plaintiffs' standard Contracts with their agents and of the terms of these Contracts. Defendants obtained their familiarity with plaintiffs' Contracts in many ways. First, several of defendants' key executives involved in recruiting plaintiffs' agents used to work as agents and managers for plaintiffs and thus themselves signed plaintiffs' Contracts containing restrictive covenants. In addition, defendants' executives testified during their depositions that defendants have asked for, and been provided with, copies of plaintiffs' Contracts by plaintiffs' agents. The evidence also shows that defendants regularly discussed plaintiffs' Contracts when recruiting plaintiffs' agents. Moreover, plaintiffs' Contracts also have repeatedly been brought to defendants' attention through suits such as Smithson.
For these reasons, we find that defendants had knowledge of plaintiffs' Contracts and the terms contained within.
c. Defendants' Intentional Procurement of the Breach and Justification
The uncontradicted evidence shows that, in order to induce plaintiffs' agents to divert plaintiffs' customers and their accounts away from plaintiffs to defendants, defendants tell plaintiffs' agents that their Contracts are unenforceable. For the same reasons, defendants alternatively tell plaintiffs' agents to violate their Contracts because it is unlikely that plaintiffs will legally pursue them. As such, defendants are inducing plaintiffs' agents to breach their Contracts. See Restatement 2d of Torts at sec. 766, comment k; In re Cutty's-Gurnee, Inc., 133 Bankr. 934, 966-67 (N.D. Ill. 1991).
Defendants also induce plaintiffs' more successful agents to breach their Contracts by providing attorneys and paying the agents' legal fees if plaintiffs sue them for their wrongful conduct. The uncontradicted evidence shows that defendants have provided their counsel to advise plaintiffs' agents, offered to provide representation should they be sued, and paid for counsel to represent these agents when plaintiffs have sued.
In one instance, defendants agreed to provide its lawyers to represent Jerry Wade, one of plaintiffs' most successful agents who resigned from plaintiffs to join defendants in September, 1994 in case plaintiffs sued him for diverting plaintiffs' customers to defendants. On August 19, 1994, an attorney at Smith, Campbell & Paduano in New York, defendants' regular counsel, wrote Wade to confirm that defendants agreed to provide that law firm and pay the firm's fees and costs in connection with the potential lawsuit that may be filed by IDS in connection with his commencement of employment with Royal. Additional evidence shows that in 1994 and 1995, defendants provided arrangements virtually identical to Wade's to several other of plaintiffs' agents prior to the agents' resignation from plaintiffs. See Kasanow Dep. Tr. (Ex. 59) at 100-02; Kaizerman Dep. Tr. (Ex. 58) at 135-36, 265; Wells Dep. Tr. (Ex. 65) at 141-44, 268-70; Eilefson Dep. Tr. (Ex 54) at 114-17.
Defendants contend that plaintiffs have not shown a likelihood of success on their tortious inducement claims because plaintiffs cannot show that defendants intended to induce every agent they hire to violate their obligations to plaintiffs through these offers of indemnification. Of course, plaintiffs have never alleged, and do not have to show, that defendants expressly intend to induce each and every one of the agents they hire from plaintiffs to violate his or her Contract. For injunctive relief, the issue is future wrongful conduct. Evidence exists that defendants are continuing their actions of inducing plaintiffs' agents to violate their Contracts through these offers of legal representation and payment of legal fees.
Defendants' offers of legal advice and payment of legal fees regarding plaintiffs' Contracts constitute unlawful inducement to breach. See Bailey v. Meister Brau, Inc., 378 F. Supp. 869, 878 (N.D. Ill. 1973), aff'd., 535 F.2d 982, 989 (7th Cir. 1976); Edward Vantine Studios, Inc. v. Fraternal Composite Service, Inc., 373 N.W.2d 512, 514-15 (Iowa App. Ct. 1985). Defendants' agreements regarding legal representation and payment of legal fees were intended to induce the agents to leave plaintiffs and divert plaintiffs' customers.
Defendants also induce plaintiffs' agents to violate their Contracts by directly supporting and facilitating that breach. For example, defendants edit and approve solicitation letters which plaintiffs' former agents send to plaintiffs' customers.
Such solicitations are prohibited by plaintiffs' Contracts. In some instances, the letters are approved by defendants while the agents are still working for plaintiffs in order to facilitate the agents' mass solicitation immediately upon their resignations from plaintiffs and before plaintiffs can contact their customers themselves. In some circumstances, defendants even provide the letter to send to plaintiffs' customers. Most agents defendants hire from plaintiffs solicit, within one year of joining defendants, those customers they serviced on behalf of plaintiffs. See Affidavit of B. Guarino (Ex. 11) at para. 2; Kaizerman Dep. Tr. (Ex. 58) at 199; Wells Dep. Tr. (Ex. 65) at 171-72; Eilefson Dep. Tr. (Ex. 54) at 119-20. Such solicitations violate the agents' Contracts with plaintiffs.
Defendants also provide inducements to plaintiffs' agents to violate their Contracts by means of other assistance, including instructions on how to transfer customers and how to obtain bonuses based on how much money they can move from plaintiffs in violation of the agents' Contracts. As such, defendants are inducing plaintiffs' agents to violate their contractual obligations. See American Republic Ins. Co. v. Union Fidelity Life Ins. Co., 470 F.2d 820, 824-26 (9th Cir. 1972); ISC-Bunker Ramo Corp. v. Altech, Inc., 765 F. Supp. 1310, 1338 (N.D. Ill. 1990).
That defendants' unfair competition is part of their corporate strategy is reflected in the manner in which they compensate those involved in the recruiting of plaintiffs' agents. Defendants have structured compensation systems for their recruiters and agents to provide incentives to these individuals to encourage plaintiffs' former agents to switch as much business as they can from plaintiffs in their first year with defendants. Defendants also reward existing agents who refer or recruit other agents from plaintiffs by paying the existing agent 2% of the first year's commissions of the new agent. Sinyard Dep. Tr. (Ex. 62) at 65.
For all of these reasons, we find that plaintiffs have proven a likelihood that defendants have intentionally procured plaintiffs' former agents to breach their Contracts with plaintiffs and that defendants actions are not justified.
As a consequence of the unlawful diversions of assets by defendants, plaintiffs have suffered the loss of millions of dollars of insurance policies and mutual fund investments. There is proof that because of defendants' actions, thousands of IDS insurance customers and American Express securities' customers have been diverted from plaintiffs to defendants. In a sampling of the accounts of customers formerly assigned to 72 agents who resigned from plaintiffs to join defendants, in excess of $ 150 million has been diverted from accounts formerly assigned to these agents in the last two years -- with more than $ 100 million of that amount being transferred in the past year.
As a result of defendants' wrongful conduct, plaintiffs also have suffered the destruction of the valuable long-term customer relationships. Meanwhile, defendants have benefited tremendously by their wrongful conduct through the new customers and new customer assets diverted from plaintiffs to defendants -- all at little or no cost to defendants.
On this record, we find that plaintiffs have shown a likelihood of prevailing on Count I for purposes of preliminary injunctive relief. See Brunswick Corp. v. Jones, 784 F.2d 271, 275 (7th Cir. 1986); Overholt Crop Ins. Service Co. v. Travis, 941 F.2d 1361, 1372 (8th Cir. 1991).
2. Lanham Act Violations
Section 43(a) of the Lanham Act provides:
Any person who, on or in connection with any goods or services, or any container for goods, uses in commerce any word, term, name, symbol, or device, or any combination thereof, or any false designation of origin, false or misleading description of fact, or false or misleading representation of fact, which--