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AMERICAN HARDWARE MUT. INS. CO. v. MORAN

July 20, 1982

AMERICAN HARDWARE MUTUAL INSURANCE COMPANY, PLAINTIFF,
v.
JOHN P. MORAN, ET AL., DEFENDANTS.



The opinion of the court was delivered by: Shadur, District Judge.

MEMORANDUM OPINION AND ORDER

American Hardware Mutual Insurance Company ("American Hardware") has sued John P. Moran ("Moran") and Frank B. Hall and Co. of California ("Hall") for antitrust violations (Counts I and II), breach of a covenant not to compete (Count III) and various acts of unfair competition (Counts IV and V). American Hardware moved for a preliminary injunction on Count III*fn1 and this Court conducted an evidentiary hearing. In accordance with Fed.R.Civ.P. ("Rule") 52(a) this memorandum opinion and order reflects the Court's findings of fact and conclusions of law. For the reasons stated in this opinion American Hardware's motion for a preliminary injunction is denied.

Findings of Fact ("Findings")

Although there were no serious factual disputes at the hearing, none of the following Findings should be taken as ultimate findings of fact.*fn2 Based on the evidence adduced at the hearing, however, the Court finds (and to the extent the Conclusions later in this opinion also contain references to, and inferences from, the evidence, they are intended to constitute Findings as well):

1. American Hardware is a Minnesota corporation with its principal place of business in Minneapolis. It is in the business of selling insurance and specializes in selling package insurance plans to businesses. It carries on part of its business in Illinois.

2. Hall is a California corporation also engaged in the business of selling insurance. Its only business is the sale of package insurance plans to auto, truck and motorcycle dealers. It regularly sells in the State of Illinois.

3. American Hardware hired Moran in January 1977 to sell insurance in the Illinois counties of Cook, DuPage, Kane, Lake and McHenry. Moran was one of a number of American Hardware salesmen sharing that territory on a non-exclusive basis.

4. Moran had no prior experience in selling insurance (though he had been a successful salesman) but received training from American Hardware. That training included a five-week period of schooling in the basics of commercial insurance, in part to enable Moran to take certain certification exams, as well as early on-the-job training by experienced American Hardware salesmen. In principal part the training imparted to Moran the general skills of carrying on the selling of commercial insurance, not matters unique to American Hardware and its business.

5. At all times since February 11, 1977 Moran worked under a written employment agreement in American Hardware's printed form, which contained a restrictive covenant in the event Moran should cease working for American Hardware. In the most recent employment agreement (signed about September 1, 1981) Moran (the "Field Representative") and American Hardware (the "Employer") agreed:

  6. Any and all insurance business procured by or
  allocated to the Field Representative while in the
  employ of the Employer, and the expiration and
  renewal rights thereto, shall be the permanent and
  exclusive property of the Companies and shall be for
  the Companies' exclusive benefit. In this connection
  the Companies shall have the exclusive right, title
  and interest in and to all materials, services, and
  information pertaining to such business, whether in
  the possession of the Field Representative or the
  Companies, including but not by way of limitation,
  all records of insurance policies, manuals,
  communications, sales and promotion materials,
  telephone listings, secretarial and telephone
  services, policy expiration dates, and the names,
  telephone numbers and addresses of existing or
  prospective policyholders. On termination of Field
  Representative's employment, all such materials,
  services and information shall be immediately
  surrendered to the Employer, whether provided by the
  Companies or prepared by the Field Representative,
  and will not thereafter be used by Field
  Representative.
  7. During his or her employment and for a period of
  two years following the date of termination of his or
  her employment with the Employer, the Field
  Representative will not engage directly or
  indirectly, personally or through any other person in
  any of the following prohibited activities:
    (a) The Field Representative will not in any way
  attempt to effect the discontinuance of the
  Companies' insurance business, or attempt to effect a
  renewal or replacement of any part thereof by another
  insurer: (1) within the territory assigned hereunder;
  (2) within any other territory assigned or worked by
  him or her for the Employer within two years prior to
  the date of termination of employment, whether
  employed as a Field Representative or in any other
  capacity with the Companies;
    (b) The Field Representative will not, on his or
  her own behalf or for any other insurer, agent,
  broker or salesman, accept or effect the placement of
  any renewal or replacement in whole or in part of any
  insurance being provided by the Companies: (1) within
  the territory assigned hereunder; (2) within any
  other territory assigned to or worked by him or her
  for the Employer within two years prior to the date
  of termination of employment, whether employed as a
  Field Representative or in any other capacity with
  the Companies;
    (c) The Field Representative will not divulge to
  any person of the information described in section 6
  above with respect to the Companies' existing or
  prospective policyholders;

6. During his tenure with American Hardware Moran became particularly successful in marketing a "package policy" to automobile, truck and motorcycle dealers. Moran was able to develop about 70 commercial accounts of which over 40 were vehicle dealers. All but one of those dealer accounts came from "cold calls" by Moran or from other sources originating with Moran's efforts. They did not come from existing American Hardware accounts when Moran was hired, or even from leads obtained from American Hardware. Even the one exception was a company lead that became a customer through Moran's efforts, for he was successful in getting the customer's business only in the third year he worked on trying to sell the account.

7. Moran quickly became one of American Hardware's most successful salesmen and therefore one of the highest earners among its salesmen, because his compensation was entirely on a commission basis. During the past one and one-half years, competition in the insurance lines in which Moran had come to specialize became very keen. American Hardware took a firm stand on retaining its rate structure without adjustment, while its competitors were cutting their rates. Indeed American Hardware put a substantial rate increase into effect April 1, 1981.

8. Moran thus found American Hardware rates had become 20% to 40% higher than those of its competitors. Competition in the commercial insurance field is highly rate-sensitive, with most customers unwilling to stay with an insurance agent if the product he is selling costs considerably more than what is available from competitors. As a result Moran's commissions declined sharply in 1981.

9. In January 1982 Moran terminated his employment with American Hardware effective February 1. Moran immediately took a position with Hall selling package policies to auto, truck and motorcycle dealers in the Illinois area.

10. Before Moran left American Hardware he advised them he would be joining Hall. Moran scheduled his departure to facilitate American Hardware's transition in handling the business, introduced his supervisor to the most important accounts (there had been no prior contact by other American Hardware personnel with such accounts), and took all reasonable steps to maximize American Hardware's ability to serve those accounts if they wanted to remain with American Hardware.

11. Since leaving his employment with American Hardware Moran has communicated with some 20 of his former accounts (he did so on his own initiative only after Hall advised him it believed the American Hardware restrictive covenant was unenforceable). To date, Moran has sold insurance policies to 12 vehicle dealers previously insured by American Hardware. Several of those dealers, however, sought out Moran before he solicited their business. Customer loyalty and goodwill in the business in which Moran engages inheres in the individual handling the account rather than in the insurer whose policy is being sold.

12. At the time he left American Hardware's employ, Moran took with him several production reports, monthly reports reflecting the sales generated by him as a salesman. Those reports contain general information about the policies written, their expiration dates and premiums. Moran has not, however, looked at those reports or used them for solicitation of customers since leaving American Hardware's employ. His reason for retaining them was to be able to check on American Hardware's payment, after his departure, of commissions due him on such sales. Moreover under the circumstances of the business involved, neither the nature of the policy coverage nor the premium is "confidential information."

Conclusions of Law ("Conclusions")

Our Court of Appeals has again recently restated the well established criteria to be applied in determining the propriety of preliminary injunctive relief in Machlett Laboratories, Inc. v. Techny Industries, Inc., 665 F.2d 795, 796-97 (7th Cir. 1981).*fn3 As ...


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