintiff from engaging in or consulting
with “any business which competes directly, or indirectly, with WFIS’s insurance brokerage or
agency business or the third party administrative business” while the Code of Ethics prevents
Plaintiff from accepting employment with any “bank”.2
Where the plain language of a contract contradicts the allegations of the plaintiff’s
complaint, dismissal of the claims is proper. See Wellington Power Corp. v. CNA Surety Corp.,
1

Plaintiff argues that dismissal is improper because WFIS attempts to construe the “Activities
Outside the Company” section in the Code of Ethics as a restrictive covenant, the enforceability of
which requires judicial review. WFIS insists that the Code of Ethics should not be treated as a
restrictive covenant because “Plaintiff was not absolutely prohibited from seeking certain outside
employment under the Code of Ethics[] like he is and was prohibited by the restrictive covenants
in the Departure Agreement[.]” (ECF 10 at 5.) WFIS’s argument is contradicted by the plain
language of the Code of Ethics, which expressly prohibits WFIS employees from accepting
outside competing employment. The question of whether WFIS intends to enforce the Code of
Ethics as a covenant not to compete need not be resolved at this stage because the provisions of
that document, as discussed below, are inconsistent with the terms of Paragraph Eight of the
Departure Agreement. This inconsistency alone precludes dismissal.
2
At no point does WFIS argue that Plaintiff violated the non-competition provisions set forth in
Paragraph Eight of the Departure Agreement.
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614 S.E.2d 680, 685-86 (W. Va. 2005) (Courts must give full force and effect to contractual
language “when it is clear, plain, simple and unambiguous.”). Where a contract’s meaning is
unclear on its face, however, its interpretation depends on the parties’ intent at the time of
execution. See Zimmerer v. Romano, 679 S.E.2d 601, 610-11 (W. Va. 2009) (citing Syl. pt. 1,
State v. Herold, 85 S.E. 733 (1915)). “Contract language usually is considered ambiguous where
an agreement's terms are inconsistent on their face or where the phraseology can support
reasonable differences of opinion as to the meaning of words employed and obligations
undertaken.” State ex rel. Frazier & Oxley, L.C. v. Cummings, 569 S.E.2d 796, 803-04 (W. Va.
2002) (quoting Fraternal Order of Police v. Fairmont, 468 S.E.2d 712, 716 (W. Va. 1996)). The
factual inquiry required to reconcile inconsistent or contradictory contract provisions precludes
disposition at the motion to dismiss stage.

See Martin Marietta Corp. v. Int’l

Telecommunications Satellite Organization, 991 F.2d 94, 97 (4th Cir. 1992) (“[T]he construction
of ambiguous contract provisions is a factual determination that precludes dismissal on a motion
for failure to state a claim.”) (citing Wolman v. Tose, 467 F.2d 29, 34 (4th Cir. 1972)).
Paragraph Eight of the Departure Agreement and the Code of Ethics, as incorporated in
Paragraph Five of that agreement, are plainly inconsistent. For example, the Code of Ethics
restricts Plaintiff from owning 10% or more of any for-profit, outside business without prior
approval, while under Paragraph Eight of the Departure Agreement, Plaintiff was absolutely
prohibited from holding 5% or more of the stock of a Restricted Business during the Paid Leave
Period.

Paragraph Eight of the Departure Agreement prevents Plaintiff from engaging or

consulting in any Restricted Business, but acknowledges that he is not prohibited from earning a
living in “other businesses.” (ECF 1-3 at ¶ 8.) The Code of Ethics substantially broadens these
restrictions by precluding Plaintiff from accepting any “competing or conflicting outside
8

employment.” (ECF 6-1 at 16.) The Code of Ethics provides several examples of prohibited
employment, but expressly states that this list is non-exhaustive. Although WFIS would have the
Court believe that the Code of Ethics sets forth plain and unambiguous contractual terms, the
inconsistencies between this document and Paragraph Eight of the Departure Agreement are
incapable of reconciliation without an inquiry into the parties’ intent at the time the Departure
Agreement was formed. Given these inconsistencies, WFIS’s arguments are not capable of
resolution at this juncture.
The Complaint’s allegations are sufficient to support a claim for breach of contract.
WFIS’s contentions cannot be resolved by reference to the contract itself and require resolution at
a later date. The motion to dismiss is DENIED.
IV.

CONCLUSION

For the foregoing reasons, Defendants’ motion to dismiss [ECF 6] is DENIED.
IT IS SO ORDERED.
The Court DIRECTS the Clerk to send a copy of this Order to counsel of record and any
unrepresented party.
ENTER:

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March 21, 2013