Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

Freedman v. American Guardian Holdings, Inc.

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

August 22, 2019

STEVEN E. FREEDMAN and KATE FREEDMAN, as Trustees of the STEVEN AND KATE LIVING TRUST DATED APRIL 20, 2005, Plaintiffs,
v.
AMERICAN GUARDIAN HOLDINGS, INC., an Illinois corporation, Defendant. AMERICAN GUARDIAN HOLDINGS, INC., an Illinois corporation, and AMERICAN GUARDIAN WARRANTY SERVICES, INC. an Illinois corporation Counter Plaintiffs,
v.
STEVEN E. FREEDMAN, individually and as Trustee of the STEVEN AND KATE LIVING TRUST DATED APRIL 20, 2005 Counter Defendant.

          MEMORANDUM OPINION AND ORDER

          HON. JORGE ALONSO, UNITED STATES DISTRICT JUDGE

         Defendant/counter-plaintiff American Guardian Holdings, Inc. (“AGH”), moves for summary judgment on its Second Amended Counterclaim, contending that plaintiff/counter-defendant Steven Freedman materially breached the restrictive covenants of their settlement agreement. For the reasons set forth below, the motion is denied.

         BACKGROUND

         AGH sells vehicle service contracts, also known as extended warranties, to retail car purchasers through the finance and insurance (“F&I”) departments of car dealerships across the country. (Freedman LR 56.1 Resp. ¶ 5, ECF No. 307.) In 2011, Freedman, who then owned a recreational vehicle insurance brokerage and has held interests in a number of insurance-related companies throughout his career, invested $4.5 million in AGH. (Id. ¶ 7; AGH LR 56.1 Resp. ¶ 2, ECF No. 328.)

         On November 17, 2016, intending to redeem his shares in AGH, Freedman met with Rogers Freedlund, AGH's chief executive officer (“CEO”) and majority shareholder, to discuss a share price for the transaction. (Freedman LR 56.1 Resp. ¶ 10; AGH LR 56.1 Resp. ¶ 8.) The parties do not agree on what happened at the November 16 meeting. Freedman claims to have accepted a written offer setting forth specific terms based on a specific valuation of AGH. But according to AGH, Freedman “tentatively agreed to a proposed valuation of [his] shares that would become part of a full redemption agreement, to be negotiated and agreed upon” at a later date. (Freedman LR 56.1 Resp. ¶ 10 (emphasis added); see AGH LR 56.1 Resp. ¶ 8.)

         The parties wrangled over the final deal terms in the following weeks, but when they could not reach agreement, Freedman filed this suit, seeking to enforce the terms of the November 17, 2016 agreement. (AGH LR 56.1 Resp. ¶ 11.) AGH counterclaimed, asserting that Freedman had breached duties and obligations owed to AGH by surreptitiously competing against the company and diverting business opportunities, including by setting up American Integrity Insurance Solutions, Inc., a personal and commercial insurance lines agency for his son, Max, to run as president and CEO. (Freedman LR 56.1 Resp. ¶ 14, see Id. ¶ 9; AGH LR 56.1 Resp. ¶ 6.)

         Following a settlement conference before Magistrate Judge Rowland in July 2017, the parties reached a settlement agreement, which they executed on October 2, 2017. (Freedman LR 56.1 Resp. ¶¶ 15-16; AGH LR 56.1 Resp. ¶ 13.) The agreement required AGH to pay Freedman $15 million and Max $1.5 million on October 13, 2017, and to provide Freedman with two notes, one for $12 million, payable in three installments of $4 million due on October 13, 2018, October 13, 2019, and October 13, 2020, and the other for $3 million due on October 13, 2021. (AGH LR 56.1 Resp. ¶ 14.) The agreement contains certain restrictive covenants, including non-competition, non-solicitation, and non-interference provisions, “without [which AGH] would not [have] enter[ed] into [the] Agreement.” (AGH LR 56.1 Stmt. Ex. 16, Confidential Redemption, Settlement and Mutual General Release Agreement (“Settlement Agreement”), § 2(A), (B), ECF No. 289-16.) The provisions restricting Freedman's business activities read as follows:

(iii) Covenant Not To Compete. In furtherance of this Agreement, . . . the Freedmans covenant and agree that, during the Restricted Period [of three years for Max and four for Freedman], they will not, either individually or together, nor will they permit any of their employees or affiliated companies, to, directly or indirectly, individually or as an investor, lender, owner, security-holder, partner, member, director, manager, officer, employee, consultant, representative, or agent of any other person or entity: (a) engage in the [vehicle service contract] Business in the Territory [of the United States]; (b) invest in any entity that is engaged in the Business in the Territory or that is or may reasonably be considered to be competitive with the Business or any portion thereof in the Territory; (c) provide services, or receive any compensation, consideration, discount, revenue or other compensation or economic benefit, in connection with the efforts of any person or entity to engage in the Business in the Territory or any business that may reasonably be considered to be competitive with the Business, or any portion thereof, in the Territory.
(iv) Non-Solicitation. Without limiting the generality of the provisions of Section 2(A)(iii) above, the Freedmans hereby covenant and agree that during the Restricted Period they will not, nor will they permit any of their employees or affiliated companies to, directly or indirectly: (a) Do business with any person or entity that was a Company Group agent, marketing representative or Covered Dealer within the one-year period beginning on October 14, 2016 and ending on the Initial Payment Date, or from any successor in interest to any such person or entity; or (b) Solicit any person or entity that was a Company Group agent, marketing representative or Covered Dealer within the one-year period beginning on October 14, 2016 and ending on the Initial Payment Date, or from any successor in interest to any such person or entity, for the purpose of securing any business.
(v) Interference with Relationships. During the Restricted Period, the Freedmans shall not directly or indirectly (including through an entity they own or for which they work) employ, engage, recruit, solicit, contact or approach for employment or engagement, any person or entity that, on or within the one (1) year period immediately preceding the Initial Payment Date, served as (A) a vendor that is material to the conduct of the Company Group's business, or (B) an employee or independent contractor of the Company Group, or otherwise seek or attempt to influence or alter any such person's or entity's relationship with the Company Group.

(Id. § 2(A).) Max is bound by similar covenants. (Id. § 2(B)(i-iii)).

         In October 2017, Max Freedman attended a trade show as part of an effort to connect Capital Benefits Group, Inc., an “agency representing life, health, and property-casualty products to corporations” (AGH LR 56.1 Stmt. Ex. 43, Capital Automotive Rule 30(b)(6) Dep. at 43:6-7), with Route 66, an association of approximately 150 recreational vehicle dealerships that operates as a buying cooperative, about offering the “TravaDoc” product at Route 66 dealerships. (Freedman LR 56.1 Resp. ¶ 52.) TravaDoc was a subscription service that provided telephone access to a physician. (Id.) Capital Benefits Group is one of the Capital Companies, a group of insurance-related businesses owned and controlled by Rick Hughes. (Id. ¶¶ 52, 61.) The Capital Companies also include Capital Automotive, Inc., which is an AGH agent, meaning that it sells vehicle service contracts to automobile dealers on behalf of AGH. (Id.) Rick Hughes attended the trade show with Dan Archer, a Capital Benefits Group employee, where they met with Max Freedman. (Id.)

         On November 9, 2017, Bob Shepard of the Capital Companies sent Max a Referral Agreement between AIIS and Capital Benefits Group, as well as an Agency Agreement between AIIS and Capital Processing Systems. (Id. ¶ 53.) Max did not sign and return the Agency Agreement, but he did sign and return the Referral Agreement, which provided that AIIS got a “$3 referral fee per TravaDoc [subscription] for representing that product.” (Id. ¶¶ 53-54.) No. evidence confirms whether AIIS ever received payment of any fees for TravaDoc subscriptions under the Referral Agreement, and if it did, the amount would have been vanishingly small, perhaps less than “a hundred dollar[s]” (AGH LR 56.1 Stmt. Ex. 39, Rick Hughes Dep. at 81:3-7, ECF No. 290-9), as Capital Benefits Group quickly discontinued the product due to low sales. (Freedman LR 56.1 Resp. ¶ 52.)

         In December 2017, Shepard and Freedman corresponded about an opportunity for Freedman to invest in a Capital Companies product that included vehicle service contracts. (Id. ¶ 58.) Freedman was initially interested, but he “wasn't sure” whether he could accept the opportunity without violating the Settlement Agreement, and ultimately, after consulting with counsel, he declined to invest. (Id. ¶ 59.) Freedman also maintained contacts about business opportunities with AGH employee Bob Feinen and Capital Companies employee Michael Fischer, but the record of his communications with those employees is incomplete due to Freedman's practice of deleting communications soon after reading them as a matter of course. (Id. ¶¶ 40-45.)

         In late 2017 and early 2018, Del Healy, an AIIS sales representative, appeared to collaborate with Dan Archer on selling garage liability and garagekeepers workers' compensation insurance products to car dealerships. (Id. ¶¶ 63-64, 74.) Specifically, Healy and Archer corresponded via email about quotes for the Kevin Powell dealerships and Folger Automotive/Williams Buick GMC (id. ¶¶ 72-73), and Healy submitted an expense report for taking the chief financial officer of Riverside Chevrolet in Jacksonville, Florida, out to lunch in December 2017 for the purpose of “looking at prospect[s] for Garage Insurance for Capital Companies” (id. ¶ 74). All three dealers are on the Settlement Agreement's list of “Covered Dealers, ” i.e., dealers who fall within the scope of the agreement's restrictive covenants because they are AGH customers.[1] (Id. ΒΆΒΆ 73-74.) Neither Healy nor anyone else at AIIS ever actually obtained or prepared ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.