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February 25, 1994



Rehearing Denied April 25, 1994. Released for Publication June 7, 1994.

Mcnamara, Egan, Giannis

The opinion of the court was delivered by: Mcnamara

JUSTICE MCNAMARA delivered the opinion of the court:

On August 8, 1987, Michael A. Sobel and MAS Insurance Consultants, Inc. (collectively referred to as "Sobel") filed a complaint for accounting and other relief against Leonard H. Franks and Leonard H. Franks C.P.C.U. & Associates (collectively referred to as "Franks"). Sobel subsequently filed a first amended complaint at law. The matter proceeded to a jury trial on the following six counts: breach of an oral agreement, unjust enrichment, conversion, interference with anticipated economic relations, unfair competition and, against Leonard Franks, individually, participation in tortious acts. The trial also proceeded on the counterclaim of Franks against Sobel. At the close of Sobel's case, the trial court granted Franks' motion for directed verdict with respect to all counts. On his own motion, the trial Judge dismissed Franks' counterclaim. Sobel's post-trial motion was subsequently denied by the trial court. Both parties appeal. The facts follow.

In September 1962, following his graduation from college, Sobel entered the insurance business, working at Franks' agency (the "Agency") selling personal, life and commercial lines of insurance which were placed by Franks. The parties agreed that in exchange for Franks providing Sobel with a desk, office furniture, supplies and a telephone, the necessities of the business, Sobel would give Franks 50% of the gross commissions from every insurance policy that he solicited and sold. In the beginning, Franks personally trained Sobel by taking him on sales calls, giving him advice and sending him to seminars. After approximately six months, Franks hired and paid the Welcome Wagon to provide leads. After several years, they stopped using the Welcome Wagon because Sobel had a sufficient book of business and enough referrals and contacts of his own. Until December 1985, Franks was available to Sobel as a resource, helping him when asked.

In 1968, the Franks business was transferred to Leonard H. Franks C.P.C.U. & Associates, Inc. Sobel represented this entity until 1986 when he transferred his rights to MAS Insurance Consultants, Inc.

The accounts generated by Sobel were designated the "M Accounts," while those generated by Franks were captioned "L Accounts." The M Account clients made their premium payments to the Agency. Payments received for M Account policies were deposited into a separate account known as the M Account premium fund trust. From September 1962 to January 1987, a monthly statement was prepared, generally by Sobel, which reflected the commissions paid on that account as well as the proportional amount of expenses to be paid by Sobel and Franks. These statements were used to determine the amount of money owed to Sobel at the end of each month. Initially, Franks provided Sobel with office space and paid for his support staff and business expenses. As Sobel's business grew, however, Sobel either paid for or shared additional expenses, including payroll for added employees, with Franks.

Throughout his association with Franks, Sobel considered himself to be a sole proprietor and consistently filled out his tax returns as such for the years 1962 to 1986. Franks' actions served to confirm Sobel's beliefs, where, in 1963, when Sobel asked Franks to help him prepare his tax return after their first year of association, Franks told him, "No, you are not a partnership, you're self-employed." Furthermore, at no time during their relationship did Franks withhold taxes from Sobel or supply him with a W-2 or 1099 form. In addition, Sobel paid 100% of his social security taxes.

In 1986, Sobel formed MAS Insurance Consultants, Inc. ("MAS"), transferring his rights to receive commissions to the corporation. Initially, Sobel's M Account business grew slowly, but by February 1987 it had flourished to over 800 customers. Sobel's business became so successful that in 1986, the M Account gross commissions were approximately $414,000. Although Sobel would lose an estimated five to ten percent of his clients annually due to normal attrition, there was enough new business to offset the attrition such that his gross commissions continued to rise throughout the years 1962 to 1986. By the time his association with Franks had come to an end, Sobel had four to five employees with a gross payroll in excess of $60,000.

Although their relationship remained somewhat harmonious for approximately 22 years, certain points of contention arose between the parties by late 1985 regarding the commission split and the payment of related expenses. In late 1985, Sobel wanted to change the arrangement he had with Franks. Although Sobel and Franks negotiated over possible new terms, they did not reach an agreement.

When it became obvious that the parties could not resolve their differences, Franks told Sobel, "This is not going to work. I want you to leave. I want you to get out. I'll help you find another agency." They agreed to continue the relationship until Sobel found a new agency, but no later than December 1987. They also agreed that during this two year period, neither of them would contact M Account clients to tell them of the proposed change. In fact, on January 23, 1987, Sobel wrote to Franks stating:

"This will confirm that I intend to purchase within the next thirty days, your half interest in our joint account, commonly known as the 'M Account', on fair terms which are mutually satisfactory.

In the interim, I will not communicate our expected separation to the M Account clientele in the expectation that when the agreement is reached, a joint announcement will be sent out to accomplish an orderly transition."

This letter was admitted into evidence over objection, but was not given to the jury. At trial, counsel for Franks asked Sobel's expert Tim Cunningham, a principal with Hales & Associates, a national financial and management consulting firm which deals exclusively with insurance agents and brokers, to read the letter to himself. The following exchange between them then took place:

Q: "If you had seen that letter prior to giving -- to forming the opinion that you reached in this case, might your opinion have been different concerning the ownership of these accounts?

A. Maybe yes. Maybe no.

Q. So it might have been different?

A. Anything's possible."

Despite the fact that Franks told Sobel, "I'll do whatever I can to make the transition extremely smooth," this allegedly did not occur. On February 20, 1987, Sobel received a telephone call from one of his attorneys informing him that Franks was going to lock him out of his office at the end of that day. Sobel testified that he was devastated. After a quarter of a century, he was being evicted from the building which housed the only job he knew. Moreover, he was 25% owner of the building. Franks owned the remaining interest.

In addition to locking Sobel out, Franks refused to turn over the more than 800 M Account files which allegedly prevented Sobel from servicing his clients. Sobel was also denied access to, use of and compensation for the computer which he had jointly purchased with Franks. Sobel testified that the computer contained information regarding "policies, policy numbers, insurance companies, limits, premiums, all -- a wealth of data on the M-account clients."

Many of the policies sold to the M Account clients typically generate renewal or service commissions as long as the policies remain in effect. Nevertheless, Sobel has not received any of the M Account commissions paid to the Agency since being locked out.

Despite this, Sobel was able to salvage some of his M Account business subsequent to being locked out. However, the amount of gross commissions Sobel generated from those M Account clients plummeted from $414,000 in 1986, his last full year with Franks, to approximately $140,000 in ...

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