Opinion
Index No. 653707/2019
03-27-2020
Paul Andrew KING, Plaintiff, v. MARSH & MCLENNAN AGENCY, LLC, a Delaware Limited Liability Company, and Marsh & McLennan Companies, Inc., a Delaware Corporation, Defendants.
Plaintiff Paul Andrew King is represented by: Orin R. Kurtz, Gardy & Notis, LLP, 126 East 56th Street, 8th Floor, New York, New York 10022 (212) 905-0509 Defendants Marsh & McLennan Agency LLC and Marsh & McLennan Companies, Inc. are represented by Jason B. Levin, Esq, Jackson Lewis PC, 666 Third Avenue, 29th Floor, New York, NY 10017 (212) 545-4067
Plaintiff Paul Andrew King is represented by: Orin R. Kurtz, Gardy & Notis, LLP, 126 East 56th Street, 8th Floor, New York, New York 10022 (212) 905-0509
Defendants Marsh & McLennan Agency LLC and Marsh & McLennan Companies, Inc. are represented by Jason B. Levin, Esq, Jackson Lewis PC, 666 Third Avenue, 29th Floor, New York, NY 10017 (212) 545-4067
Barry Ostrager, J.
Before the Court is a motion for partial summary judgment by plaintiff Paul Andrew King ("King") pursuant to CPLR 3212 seeking a declaratory judgment that the Non-Solicitation and Confidentiality Agreement ("the Agreement") King entered into in 2014 with defendants Marsh & McLennan Agency, LLC and Marsh McLennan Companies, Inc. (collectively "Marsh") is unenforceable under the laws of New York State. Marsh has cross-moved for sanctions in the form of attorney's fees pursuant to 22 NYCRR 130-1.1 on the ground that King's motion is frivolous. For the reasons stated below, both motions are denied.
This action is a relatively new one, having been commenced by the filing of a Summons and Complaint on June 25, 2019 (NYSCEF Doc. Nos. 1 and 2), with an Answer filed by Marsh on August 16 (NYSCEF Doc. No. 13). A preliminary conference was held on October 29, 2019 when a discovery order was completed and early settlement was urged by the Court (NYSCEF Doc. No. 16). Document discovery and responses to interrogatories are hopefully complete or nearly complete by now, as discovery was not stayed by the filing of the motion, but it appears that no depositions have yet been held.
Background Facts
The following background facts are based on allegations in the competing party affidavits submitted with the summary judgment motion and opposition (NYSCEF Doc. Nos. 20 and 45), as the parties' Statements of Material Facts filed in connection with the motion disagree markedly on virtually every point (see NYSCEF Doc. Nos. 19 and 40). Indeed, the essence of Marsh's opposition is that summary judgment is precluded by material issues of fact.
King alleges he was employed by Marsh as a "surety bond agent" beginning in June 2014, although the June 9, 2014 letter he signed to accept the offer describes the position as "Account Executive/Producer — Surety" in the Alexandria, Virginia office (NYSCEF Doc. No. 21). As a condition of his employment, King also signed a "Non-Solicitation and Confidentiality Agreement" on June 9, 2014 ("the Agreement", NYSCEF Doc. No. 22). In that Agreement, King agreed that for a period of two years from his separation from employment, whether that separation was voluntary or involuntary, he would not solicit clients, prospective clients, or employees of Marsh. He further acknowledged the confidential nature of his work and agreed to maintain all information in strictest confidence during his employment and after his separation, so long as that information remained "confidential" as defined by the Agreement.
According to King, on July 12, 2018, he was fired without cause by Mark Jones, Senior Vice President, Division Leader. King claims he was never given any "plausible reason" for the firing, despite various requests by King and his then counsel (Aff. ¶8). King further alleges that in a July 10, 2018 meeting leading up to the firing, Mr. Jones "aggressively encouraged" King to resign, offering to pay King through the end of the month and help him find another job (Aff. ¶9). Jones allegedly also told King that if King did not resign, King would have to pay Marsh $500,000.00 and Marsh would make it difficult for King to find another job in the industry.
King declined to resign. He claims that two days later, on July 12, Jones told him that the Agreement was "unenforceable anyway" and that if King chose to go to another firm and secured broker of record letters to retain his clients, Marsh "would not pursue any litigation" (Aff. ¶11). King claims he was fired at the meeting on July 12, 2018, and that Frank Roddey, a senior broker at Marsh, stated during the meeting that the decision to let King go was "political and came from the top." According to King, Jones had made a similar comment at the July 10 meeting two days before the firing, at which time Jones also purportedly told King that Human Resources had said King could not be fired "because there was nothing negative in [his] file." (Aff. ¶13). In his affidavit, King goes on to detail letters and communications thereafter exchanged with Marsh wherein Marsh claimed that King had been fired due to his failure to meet production goals. King not only denies that he failed to meet production goals, but he insists he never received any warnings to that effect, even though the Marsh Employee Handbook purportedly requires written warning letters before an employee can be terminated for cause (NYSCEF Doc. No. 27).
In opposition, Marsh submits an affidavit from Frank Roddey that paints a very different picture (NYSCEF Doc. No. 40). Roddey states that he has worked at Marsh for 34 years, that he is presently a Senior Vice President, and that he became familiar with King's job performance over time. He explains that King worked in the surety unit, which specializes in surety bonds, and "was responsible for generating, developing and servicing [Marsh's] middle-market surety clients, and developing and maintaining [Marsh's] relationships with clients." (Aff. ¶6). Roddey asserts that, despite significant support from Marsh, King was unable to develop a book of business sufficient to support his compensation. In fact, Roddey states that most of King's clients were referred by Roddey or others at Marsh (Aff. ¶10-12).
Roddey correctly indicates that King's June 2014 employment letter expressly states that King's employment with Marsh "will be ‘at-will’ which means that either [King or Marsh] may terminate [the] employment at any time for any reason or no reason, except as otherwise provided by law." (NYSCEF Doc. No. 21). In June or July Marsh decided to terminate King; although no reason was required, Roddey asserts the reason was "lack of production" (Aff. ¶13). On July 10 Marsh advised King of his decision, offered a severance package should he choose to resign, and scheduled a follow-up meeting for July 12. King appeared at the meeting with his father, an attorney, who attempted to negotiate continued employment or the right to take clients with him. Roddey responded that he lacked that authority, and when King declined to resign, his employment was terminated for cause and King was "expressly told the decision was based on his low production." (Aff. ¶17). Roddey further disputes King's claim that he was never given any warnings about poor performance, he insists he "spoke with King about his low production on several occasions" (Aff. ¶19), and he specifically rebuts King's claimed success with clients.
In reply, King changes tack completely and contends that his firing was based on racial discrimination. He indicates he is half Filipino, that his skin darkens in the summer, and that Hunter Bendall, the godson of Marsh's president, made racial slurs on various occasions (NYSCEF Doc. No. 50). King attaches to his affidavit purported text messages from Bendall and a purported text message from Roddey suggesting that Roddey was unaware until shortly before the July 12 meeting of any plan to fire King and that Roddey valued King and his work.
Legal Analysis
CPLR 3212(b) provides that a motion for summary judgment "shall be granted if, upon all the papers and proof submitted, the cause of action or defense shall be established sufficiently to warrant the court as a matter of law in directing judgment in favor of any party." Partial summary judgment is expressly permitted by CPLR 3212(e), which allows a party to move "as to one or more causes of action, or part thereof ..." As the Court of Appeals explained in Alvarez v. Prospect Hosp., 68 NY2d 320, 324 (1986), "the proponent of a summary judgment motion must make a prima facie showing of entitlement to judgment as a matter of law, tendering sufficient evidence to demonstrate the absence of any material issues of fact. Once this showing has been made, however, the burden shifts to the party opposing the motion for summary judgment to produce evidentiary proof in admissible form sufficient to establish the existence of material issues of fact which require a trial of the action" (citations omitted).
In his Complaint, King asserts five causes of action: (1) for a declaratory judgment that the Agreement is unenforceable due to King's involuntary termination without cause and because it is overbroad and harms King beyond any need by Marsh to protect its legitimate business interests; (2) for damages of $15M for Tortious Interference with Prospective Business Relations and Economic Opportunities; (3) Unfair and Wrongful Competition; (4) Estoppel barring the enforcement of the Agreement; and (5) Unjust Enrichment justifying damages of $15M. In his motion for partial summary judgment, King seeks only a judgment in his favor on the first cause of action for declaring that the Agreement is unenforceable.
King relies on the landmark case BDO Seidman v. Hirshberg, 93 NY2d 382 (1999), which articulates the "prevailing standard of reasonableness" applied by New York courts when determining the validity of employee agreements not to compete. There the Court of Appeals held that "a restrictive covenant will only be subject to specific enforcement to the extent that it is reasonable in time and area, necessary to protect the employer's legitimate interests, not harmful to the general public and not unreasonably burdensome to the employee" 93 NY2d at 388 (citations omitted).
King argues that the Agreement is overbroad as it extends to personal clients he recruited through his own efforts, rather than through the efforts of Marsh, and he cites Scott, Stackrow & Co., C.P.A.s, P.C. v. Skavina, 9 AD3d 805, 806 (3d Dep't 2004), which relied on BDO Seidman, 93 NY2d at 393. King further argues that Marsh impermissibly characterizes the customer lists as confidential information, when King obtained most of the information from publicly available sources. Thus, Marsh has no legitimate interest in barring King from contacting those clients, King claims, citing Reed, Roberts Assoc. v. Strauman, 40 NY2d 303, 308 (1976).
King further argues that the restrictions in the Agreement are overbroad in geographic scope; they apply anywhere in the world for two years from separation from employment. The absence of a geographic restriction renders the Agreement unenforceable. Sussman Educ., Inc. v. Gorenstein , 175 AD3d 1188, 1189 (1st Dep't 2019). Lastly on the enforceability point, King urges this Court to adopt the reasoning of Justice Ramos in Marsh USA, Inc. v. Alliant Ins. Servs., Inc. , 49 Misc 3d 1210 (Sup. Ct., NY Co. 2015). There the court relied on Willis of New York, Inc. v. DeFelice, 299 AD2d 240, 241 (1st Dep't 2002) to find that the employer had failed to demonstrate a likelihood of success on its breach of a restrictive covenant claim in part because insurance brokers "are generally not considered to be unique or extraordinary employees."
As to the cause issue, King relies on Post. Merrill Lynch, Pierce, Fenner & Smith, Inc., 48 NY2d 84, 89 (1979) for the proposition that: "Where the employer terminates the employment relationship without cause, however, his action necessarily destroys the mutuality of obligation on which the covenant rests." King maintains that because he received no written warnings in advance, nor any writing at the time of his termination specifying a cause for the termination of his employment, the termination was per force "without cause" and rendered the Agreement unenforceable.
Marsh emphasizes in opposition that the Agreement does not contains a covenant not to compete; it simply prohibits the solicitation and servicing of Marsh clients with whom King had contact or about whom King had obtained confidential information, for a period of 2 years post-employment. The non-solicitation covenant at issue is facially valid, serves to protect Marsh's legitimate business interests, and is fully enforceable under the BDO Seidman test, Marsh asserts. Regarding cause, King acknowledged in his Agreement that his employment was "at-will" and Marsh insists, in any event, that King was terminated based on low production. At a minimum, Marsh argues, material issues of fact preclude this early motion for summary judgment.
Significantly, Marsh cites six New York County Commercial Division cases and three District Court cases in which the courts reviewed identical or nearly identical clauses in Marsh cases and found them valid. See, e.g., Marsh & McLennan Agency, LLC v. Joseph Ferber, Index No. 653114/2019, NYSCEF Doc. No. 22 (Sup Ct. NY Co., Aug. 14, 2019) (Cohen, J.) (entering temporary restraining order enforcing non-solicitation and confidentiality provisions); Marsh USA Inc. v. Schuhriemen, 183 F. Supp. 3d 529 (SDNY 2016) (Rakoff, U.S.D.J.) (granting preliminary injunction enforcing non-solicitation and confidentiality provisions); and other cases cited at pp. 7-8 of Marsh Memorandum of Law (NYSCEF Doc. No. 39). Marsh correctly notes that King has failed to address any of those cases, citing only a single 2015 case by Justice Ramos which Marsh describes as an "outlier" resolved before Marsh's appeal was perfected.
BDO Seidman recognizes that an employer has a legitimate business interest "to prevent competitive use, for a time, of information or relationships which pertain peculiarly to the employer and which the employee acquired in the course of the employment." 93 NY2d at 391 (emphasis in original). Marsh undeniably has a legitimate interest in trying to protect its goodwill, customer relationships and employee relationships, and Marsh vigorously disputes King's claim that King developed any of that good will or any of those relationships on his own. Further, while others may have the ability to provide the same technical services, the customer relationships made King's employment "special, unique, or extraordinary" under the BDO Seidman analysis. See Henson Group, Inc. v. Stacy, 66 AD3d 611, 612 (1st Dep't 2009).
Marsh also has a legitimate interest in preventing the misappropriation of confidential information and client lists. 1 Model Mgt, LLC v. Kavoussi , 82 AD3d 502, 503 (1st Dep't 2011). And Marsh disputes King's claim that the information was publicly available, giving rise at a minimum to an issue of fact precluding summary judgment. The two-year restriction on solicitation is reasonable [ Willis of NY, Inc. v. DeFelice , 299 AD2d 240, 241 (1st Dep't 2002) ], and the lack of a geographical limitation is not fatal when the restriction is limited to non-solicitation and confidentiality [Marsh USA Inc. v. Karasaki, 2008 U.S. Dist. LEXIS 90986, at *48 (SDNY 2008) (collecting cases) ]. The Agreement does not impose undue hardships on King as it does not contain a non-compete clause preventing King from obtaining other employment.
While maintaining its position that King was terminated for cause, Marsh asserts that King misstates the law when he argues that a termination without cause renders a restrictive covenant unenforceable. Marsh notes that all of King's cited cases relied on Post v. Merrill Lynch, Pierce, Fenner & Smith, Inc. , 48 NY2d 84 (1979), which addressed only the "narrow issue" of "the efficacy of a private pension plan provision permitting the employer to forfeit pension benefits earned by an employee who competes with the employer after being involuntarily discharged." In Hyde v. KLS Professional Advisors Group , LLC, 500 Fed. Appx. 24 (2d Cir. 2012), the Second Circuit Court of Appeals noted that the holding in Post was limited to the particular fact pattern and cautioned courts not to extend Post beyond its holding. King in reply maintains his position on the law, disagreeing with Marsh's interpretation of the cases.
As noted earlier, in addition to opposing King's summary judgment motion, Marsh cross-moves for sanctions in the form of attorney's fees based on frivolous conduct. Counsel describes the motion as a settlement ploy and affirms that, upon receipt of the motion, he urged King's counsel to withdraw the motion based on obvious issues of disputed facts, but counsel refused, causing Marsh to incur significant attorney's fees to oppose (Atlas Aff, NYSCEF Doc. No. 41).
The Court may impose sanctions for frivolous conduct pursuant to 22 NYCRR § 130-1.1. Frivolous conduct is defined as conduct which: (1) is completely without merit in law and cannot be supported by a reasonable argument for an extension, modification or reversal of existing law; (2) is undertaken primarily to delay or prolong the resolution of the litigation, or to harass another; or (3) asserts material factual statements that are false. 22 NYCRR § 130-1.1(c)(1), (2) and (3). "In determining whether the conduct undertaken was frivolous, the court shall consider, among other issues, the circumstances under which the conduct took place, including the time available for investigating the legal or factual basis of the conduct, and whether or not the conduct was continued when its lack of legal or factual basis was apparent, or should have been apparent, or was brought to the attention of counsel or the party." 22 NYCRR § 130-1.1(c). Marsh asserts that King knew the motion was frivolous, as his Statement of Material Facts merely reiterates allegations in the Complaint that King knew were vigorously contested.
King in opposition contends that Marsh's response to the Statement of Material Facts and the Roddey Affidavit are misleading, fail to refute material facts, and contain significant omissions. Marsh in reply disagrees, and maintains that issues of fact were appropriately identified, that summary judgment is premature because discovery is far from complete, and that King's motion is indeed frivolous.
Conclusion
On this record, King's motion for partial summary judgment must be denied. Even if the Court were to accept King's factual assertions as true and adopt his interpretation of the law, Marsh has successfully demonstrated in opposition that material issues of fact exist mandating the denial of summary judgment under Alvarez, supra, and its progeny. A prime example is the dispute about whether the client lists were developed solely through King's efforts based on publicly available information, or whether, as Marsh asserts in detail, the lists were developed primarily with the assistance of Roddey and others at Marsh. The resolution of this issue is key to determining whether Marsh has a legitimate business interest in classifying those lists as confidential information it can bar King from accessing under the terms of the Agreement.
And while the Court need not at this point determine whether the Agreement satisfies the BDO Seidman test, the Court agrees with Marsh that the absence of a non-compete provision in the Non-Solicitation and Confidentiality Agreement significantly impacts the legal analysis by, for example, eliminating the need for a geographic restriction. The absence of a non-compete provision also increases the likelihood that the Court will find the clause enforceable, as so many other courts have apparently done in the cases cited by Marsh which King failed to distinguish.
Obvious issues of fact also exist as to the whether King was terminated for cause, as the party affidavits detailed above present dramatically different stories. King's last-minute claim of racial discrimination as a cause for his firing is sharply disputed by Marsh. These factual disputes and others preclude summary judgment, particularly in light of Marsh's analysis of the Second Circuit's decision in Hyde, which casts doubt on King's claim that his purported termination without cause renders the Agreement unenforceable.
That being said, the Court in its discretion declines to grant Marsh's cross-motion for sanctions in the form of attorney's fees based on the allegedly frivolous nature of King's motion. The bar for sanctions is quite high under 22 NYCRR 130-1.1 and is not met here.
Accordingly, it is hereby
ORDERED that plaintiff's motion for summary judgment and defendant's cross-motion for sanctions are both denied. Discovery shall proceed as expeditiously as possible. Counsel shall confer to resolve any outstanding disputes about document production and interrogatory responses and set a deadline for production. Counsel are also urged to agree on a schedule for depositions. A compliance conference is scheduled for June 9, 2020 at 9:30 a.m. in Room 232. The Court notes that the non-solicitation provisions in the Agreement at issue here expire soon thereafter, on July 12, 2020, and the Court again urges the parties to pursue settlement.