Two brothers in Utah sold their independent insurance agency to another agency that later sold to a third one in Illinois. After the brothers alleged that neither of the other agencies lived up to the terms of the deals, everyone ended up in court.
The brothers ran their own agency until August 2017 with one brother as the principal and the other as a producer. That month the principal sold the agency’s assets to another Utah agency and both men signed employment agreements with the buyer. The buyer signed a promissory note promising to pay $2,500,000 for the agency over a 180-month period, plus 5% annual interest. The former principal assumed a senior officer role and the other brother became a producer for the buyer.
The brothers now claim that the buyers did not meet their financial obligations under the sales agreement. They also charged that the buyers improperly withheld commissions they earned in 2017 and 2020.
In August 2020, an Illinois agency purchased the assets of the merged agency. The deal was contingent on the merged agency retaining both the brothers as agents and their clients. The brothers signed producer contracts with the new agency that included non-competition and non-solicitation agreements. The individuals who initially purchased their agency allegedly told them that this second sale would have no effect on the outstanding balance from the first sale. The brother who had owned that agency claimed that this was false. Both brothers again alleged that the other two individuals withheld their commissions in 2020 and 2021.
The brother who had been the owner left the new agency in May 2021. The other brother stayed on until late 2022 when, he claimed, the agency fired him for demanding that it pay him the withheld commissions. Also, the new agency in 2022 made false statements to the brothers’ clients about the brothers having committed “insurance malpractice.”
In February 2023, the new agency sued the two brothers in federal court in Illinois for allegedly breaking the non-competition and non-solicitation agreements after their employment ended. That summer, the brothers countersued the new agency and the former owners of the agency that purchased them for violating Utah wage payment law, firing the one brother in retaliation for his demand for unpaid commission, interfering with their client relationships, and conspiracy. The other agency moved for the court to dismiss the case and the brothers moved to have it transferred to a federal court in Utah.
Neither side was likely pleased with the judge’s decision in March 2024. He dismissed several of the brothers’ claims, declined to transfer the case to Utah, and left the new agency’s breach of contract claim against them in place. However, he also left two of the brothers’ claims in place.
Specifically, he allowed the claims for violation of the wage payment act and interference with client relationships to proceed. The wage payment law violation claims were plausible, he ruled. Regarding the interference claim, he noted, “(The brothers) specify client relationships disrupted by (the agency’s) conduct and specify alleged false statements made by agents of (the agency) to specific clients.” He held that those specifics justified allowing the claim to proceed.
As the judge rendered this decision only three months ago, there is no final resolution. It seems likely that all sides will negotiate a settlement to avoid going to trial.
Unfortunately, the sale of an agency may sometimes go sour. The sellers’ error was in agreeing to finance the purchase through a promissory note between buyer and seller. That left the sellers assuming the risk that the buyer would renege. A better course would have been to require the buyers to obtain third-party financing from a bank or other lender. A commercial lender would have been in a better position to assume that risk.
When an agency negotiates its sale, the purchase price is certainly of great importance. However, as this case shows, the structure and terms of the deal weigh heavily on its future success.
