Opinion
NO. 2013-CV-78 No. 13-CV-312
2013-09-05
USI Insurance Systems, LLC v. Michael Guarino And USI Insurance Systems LLC v. Cross Financial Corp. et al
ORDER
These consolidated actions arise out of the employment of Michael Guarino ("Guarino") with Cross Financial Corporation ("Cross"). Guarino is a former employee of USI Insurance Solutions, LLC ("USI"). USI brought an action in the Strafford County Superior Court, seeking injunctive relief, alleging that Guarino violated a Non-Competition Agreement entered into while he was an employee of USI's predecessor TD Insurance ("TDI"). On March 29, 2013, that Court approved a temporary order, agreed to by the parties, which, in substance, enjoined Guarino from soliciting or contacting any customer of USI he had serviced during his employment with USI pending a hearing on USI's Motion for a Preliminary Injunction. USI brought an action for money damages against Guarino's employer, Cross, in the Hillsborough County Superior Court. Both actions have been transferred to the Business and Commercial Dispute Docket of the Superior Court.
On July 16, 2013, this Court held a hearing on USI's Motion for a Preliminary Injunction to extend the temporary order granted by the Strafford County Superior Court. The hearing proceeded by offers of proof. For the reasons stated in this Order, the Motion is GRANTED.
However, it appears that the parties have engaged in substantial discovery, including depositions and document exchange, and the Court relies on information obtained in discovery and submitted to the Court in this order.
I
From the parties' offer of proof, the following appears to be undisputed. USI is an insurance brokerage firm that provides insurance, risk management and other related services. At the time of his resignation, Guarino was a Producer and Vice President at USI. Guarino's employment history at USI involves several changes in employers due to stock purchases detailed below.
In November 2001, Guarino was hired by Morse, Payson & Noyes Insurance, a Maine based company and affiliate of Banknorth Insurance Group ("Banknorth"). Thereafter, in October 2002 Guarino signed an employment agreement containing post-employment restrictive covenants that are not in dispute in this case. In 2004, TDI acquired Banknorth and employed Guarino. TDI maintained its corporate headquarters in Maine. In 2007, Guarino entered into an employment agreement with TDI containing similar post-employment restrictive covenants that are also not at issue in this case.
On November 11, 2009, Guarino entered into an employment agreement with TDI that included a Non-Competition Agreement, which provides at Section 7 in relevant part:
For a period of three years after termination of the Employee's employment with the Company for whatever reason . . . the Employee shall not, directly or indirectly, or through the use of a third party or entity, whether for his/her own benefit or account or for the benefit or account of any person or entity other than the Company, accept insurance related business from, conduct or attempt to conduct insurance related business with, or otherwise interfere or attempt to interfere with the relationship of the Company with, any Existing Account or any Prospective Account.(Resp'ts' Ex. B at 5, 6.)
. . .
For a period of three years after termination of the Employee's employment with the Company for whatever reason . . . the Employee shall not, directly or indirectly, or through the use of a third party or entity, whether for his/her own benefit or account or for the benefit or account of any person or entity other than the Company, solicit or attempt to solicit, contact or attempt to contact, call or attempt to call upon, or negotiate or attempt to negotiate with, any Existing Account or any Prospective Account for the purpose of selling or providing any insurance-related services or products.
Section 11 of the Non-Competition Agreement provides that if the employee violates the agreement and the violation results in the Company's loss of business or revenue the employee:
promises and agrees to pay, or to cause the Employee's employer, principal, joint venture, or partner to pay, promptly to the Company, within 30 days of receipt, an amount equal to, (i) for Class A Accounts, 60% of any and all Prohibited Revenue; and (ii) for Class B Accounts, 50% of any and all Prohibited Revenue.(Resp'ts' Ex. B at 8.)
Respondents claim "[i]n November 2009, TD[I] changed its compensation plan in a manner that was detrimental to Mr. Guarino . . . whose client base included small and medium size companies." (Cross Mem. 3.) USI does not dispute that during 2009 there were changes in TDI's "core producer incentive plan"; however, USI alleges the changes occurred in February 2009. (USI Mem. 3, 16.)
In September 2012, USI purchased all of the stock of TDI. In the purchase agreement, Guarino's employment contract was listed as an asset. Respondents claim that after USI took over, USI changed Guarino's employment terms by increasing the minimum new commission quota, transferring small and medium accounts to a service center, reducing resources for servicing existing and prospective accounts, requiring attendance at weekly prospect meetings, and requiring a minimum of fifty cold calls per week. (Cross Mem. 6.)
As a result of the stock purchase, TDI became a wholly owned subsidiary of USI. On September 24, 2013, TDI was renamed "USI Insurance Solutions Corporation." Thereafter, on September 25, 2013, USI Insurance Solutions Corporations was converted to a limited liability company and renamed "USI Insurance Solutions LLC."
On January 24, 2013, Guarino sent an email to USI announcing his resignation effective February 8, 2013. Thereafter, Joseph Blanche ("Blanche"), head of USI Massachusetts, called Guarino and reminded him of the Non-Competition Agreement. Guarino replied that he was going to Cross, a competing insurance broker and that Cross would seek to purchase Guarino's clients from USI. In his final week at USI, Guarino contacted roughly seventeen of his thirty-seven clients and informed them he was joining Cross. (Id.) On January 28, 2013, Guarino stared working at Cross and immediately began soliciting approximately 17 of his former USI clients. Of these clients, at least five have moved their business to Cross.
At deposition, Guarino testified that he left USI with twenty pages of his own handwritten notes containing information about prospective clients. (Guarino Dep. 160:22, Mar. 28, 2013.) Guarino also admitted to telling Sharpe that USI did not feel one of its customers, ROI Staffing, was profitable. (Guarino Dep. 74:1.) Furthermore, Guarino testified that at his initial interview with Cross, Cross COO Frank Ferland advised him that they would offer to purchase his clients from USI and if USI did not agree to the purchase, the clients would not be pursued. (Id. 45:10-14.) However, on January 28, 2013, the President of Cross, Royce Cross, told Guarino to solicit his old USI clients and, "[t]ake the business." (Id. 45:15-23.)
In February 2013, President of Cross' Manchester Office, Chris Sharpe ("Sharpe"), contacted USI and reported that one of Guarino's former clients had contacted him. Sharpe offered to track the business of Guarino and compensate USI under the formula set out in Section 11 of the Non-Competition Agreement. On February 12, 2013, USI rejected this offer.
Petitioner seeks to continue the Preliminary Injunction against Respondents, arguing that Guarino's solicitation of USI clients is a violation of the Non-Competition Agreement. Respondents object and contend the Non-Competition Agreement is unenforceable as it is unsupported by consideration. The Court disagrees with Respondents.
II
The Non-Competition Agreement between USI and Guarino provides that the agreement "shall be construed, and its performance and enforcement shall be governed, by and in accordance with the laws of the State of Maine, without regard to the principles of choice of law." (Resp'ts' Ex. B. at 10.) USI argues that under Maine law it holds all rights to the agreement as a result of the TDI stock sale. Office Max v. Country Qwickprint Inc., 709 F. Supp. 2d 100, 112 (D. Me. 2010), and OfficeMax Inc. v. County Qwickprint Inc., 751 F. Supp. 2d 221, 239-242 (D.Me. 2010). Cross does not dispute that USI may enforce the Non-Competition Agreement as a result of the stock sale with TDI. Instead, Cross contends that the choice of law provision is unenforceable because Mr. Guarino is a resident of New Hampshire and has worked in Massachusetts since 2010. The Court disagrees.
A New Hampshire court will give effect to the parties' choice of law provision as long as it bears a significant relationship to the jurisdiction whose law is selected. Hobin v. Coldwell Banker Residential Affiliates, Inc., 144 N.H. 626, 628 (2000); Allied Adjustment Services v. Heney, 125 N.H. 698, 700 (1984). The New Hampshire Supreme Court has held that where a corporation is incorporated in the State to which the choice of law provision refers, the agreement bears a significant relationship to that State. Hobin, 144 N.H. at 628-29; Heney, 125 N.H. at 700. Here, at the time the Non-Competition Agreement was executed on November 11, 2009, one of the contracting parties, TDI, was a Maine corporation. Moreover, USI has offices throughout New England, including five locations in Maine. Accordingly, the Non-Competition Agreement bears a significant relationship to Maine and therefore Maine law applies.
It does not appear that Maine law significantly differs from that of New Hampshire. While geographical restrictions the Maine Supreme Court has upheld are greater than those in any reported decision from the New Hampshire Supreme Court, which is likely to the geographic difference between the states. See e.g. Myerowitz v. Howard, 507 A.2d 578 (Me. 1986) (upholding an agreement prohibiting competition within 50 miles of a business in Bangor, Maine for a period of 48 months).
Although Maine law applies to the Non-Competition Agreement, whether or not an injunction should be granted is procedural, and is governed by the law of the forum state: New Hampshire. See Waterfield v. Meredith Corp., 161 N.H. 707, 710 (2011); SmartMail Services, L.L.C. v. Ellis, No. CH03-1358, 2003 WL 24133065, at *2 (Va.Cir.Ct) (finding question of whether to issue a preliminary injunction is governed by law of the forum state). But it appears that New Hampshire and Maine law are essentially the same. Under New Hampshire law, "injunctive relief is an equitable remedy, requiring the trial court to consider the circumstances of the case and balance the harm to each party if relief were granted." Kukene v. Genualdo, 145 N.H. 1, 4 (2000) (citation omitted). "A preliminary injunction is a provisional remedy that preserves the status quo pending a final determination of the case on the merits." New Hampshire Dept. of Environmental Services v. Mottolo, 155 N.H. 57, 63 (2007) (citation omitted). In order to obtain a preliminary injunction, a party must show that: (1) a present threat of irreparable harm exists; (2) there is no adequate remedy at law; and (3) there is a likelihood of success on the merits. ATV Watch v. New Hampshire Dept. of Resources and Economic Development, 155 N.H. 434, 437 (2007) (citation omitted). Moreover, the Court must consider whether the grant of an injunction would be in the public interest. City of Nashua v. UniFirst, 130 N.H. 11, 14 (1987). The Maine Supreme Court takes a similar approach. See generally Ingraham v. University of Maine at Orono, 441 A.2d 691, 693 (Me. 1982); Meyrowitz, 507 A.2d 578 (Me. 1986).
III
A
Whether USI is likely to succeed on the merits requires analysis of the Non-Competition Agreement at issue. The parties agree that the public policy of both Maine and New Hampshire encourages free trade and discourages covenants not to compete. See, e.g., Chapman & Drake v. Harrington, 545 A.2d 645, 647 (Me. 1988) (recognizing that restrictive covenants "are contrary to public policy and will be enforced only to the extent that they are reasonable and sweep no wider than necessary to protect the interest in issue"); Concord Orthopedics Professional Association v. Forbes, 142 N.H. 440, 442 (1997). But a restrictive covenant is enforceable if it is (1) reasonable under the circumstances; (2) imposes no undue hardship upon the employees; and (3) no wider than is reasonably necessary for the protection of the business of the employer. Chapman & Drake v. Harrington, 545 A.2d at 648-49.
Guarino and Cross argue that the 2009 Non-Competition Agreement is unsupported by consideration and the 2009 and 2012 changes in terms of Guarino's employment constitute duress. (Cross Mem. 17.). Specifically, Cross asserts:
The Covenants are unenforceable because they lack consideration. TD Insurance presented the document to Mr. Guarino in 2009, at the same time it implemented a less favorable "Core Producer Plan," which represented a change to the company's compensation system. Mr. Guarino signed the Covenants on November 11, 2009, in order to save his job, shortly after he had been released from "probation." Several years later, after USI Insurance acquired TD Insurance in September 2012, USI insurance unilaterally changed the terms and conditions of Mr. Guarino's employment-again in a manner less favorable to Mr. Guarino. . . .USI Insurance, in effect, changed the terms of Mr. Guarino's employment without giving Mr. Guarino the opportunity to renegotiate or even review the restrictive covenants. The oppressive conduct of TD Insurance, and, then, of USI Insurance is, itself, enough to render the covenants unenforceable.(Id.)(citations omitted).
Cross contends that "[s]ince the Covenants are not supported by consideration, they are unenforceable." (Id. at 18.) However, the Maine Court has specifically held that continued employment is sufficient consideration to support a restrictive covenant. Brignull v. Albert, 666 A.2d 82, 84 (Me.1995) (citing Smith Bachelder & Rugg v. Foster, 119 N.H. 679 (1979)). Moreover, USI notes that Guarino was subject to a Non-Competition Agreement with USI's predecessor since 2002, the 2009 compensation restructuring was companywide and affected all employees. Furthermore, the Non-Competition Agreement was actually executed 9 months after the compensation system change. (USI Mem. 16.)
Cross asserts that the recent decision of this Court in Granite Investment Advisors v. Timm, No. 2013-CV-094, Superior Court of New Hampshire Merrimack County, 2013 N.H. Super. Lexis 5 (Mar. 28, 2013), compels a different conclusion. But Timm is plainly distinguishable; in that case, the employee was not asked to sign a Non-Competition Agreement when he began his employment, his employer never told him that he would be asked to sign a Non-Competition Agreement, when he signed his employment agreement he did so with the understanding his job duties and compensation structure would remain the same throughout his employment; and after he signed the Non-Competition Agreement his employer made unilateral changes to his compensation structure which had the effect of reducing his compensation. Id. at *4. Here, unlike Timm, Guarino was subject to a Non-Competition Agreement since 2002 and the 2009 Non-Competition Agreement did not change his job duties or compensation structure. There is simply no basis in this case upon which the Court could find that USI acted in bad faith.
Despite the fact that Maine law applies generally to the interpretation of the Non-Competition Agreement, USI apparently concedes that RSA 275:70 is applicable in this case because the agreement is to be performed in the State. That statute provides:
Prior to or concurrent with making an offer of change in job classification or an offer of employment, every employer shall provide a copy of any non-
compete or non-piracy agreement that is part of the employment agreement to the employee or potential employee. Any contract that is not in compliance with this section shall be void and unenforceable.RSA 275:70 (Supp. 2012).
However, by the plain language of the statute, RSA 275:70 is not applicable here. First, and most important, the Non-Compete Agreement was signed in 2009 when there was no change in job classification or offer of employment. There is simply no evidence that the Non-Competition Agreement was ever part of the job classification in this case and therefore RSA 275:70 is inapplicable. See House Committee on Labor, Industrial, and Rehabilitative Services, Public Hearing on HB 1270, Mar. 7, 2012 (statement of Rep. Keith Murphy) (stating the bill is narrowly tailored for cases of duress such as when "someone has already quit their previous job and the new employer requires a surprise contract on the first day of work . . . .") Furthermore, while Guarino alleges that his compensation would have changed as a result of the new procedures at USI, he resigned prior to ever actually determining whether, in fact, his compensation would have changed under the new system.
B
Since the Non-Competition Agreement is supported by consideration, and not prohibited by the operation of RSA 275:70, the Court must consider whether it is enforceable under the three-part test of Chapman: whether it is (1) reasonable under the circumstances, (2) whether it imposes no undue hardship on the employee, and (3) whether it is no broader than reasonably necessary for the protection of the employer's business. Chapman, 545 A.2d at 648-49. Maine precedent compels a conclusion that the agreement is enforceable.
"The reasonableness of a noncompetition covenant is a question of law that must be determined by the facts developed in each case as to its duration, geographic area, and the interests sought to be protected." Brignull v. Albert, 666 A.2d 82, 84 (Me. 1995) (citation omitted). "Since the reasonableness of the noncompetition agreement depends upon the specific facts of the case," the Court assesses the Non-Competition Agreement only as USI has sought to apply it "and not as it might have been enforced on its plain terms." Chapman, 542 A.2d at 647. The Maine Court in Chapman stated that a Non-Competition Agreement may be reasonable when the employee "has had substantial contact with his employer's customers and is thereby in a position to take for his own benefit the good will his employer paid him to help develop for the employer's business." Id. at 647 (citations omitted). Furthermore, a Non-Competition Agreement may be reasonable when the employee "has had access to his employer's confidential information, including customer lists, and is in a position after leaving his employer to take advantage of that information." Id. (citations omitted).
Here, the Non-Competition Agreement, as USI has sought to apply it, would last three years and prevent Guarino from soliciting those USI accounts that existed at the time of Guarino's resignation and twelve months prior. The circumstances here are strikingly similar to Chapman, where the Maine Court upheld a Non-Competition Agreement that lasted five years, barred the insurance salesman from soliciting the employee's previous customers, and did not include a geographical boundary. See Chapman, 545 A.2d at 647-48. The Chapman Court ruled the salesman's substantial client contact and access to confidential information including, client lists, the policies they held, and the expiration dates were legitimate business interests protected by the Non-Competition Agreement.
Similarly, here, Guarino had substantial contact with USI clients and therefore is in a position to take advantage of the good will USI paid him to establish. See Chapman, 545 A.2d at 647. Guarino was privy to confidential information such as USI client lists, the policies they held and the expiration dates.
The three year restriction does not create an undue hardship and is not broader than reasonably necessary to protect USI's business interests. The Non-Competition Agreement does not prevent Guarino from practicing his profession nor does it require him to relocate. Rather, the Non-Competition Agreement is narrowly tailored to protect those customers with whom Guarino created good will or was privy to confidential information while employed at USI and its predecessors. See Chapman, 545 A.2d at 648. Guarino is free to sell insurance to anyone who was not a client of USI at the time of his employment. Accordingly, the Non-Competition Agreement is reasonable under the circumstances, does not produce an undue hardship, and is no broader than reasonably necessary to protect USI's legitimate business interests; thus it is therefore enforceable.
IV
Respondents also argue that USI is not entitled to injunctive relief, because the claim made is limited to a finite group of former USI clients and it would be easy to keep track of the premiums received to determine what, if anything USI is owed. Cross points out that Section 11 of the Non-Competition Agreement sets forth a formula by which damages are to be calculated and paid to the employer to the extent a breach can be proven. It notes this Section states that "the payments set forth in this paragraph represent a reasonable approximation stipulation of damages for proving violations" of the Non-Competition Agreement. (Resp'ts' Ex. B. at 8.) Respondents argue that USI therefore has an adequate remedy at law and "has deliberately failed to elect between its remedies in an effort to further restrict Guarino, to restrict its own insurance clients, and to maintain an unfair competitive advantage over Guarino and Cross." (Cross Mem. 14.)
Respondents overlook the fact that Section 10 of the agreement specifically provides that the entitled "Certain Payments for Violations" "are not exclusive and are meant to be in addition to any and all other rights or remedies available under applicable law, including but not limited to the remedies set forth in [Section] 11 below [which provides a formula for liquidated damages]." (Resp'ts' Ex. B. at 7.)
There can be no question that this provision is enforceable. Maine, like most American jurisdictions, follows the rule that the loss of good will is immeasurable and irreparable. See Everett J. Prescott, Inc. v. Ross, 383 F. Supp. 2d 180, 192 (D.Me. 2005) ("A business's interests in good will, customer contacts, and referral sources cannot be measured in numerical or monetary terms, and neither can the damages to these interests that plaintiff will suffer without injunctive relief.") (citations and quotations omitted)). As in Katahadin Insurance Agency v. Elwell, Guarino was "the face of [USI] with respect to" the clients he serviced. 2001 WL 1736572 (Me. Super. Ct. July 9, 2001) at *8. Accordingly, "it would be very difficult to calculate monetary damages that would successfully redress the loss of a relationship with a client that would produce an indeterminate amount of business in years to come." Everett, 383 F. Supp. 2d at 192. (citations and quotations omitted). As USI asserts, "the insurance business depends on referrals and cross-selling opportunities, which are impossible to quantify." (USI Mem. 26.) Furthermore, the evidence has clearly shown that several of Guarino's USI clients have already moved their business to Cross.
V
It follows that the Non-Compete Agreement is reasonable and therefore enforceable under Maine Law. Guarino's direct solicitation of USI clients is in violation of the Agreement and there is a likelihood of success on the merits. If injunctive relief is not granted, Guarino's continued solicitation will cause USI to suffer irreparable harm through the loss of customer good will and monetary damages are insufficient to adequately compensate USI. The issuance of a preliminary injunction is therefore necessary to protect the legitimate business interests of USI. See Chapman, 545 A.2d at 647-48. Accordingly, the Court GRANTS Petitioner's motion to continue the March 29, 2013 Preliminary Injunction Order until trial.
While Maine, like New Hampshire, generally requires a bond upon the grant of an injunction, Section 10 of the Non-Competition Agreement specifically provides that upon breach by an employee, USI is entitled to "injunctive relief by any court of competent jurisdiction, without bond, to enforce the terms of this Agreement and to enjoin the Employee from continuing or commencing any activity that would violate any of the covenants and restrictions imposed . . . ." (Resp'ts' Ex. B. at 7.)
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SO ORDERED
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Richard B. McNamara,
Presiding Justice