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Penn Mutual Life Insurance Co. v. Rotter

United States District Court, N.D. Illinois, Eastern Division

March 23, 2018

PENN MUTUAL LIFE INSURANCE, COMPANY, Plaintiff,
v.
JONATHON ROTTER, JONATHON CORTEEN, RUSSELL HARTIG, ALEKSANDER DABROWSKI, and AMERICAN UNITED LIFE INSURANCE CO., Defendants.

          MEMORANDUM OPINION AND ORDER

          REBECCA R. PALLMEYER United States District Judge.

         Plaintiff Penn Mutual Life Insurance Company (hereafter “Plaintiff” or “Penn Mutual”) has sued four of its former employees, along with their new employer, America United Life Insurance Company (hereafter “AUL or “America United”), alleging breach of contract and tortious interference with contractual relations. According to Plaintiff, the Defendant-employees breached their employment contracts by enlisting, soliciting, or inducing other Penn Mutual agents and employees to alter their employment relationship with the company; by soliciting or servicing Penn Mutual policyholders for the purpose of inducing those policyholders to cancel, lapse, or fail to renew their policies; and by “interfering” with Penn Mutual's relationships with its customers. The individual and corporate Defendants have filed two separate motions for judgment on the pleadings, arguing that the contractual provisions at issue are unenforceable under Pennsylvania law. For the reasons explained below, these motions are granted in part and denied in part.

         BACKGROUND

         Penn Mutual, a Pennsylvania corporation with its principal place of business in Pennsylvania, sells life insurance, annuities, and other investment products. (Second Am. Compl. [56], at ¶¶ 1, 10.) All individual Defendants are citizens of Illinois and former employees of Penn Mutual. (Id. at ¶¶ 2-6.) Defendant America United Life Insurance Company (AUL) is incorporated in Indiana and has its principal place of business in Indianapolis.[1]

         From April 2009 until May 2017, Defendants Jonathan Rotter and Jonathan Corteen were employed by Penn Mutual as Managing Partners of the company's field offices in Tinley Park, Illinois, and Detroit, Michigan. (Id. at ¶ 11.) Penn Mutual's Managing Partners are charged with recruiting, selecting, and mentoring Sales Managers for their field offices, among other tasks. (Id. at ¶ 12.) Those Sales Managers, in turn, “recruit and subsequently support” a network of “independent agents, ” who sell Penn Mutual's products to customers and “report into” a designated Penn Mutual field office. (Id. at ¶¶ 10, 16.) According to Penn Mutual, a “key component” of its business success “has been its ability to recruit, develop, and retain agents with large portfolios of policyholders and clients. These agents serve as the primary point of contact between Penn Mutual and its policyholders and clients and develop a substantial amount of goodwill with the policyholders and clients.” (Id. at ¶ 15.)

         At the request of Rotter and Corteen, Penn Mutual hired Defendants Russell Hartig and Aleksander Dabrowski to work as Sales Managers at the field offices Rotter and Corteen managed. (Id. at ¶ 13.) Hartig was hired as a Sales Manager on or around April 1, 2009. (Id.) Dabrowski was hired as a Sales Manager on or around August 1, 2014. (Id.)[2] Together, the four individual Defendants in this case recruited and supported approximately 100 independent agents. (Id. at ¶ 14.) These 100 agents “manage[d]” approximately 4, 800 policies and contracts on behalf of Penn Mutual. (Id.)

         When Rotter and Corteen began their employment with Penn Mutual on April 1, 2009, they entered into “Managing Partner Contracts” with the company, which became effective on that date. (Id. at ¶ 18.) Section 16 of these contracts is titled “Trade Secrets; Agreement Not to Interfere with Penn Mutual Policies or Policyholders.” (Rotter Managing Partner Contract (hereafter “Rotter MPC”) § 16, Ex. A to Second Am. Compl.; Corteen Managing Partner Contract (hereafter “Corteen MPC”) § 16, Ex. B to Second Am. Compl.) Among other things, this section purports to prohibit certain conduct for a period of one year following the contract's termination. (Id. at § 16(b)(3).) Specifically, during that one-year period, Managing Partners agree to

refrain from (a) further solicitation or servicing of policyholders of Penn Mutual or any other insurance company in the Penn Mutual holding company system for the purpose of inducing or attempting to induce such policyholders to cancel, lapse or fail to renew policyholders' policy and/or contract with Penn Mutual; (b) enlisting any representative of Penn Mutual to act in any capacity for another insurance company, association, or society, and (c) interfering in any way during such one-year period with existing policies and policyholders of Penn Mutual or of any other insurance company in the Penn Mutual holding company system.

(Id.) These Managing Partner Contracts also include severability clauses stating that “[i]f . . . any provision of the contract is held under applicable law to be invalid, illegal or unenforceable in any respect, such provision shall be ineffective only to the extent of such invalidity and the validity, legality and enforceability of the remaining provisions of this contract shall not be affected or impaired in any way.” (Id. at § 19.) Section 20 states that the contracts “shall be construed and enforced in accordance with the laws of the Commonwealth of Pennsylvania without regard to choice of law principles.” (Id. at § 20.)

         Defendants Dabrowski and Hartig entered into Functional Sales Manager's Contracts with Penn Mutual on December 29, 2015, and January 8, 2016, respectively. (Second Am. Compl. ¶ 20.) Section 14 of these contracts is largely similar to Section 16 of the Managing Partner Contracts; it has the same title (“Trade Secrets; Agreement Not to Interfere with Penn Mutual Policies or Policyholders”), as well as the same language that appears in subsections 16(b)(3)(a) and (c) above. (Hartig Functional Sales Manager's Contract (hereafter “Hartig FSMC”) § 14(b)(3), Ex. C to Second Am. Compl.; Dabrowski Functional Sales Manager's Contract (hereafter “Dabrowski FSMC”) § 14(b)(3), Ex. D to Second Am. Compl.) Instead of a prohibition on “enlisting” representatives of Penn Mutual, however, Section 14 purports to bar the Functional Sales Managers, for a period of 18 months following termination of their employment, from “solicit[ing] or otherwise induc[ing] any employ or agent of Penn Mutual, including those who were affiliated within 12 months prior to termination of [the Functional Sales Manager's] agreement with the company, to terminate or otherwise change her/his employment or affiliation with the Company to join any business that directly or indirectly competes with Penn Mutual.” (Id. at § 14(b)(4).) These Functional Sales Manager's Contracts contain severability and choice-of-law provisions that are identical to those in the Managing Partner Contracts noted above. (Id. at §§ 16-17.)[3]

         On April 28, 2017, Hartig's wife, Kamala Hartig, then an Office Manager at Penn Mutual's Chicago office, “directed” an unidentified Penn Mutual employee “to send, by overnight delivery, an iPad maintained in the Chicago field office to Rotter and Corteen.” (Id. at ¶ 29.)[4]The employee “followed this directive and sent the iPad to Rotter and Corteen.” (Id.) According to Penn Mutual, the iPad “was primarily used”-it is not clear by whom-“in connection with recruiting agents and included information on potential agents being recruited, as well as evaluations of current agents.” (Id.)

         At 8:16 a.m. on May 1, 2017, Defendants Rotter and Corteen simultaneously informed Penn Mutual of their resignations via e-mail. (Second Am. Compl. ¶ 22.) On May 4, 2017, Defendants Hartig and Dabrowski “announced their resignations from Penn Mutual effective immediately.” (Id. at ¶ 23.) Also on May 4, Kamala Hartig resigned from her position as Office Manager at Penn Mutual's Chicago office. (Id.)[5]

         Penn Mutual “subsequently learned”-it is not clear exactly when or how- that all four individual Defendants “informed Penn Mutual agents that they were joining [America United], a direct competitor of Penn Mutual in [the] field of life insurance, annuities, and investment products.” (Id. at ¶ 24.) According to Penn Mutual, an unidentified Penn Mutual employee “has reported that she spoke with Corteen after his resignation, and he encouraged her to e-mail the [America United] website and that he would then tell her about potential new positions there.” (Id. at ¶ 27.) An unidentified agent, Plaintiff continues, “has announced his intention to leave Penn Mutual to join Rotter, Corteen, Dabrowski, and Hartig at [America United].” (Id. at ¶ 28.) This same agent “also reported that he would be taking his business to [America United] and that Rotter and Corteen were trying to recruit people from Penn Mutual.” (Id.) According to Penn Mutual, “at least six of Rotter's former Penn Mutual accounts have either lapsed or surrendered their life insurance policies” since Rotter left the company. (Id. at ¶ 31.) At least eight of Corteen's, five of Dabrowski's, and six of Hartig's “former Penn Mutual accounts” have done the same.[6] (Id. at ¶¶ 32-34.)

         On May 5, 2017, Penn Mutual mailed nearly identical letters to all four individual Defendants, “remind[ing]” them “of their contractual obligations to Penn Mutual, including their obligations to not solicit Penn Mutuals' [sic] agents and employees.” (Id. at ¶ 31; Letter of May 5, 2017, Exs. G, H, I, J to Second Am. Compl.) The letter also expressed concern that the individual Defendants were “presently using, or planning to use, [Penn Mutual's] confidential and trade secret information in a competitive and unlawful fashion.” (Letter of May 5, 2017.) An attorney representing Rotter and Corteen apparently obtained a copy of this letter on the same day it was mailed, and e-mailed a response to Penn Mutual later that afternoon. (E-mail of May 5, 2017, Ex. K to Second Am. Compl.) This e-mail stated that Rotter and Corteen would return the only “Penn Mutual files” in their possession, which were “the files of their family members that they possessed when they each resigned.” (Id.)[7] The e-mail also stated that Rotter and Corteen were “aware of the terms and conditions of the Managing Partner Contract that they executed.” (Id.) The attorney's response, however, “did not confirm that [Rotter and Corteen] would abide by those terms and conditions.” (Id.)

         Penn Mutual filed this lawsuit on May 11, 2017, asserting claims of breach of contract and tortious interference with contractual relations. (Compl. [1].) The company seeks injunctive relief and compensatory damages from all Defendants, as well as punitive damages from America United.[8] The individual Defendants and America United filed separate answers [17, 23] to Plaintiff's First Amended Complaint [6], and then filed two separate motions for judgment on the pleadings [24, 27]. While these motions were pending before the court, Penn Mutual filed a Second Amended Complaint [56], which included additional allegations regarding the cancellation of certain Penn Mutual accounts following the individual Defendants' resignations. Defendants have notified the court [54, 55] that they will not seek leave to amend their motions in light of the Second Amended Complaint.

         DISCUSSION

         Motions for judgment on the pleadings under Rule 12(c) of the Federal Rules of Civil Procedure are governed by “the same standard” as motions to dismiss under Rule 12(b)(6). Buchanan-Moore v. Cty. of Milwaukee, 570 F.3d 824, 827 (7th Cir. 2009). To survive either motion, a plaintiff's complaint must “state a claim that is plausible on its face.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007). The court may consider exhibits attached to the complaint to determine whether this requirement is satisfied. Segal v. Geisha NYC LLC, 517 F.3d 501, 504-05 (7th Cir. 2008). Although the court must construe the complaint “in the light most favorable to the nonmoving party, accept well-pleaded facts as true, and draw all inferences in [the nonmoving party's] favor, ” Berger v. Nat'l Coll. Athletic Ass'n, 843 F.3d 285, 290 (7th Cir. 2016), it need not accept “threadbare recitals of a cause of ...


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