By: AgencyEquity.com
Bitter litigation resulted when a pair of California independent insurance agents left the company with which they were affiliated and tried to take some of their colleagues with them.
The business is a platform that offers markets and products for its member independent agents to sell, primarily in life insurance and other financial services. Members can access these products from the company and from its affiliated agencies around the country. Agents who join can also recruit other agents who will work under them. The company refers to this structure as the “hierarchy.” Agents within the hierarchy receive commission overrides. An individual agent’s affiliation with the company is public information, but his place in the hierarchy and his relationship with other agents in that hierarchy is not. The company considers this to be confidential information.
Each year, the company requires its agents to sign an agency agreement that includes non-solicitation, confidentiality, and non-disparagement provisions.
One particular agent began working with the company in 2003. Over the next two decades, he rose in his hierarchy to the “Field Chairman” rank and earned millions of dollars. At some point, he decided to cobrand his hierarchy under a unique name. Also, he married a fellow company agent and she moved into his hierarchy.
In the fall of 2023, for reasons the company professed not to understand, he attempted to move his hierarchy so that it would be under his wife’s name. The company blocked this move. His wife then quit the company and formed a limited liability company a week later. According to the company, the couple then started recruiting other company agents and their agent spouses to join their new company. The company accused them of using “confidential and proprietary compensation and organizational data” to target potential recruits.
In January 2024, the company sued the couple and sought a temporary restraining order against them and 50 other unnamed individuals. The court denied the request for a restraining order but granted a request for extradited evidence gathering. In February, the couple moved to have the suit dismissed and the company responded by suing three additional individuals. The couple filed their own lawsuits against the company which this article will not report on. The court held hearings in May.
The judge’s decision in July 2024 likely left neither side satisfied. He held that the non-solicitation agreement was invalid under California law because it prohibited the couple from doing their chosen business (recruiting) for two years after employment. However, he declined to void the confidentiality and non-disparagement provisions. While he refused to dismiss the company’s breach of contract suit based on the confidentiality provision, he did dismiss the suit on the non-disparagement provision because he found the company’s claim to be vague.
Further, he dismissed the suit alleging that the couple interfered with the company’s contracts with other agents and fraud, again because he found the claims vague. He also dismissed the claim that the couple improperly converted the company’s confidential information, that they engaged in a conspiracy, and that they unjustly enriched themselves. However, he rejected their claim that the company engaged in unfair competition.
Lastly, he allowed the company to reargue the claims he rejected because they were vague if they can provide more specific information. He gave them until early August to do so. The opinion leaves a lot of questions unanswered, such as why the couple sought to have their hierarchy changed, why the company’s rejection of that move was a deal breaker for them, and what may have occurred over the years to motivate them to break away. However, the case illustrates the perils of agents leaving an organization and attempting to take their colleagues with them. Many agencies use producer contracts that may restrict an agent’s ability to do this. At the very least, such an attempt can get very ugly and tie all sides up in undesired litigation. An agent thinking of departing to start his own agency should be aware of the potential consequences
