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USI INS. SERVICES LLC v. Miner
Citations: 801 F. Supp. 2d 175; 2011 U.S. Dist. LEXIS 74623; 2011 WL 2848139Docket: 10 Civ. 8162(LAP)
Court: District Court, S.D. New York; July 7, 2011; Federal District Court
The case involves USI Insurance Services LLC and Defendant Jeffrey Miner following Miner's departure to a competing firm, Insurance Office of North America. USI seeks partial summary judgment on several issues: 1) Miner's non-compliance with the Notice-of-Breach provision of his Employment Agreement; 2) solicitation of USI clients against the terms of the Employment Agreement; and 3) failure to properly notify USI of his employment termination. Conversely, Miner and Insurance Office of North America argue that 1) the restrictive covenants in the Employment Agreement are unenforceable, lacking evidence of irreparable harm; 2) the information allegedly misappropriated is not confidential; 3) USI is not entitled to injunctive relief due to delays in seeking it; and 4) USI breached the Employment Agreement. Additionally, Defendants request a ruling that Miner did not solicit USI clients. The Court partially granted and denied the motions for summary judgment on July 1 and July 5, 2011. The memorandum outlines the legal standard for summary judgment, stating it is granted when there are no genuine disputes of material fact, emphasizing the burden on the party seeking judgment and the necessity for the non-moving party to present specific facts to avoid judgment. Conclusory statements are insufficient to establish a genuine issue of material fact. Miner's claim against USI for breach of the Employment Agreement regarding his compensation is invalidated by his failure to comply with the notice provision in Section 4.2. This section stipulates that a party cannot be deemed to have breached the agreement unless it has been notified in writing of a default and has failed to cure it within 15 days. Although Miner acknowledges non-compliance with the formal notice requirement, he argues that New York law permits substantial compliance. However, USI's motion for partial summary judgment is granted because the legal precedent emphasizes that without proper notice, a breach cannot be established, as the breaching party must be afforded an opportunity to cure the defect. Miner's attempts to demonstrate compliance through informal communications, such as emails and conversations with various USI executives, are deemed insufficient. Ultimately, the court concludes that Miner did not fulfill the notice requirement as specified in the Employment Agreement. On December 11, 2009, Mr. Voltaggio emailed Miner regarding true-up calculations for the relevant lawsuit period, indicating that Miner had a deficit of approximately $82,000 but expected this to be offset by upcoming "premier property renewals." He proposed a meeting in January for a comprehensive review of the 2009 true-up. Miner acknowledged this plan, expressing concerns about flaws in Voltaggio's calculations and committing to review the numbers and share issues in advance. On December 14, Miner added two items to the list for discussion. Later, on July 27, 2010, Ms. Pizarro sent Miner the second quarter true-up for his comments. Miner sought clarification on specific accounts and commission breakdowns. Meeting notes from August 2, 2010, indicated various accounts were discussed with follow-up needed in some cases. Miner presented deposition testimonies from several individuals, including Mr. D'Elia, Mr. Voltaggio, Ms. Pizarro, and Mr. Butler, to support his claim that USI was aware of a breach of agreement related to unpaid commissions. However, the testimony revealed that USI did not perceive Miner as upset about the true-up calculations but rather concerned. D'Elia noted he was unaware of Miner being upset, while Pizarro shared similar sentiments. Voltaggio acknowledged disputes over numbers but did not characterize them as indicative of a breach. Butler recalled learning about true-up issues but described Miner's complaints as a "nuisance." The overall record suggests that USI and Miner were collaboratively addressing true-up calculations, without any formal indication from Miner of a belief that a breach had occurred or intentions to sue. Conversations between the parties were characterized as cordial and typical of discussions regarding client and commission issues. Miner delayed over a month to meet with USI to discuss commission reports, demonstrating a lack of urgency regarding any potential breach. The notice provision in the Employment Agreement is designed to distinguish minor complaints from serious allegations of breach. Miner did not communicate any belief that USI had breached the contract, nor did he provide USI an opportunity to address any alleged defects, particularly under Section 4.2. The Court emphasized that all contract provisions must be given effect, and Miner's position would negate the importance of the notice requirement. In contrast to the precedent set in Contemporary Mission, where insufficient notice was deemed acceptable due to a lack of hypertechnicality, Miner's circumstances lacked any indication of a breach or intent to pursue legal remedies. Consequently, the Court ruled that Miner failed to provide adequate notice under Section 4.2, granting USI's motion regarding this issue. Further, Miner claimed USI breached Section 4.2 by not providing true-ups and failing to pay commissions for the North Beach account. However, since Miner did not provide the requisite notice, USI was not given the chance to cure any alleged breach, leading to the denial of Miner's motion and dismissal of his counterclaims with prejudice. Additionally, USI contended that Miner breached the Employment Agreement by not giving the required thirty days' written notice before resigning on October 20, 2010. The Employment Agreement clearly stipulated this requirement, and it was acknowledged that Miner sent an email resigning effective immediately on that date. Thus, USI's position on this matter was upheld. Miner contends that summary judgment is inappropriate due to a factual dispute over whether USI breached the Employment Agreement by failing to timely pay his earned commissions or provide true-ups. He argues that any breach by USI absolves him of the obligation to comply with the thirty-day notice provision in Section 8.3. However, this argument is flawed because Miner did not provide the required notice under Section 4.2, preventing USI from addressing any alleged issues. Consequently, USI could not breach Section 4.2, and Miner's claims do not present a material fact that would defeat summary judgment. Even if USI’s delays in payment occurred, they would not constitute a material breach under New York law, which requires a breach to be willful or substantially fundamental to undermine the contract's purpose. USI’s minor miscalculations regarding payment cannot be seen as a breach affecting the agreement's core. Thus, Miner's obligations under the Employment Agreement remain intact, and he cannot evade these obligations due to USI's non-material breaches. The Court concludes that Miner breached Section 8.3 by terminating his employment immediately via an email dated October 20, 2010, and grants USI's motion for summary judgment. Additionally, the enforceability of the restrictive covenants in the Employment Agreement is addressed. Defendants challenge these covenants on four bases: they do not protect legitimate interests, are overly broad, Miner has not misappropriated trade secrets, and his services are not unique. They also argue that USI suffered no irreparable harm. USI defends the validity of the covenants and seeks injunctive relief. The Court denies Miner's motion regarding these issues, noting that the restrictive covenants include agreements not to solicit USI clients, disclose confidential information, or hire USI employees. Specifically, Section 7.1 prohibits Miner from soliciting business from USI clients or acquiring interests in prospective acquisitions for two years post-termination, as well as soliciting USI employees. Section 6.3 of the Employment Agreement prohibits the employee from using or disclosing the Company's Confidential Information after termination, unless with prior written consent. Under New York law, enforceability of postemployment covenants is judged by a reasonableness standard which includes a three-pronged test: the restraint must protect legitimate employer interests, not impose undue hardship on the employee, and not be harmful to the public. Confidential information and trade secrets are recognized as legitimate employer interests. Courts may grant injunctive relief when an employee’s services are unique and the covenant is reasonable. The case at hand involves USI's efforts to enforce Non-Solicitation, Employee Non-Solicitation, and Confidentiality Agreements against Miner, who claims these covenants are overbroad and primarily aimed at retaining employees. USI seeks to prevent Miner from soliciting or servicing clients for 24 months, including those who have transitioned to IOA or remained with USI. Previous rulings, such as BDO, affirm an employer’s interest in protecting customer goodwill from former employees. Miner cites the Visentin case, arguing that USI's covenants function as retention devices, which undermines their legitimacy. However, the court in Visentin indicated that this is just one factor among many in a case-specific assessment, and Miner has not presented comparable evidence. Unlike in Visentin, USI does not seek to prohibit Miner from working at IOA, and even if the covenants are deemed reasonable, Miner can still engage with non-USI clients not specified in the agreement. Miner has not demonstrated a lack of a legitimate protectable interest regarding the Non-Solicitation Agreement. Although Miner claims the agreement is overly broad, prohibiting him from accepting business from former clients for 24 months, courts have historically upheld similar restrictions in the insurance sector as reasonable. Relevant case law, such as Marsh U.S.A. Inc. v. Karasaki and Willis of N.Y. Inc. v. DeFelice, supports the enforceability of such agreements. Miner’s reference to Leon M. Reimer. Co. v. Cipolla is deemed inapplicable since that case involved a reimbursement clause absent in the current agreement, thus failing to prove overreach. USI is also justified in seeking the return of trade secrets or confidential information as defined in the Employment Agreement. Under New York law, customer information can be classified as confidential. An email from Miner containing a spreadsheet with sensitive company financial data suggests the presence of trade secrets, reinforcing the enforceability of the Confidentiality Agreement. Additionally, Miner claimed his skills are not unique or extraordinary, yet he previously acknowledged in his Employment Agreement that his services possess a "special, unique and extraordinary character." This acknowledgment raises factual questions regarding the uniqueness of his services. The court highlights that an employer’s interest in retaining customers is significant, particularly if the employee has a strong relationship with those customers, which may lead to business diversion. Evidence that some customers followed Miner to his new employer, IOA, along with potential proof of his status as a "top producer," further supports the risk of business diversion. Thus, a material fact issue persists regarding the uniqueness of Miner’s services. The Court evaluates whether enforcing the Agreement would impose undue hardship, concluding it does not, as USI only seeks to prevent Miner from soliciting or servicing former USI clients, allowing him to work as an insurance producer for IOA. Miner's employment with IOA includes a salary and equity stake, favoring USI's position. Regarding public policy, minimal discussion occurred, leading the Court to determine this factor does not favor either party, although New York typically disapproves of broad competition restraints. Miner failed to demonstrate the reasonableness of USI's restrictive covenants, resulting in the denial of his motion. USI sought partial summary judgment on whether Miner improperly solicited USI clients for IOA, while defendants claimed Miner did not solicit any clients. The Court granted USI's motion and denied the defendants'. Under the September 30, 2003 Asset Purchase Agreement (APA), Miner sold USI the business and goodwill of fifty-seven clients and agreed not to solicit former USI clients for 24 months. New York law recognizes enforceability of non-solicitation covenants in employment agreements and imposes an implied covenant on sellers of goodwill to refrain from soliciting former customers indefinitely. Miner’s Employment Agreement similarly prohibited solicitation of USI accounts for two years post-termination, reinforcing the non-solicitation clause. The Court highlighted New York's definition of improper solicitation, which includes initiating contact or taking affirmative steps to reach out to former clients. The Court emphasized that a seller's contact with former clients is significant if they remain in the same industry, with targeted communications like mailings or phone calls to former customers qualifying as solicitation. Even if a former client initiates contact, if the seller promotes their new venture, it constitutes solicitation. The Court clarified that general advertising not directed at former clients does not count as solicitation, provided there is no non-compete clause. A seller may compete as long as they do not actively solicit past clients. Additionally, if a former client seeks factual information from the seller, responding within those specific bounds is permissible and not considered solicitation. In this case, Miner emailed his entire contact list, including USI clients and industry consultants, shortly after joining Insurance Office of America (IOA), explicitly stating his departure from USI and promoting his new role. This action was deemed an initiation of contact and relevant because Miner remained in the insurance sector. The email was viewed as active solicitation due to its content, which highlighted IOA's achievements and implied benefits for former USI clients to switch their business. Notably, Miner sent the email using contact information he had obtained from USI, which further violated the non-solicitation clause in his Employment Agreement and the implied covenant under New York law. Miner's email to former clients of USI was deemed an improper solicitation, as it promoted his new firm, IOA, by highlighting its commitment to exceptional service and outlining its accomplishments. The court found that this communication constituted solicitation under the law, contrary to Miner’s assertion that it merely responded to client inquiries. Consequently, USI's motion for partial summary judgment on this issue was granted, while Defendants' cross-motion was denied. Additionally, Miner claimed that the information he forwarded from his USI email to his personal account was not confidential or protected as a trade secret. However, the court rejected this argument, referencing the Employment Agreement which explicitly prohibits the use or disclosure of confidential information post-employment, unless in the normal course of business or with prior consent. The agreement delineates "Confidential Information" as proprietary details not publicly available, including client identities, contact information, servicing costs, policy specifics, and other sensitive client data. Miner's motion regarding this information was denied based on these provisions. Financial information, including internal records, profit and loss statements, and office memoranda, is subject to protection under New York law, particularly in the context of noncompetition agreements. These agreements are enforceable if they safeguard legitimate employer interests without imposing undue hardship on employees or conflicting with public policy. Recognized legitimate interests include trade secrets and confidential information, which are protectable only if misappropriated or inevitably disclosed by the employee. A "trade secret" is defined as any formula, pattern, or compilation of information that provides a competitive advantage and must be kept confidential. Customer lists developed with significant effort and maintained in secrecy can qualify as trade secrets, provided they are not easily ascertainable by others. The determination of whether information is a trade secret involves assessing factors such as its external knowledge, internal access, protective measures, business value, development costs, and the ease of acquisition by others. The primary question remains whether the information is indeed secret. In this case, the information Miner sent to his personal email, which includes client lists and associated revenue, is likely protectable as a trade secret. The record indicates that genuine issues of material fact exist regarding whether the information Miner emailed himself qualifies as a trade secret, focusing on the first, third, and sixth factors. USI consistently treated its client identity, insurance types, and policy terms confidentially, suggesting that the detailed internal communications Miner forwarded were not publicly accessible. USI took substantial measures to protect client information, including requiring confidentiality agreements, securing electronic data, and issuing a compliance manual, which supports the fifth factor in favor of USI. Additionally, significant effort would be needed to obtain the relevant client information, with Miner acknowledging his own lack of initiative in compiling it. Overall, USI's actions to maintain confidentiality of client information, including the specific documents Miner emailed, and the evidence provided create sufficient grounds to deny Miner's motion to declare the information non-confidential. USI's request for injunctive relief was challenged by Miner, who claimed USI had delayed unjustifiably, thus undermining its claims of urgency and imminent irreparable harm. The Court found Miner's assertions unsubstantiated, noting that procedural delays were not attributable to USI's actions. USI had obtained a temporary restraining order against Miner shortly after initiating the legal action, and the preliminary injunction hearing faced rescheduling due to mutual consent, not USI's fault. Consequently, the Court denied Miner's motion regarding undue delay, affirming USI's diligence in protecting its interests. In the conclusion, the Court ruled on various motions: it granted USI's motion asserting Miner did not comply with the Notice-of-Breach provision of the Employment Agreement and found that Miner solicited USI clients. It denied Miner's motions claiming the restrictive covenants were unenforceable, that USI caused undue delay, and that USI breached the Employment Agreement. Additionally, Miner's counterclaims for violations of Section 4.2 of the Employment Agreement were dismissed with prejudice. The document outlines a series of correspondence between USI and Miner regarding various legal and contractual issues arising from their Employment Agreement. Key points include: 1. **Confidential Information**: The Employment Agreement defines "Confidential Information" as proprietary data not publicly available, including client identities, key contacts, servicing costs, insurance policies, expiration dates, claims histories, and financial information. 2. **Annual Compensation Structure**: Miner received a $400,000 annual draw against commissions, with year-end "true-ups" determining any further compensation based on actual commissions earned. If commissions earned were less than the draw, Miner would need to repay the difference. 3. **Notice Provision**: Miner initially claimed to have provided notice via an email dated December 11, 2009, to key USI personnel. However, USI disputed the email's authenticity, leading Miner to withdraw it from consideration during a conference call on July 1, 2011. 4. **USI’s Stance**: In a letter dated June 23, 2011, USI indicated it would no longer prevent Miner from working for another company, IOA. 5. **Litigation Correspondence**: The document references multiple letters exchanged between the parties concerning issues of confidentiality, undue delay, and breach of the Employment Agreement, highlighting ongoing disputes and responses related to these matters. Overall, the correspondence reveals the complexities of the legal relationship between Miner and USI, particularly focusing on confidentiality, compensation, and communication issues. Miner has not provided sufficient justification for declaring the Employee Non-solicitation Agreement unenforceable, merely stating that no USI employees resigned, which does not impact the agreement's legal enforceability. The Court will focus on the Non-Solicitation and Confidentiality Agreements, dismissing Miner's claims about promoting company loyalty as unconvincing. Even if the Court finds the twenty-four month restriction excessive, it retains the authority to modify the terms of the restrictive covenant per Section 15.1 of the Employment Agreement. The classification of the disputed information as "confidential customer information" is addressed elsewhere in the document. Despite USI's characterization of Miner as a "top producer," it has not substantiated this claim with specific evidence. Miner's arguments regarding USI's inability to show irreparable harm due to lack of client solicitation are countered by the Court's finding that Miner did solicit clients, and USI's loss of goodwill remains unchallenged by Miner. Furthermore, Miner acknowledged the unique nature of his services in Section 9.1 of his Employment Agreement, which supports the agreement's enforceability if USI can demonstrate Miner's exceptional contributions or information misappropriation. The Court refrains from determining whether former USI clients left voluntarily for IOA, noting that clients can choose their service providers. However, this does not exonerate Miner's actions regarding his October 25, 2010 email, which may constitute improper solicitation. New York law supports an employer's right to protect clients acquired through its branding and resources, reinforcing the legitimacy of the agreements in question. In Section 7.5(g) of Miner’s Employment Agreement, he recognized USI's legitimate interest in safeguarding its client goodwill, which Miner helped create as an employee. His solicitation of these clients post-departure constitutes a breach of the implied covenant protecting goodwill. The defendants argue that the case of Bessemer is irrelevant since it pertains solely to the common law Mohawk doctrine, but this is incorrect. The court in Mohawk differentiated between non-solicitation covenants and non-competition agreements; however, this case involves enforcing an express non-solicitation covenant similar to the concerns raised in Bessemer. Miner acknowledges that his contact list contained clients he sold to USI. His defense, claiming that an email was not targeted because it included personal contacts, is dismissed as the focus remains on the solicitation of USI clients. While it may have been acceptable for Miner to notify former clients about his new employment, his email exceeded mere notification and amounted to solicitation per New York law. Additionally, a significant piece of evidence for USI’s claim involves an email sent from Miner’s USI address to his personal account, which was subsequently forwarded to parties at IOA. Attached was a spreadsheet titled "Miner_-2010_Estimated_Book_of_Business.xls," containing potentially confidential financial information about various companies. However, without further clarification on the data's specifics, the court cannot ascertain its confidentiality or public status.