Opinion
No. CV 04 4000576
December 2, 2004
MEMORANDUM OF DECISION
The plaintiff, The Sanford Hall Agency, Inc., is a Connecticut insurance agency with its principal place of business in Avon, Connecticut. The plaintiff brings together insurance carriers and persons in need of insurance. On July 13, 2004, the plaintiff filed with the court an application for a temporary injunction against the defendants, Lynne M. Dezzani and Sinclair Insurance Group, Inc. Dezzani was employed by the plaintiff as a personal lines salesperson from 1990 until the time she accepted a position with the defendant, Sinclair. The defendant Sinclair's principal place of business is Wallingford, Connecticut.
Personal lines policies means insurance policies such as automobile and homeowners insurance.
Dezzani and Sinclair filed an answer to the verified complaint, the pleadings were closed by the parties and the trial for permanent injunctive relief was held. Both parties filed post-trial briefs.
"A party seeking injunctive relief has the burden of alleging and proving irreparable harm and lack of an adequate remedy at law . . . A prayer for injunctive relief is addressed to the sound discretion of the court . . ." (Internal quotation marks omitted.) Maritime Ventures, LLC v. Norwalk, 85 Conn.App. 38, 45, 855 A.2d 1011 (2004).
The complaint is in five counts. Count one alleges that Dezzani breached her written employment agreement with the plaintiff by soliciting or attempting to solicit the plaintiff's clients and disclosing the plaintiff's customer's information to Sinclair. Count two alleges that Dezzani and Sinclair have misappropriated the plaintiff's "protected information." Count three alleges a breach of fiduciary duty by Dezzani. Count four alleges that Dezzani and Sinclair acted unethically and deceitfully in taking the plaintiff's information, tantamount to theft of a portion of the plaintiff's business capital. Count five against Sinclair alleges tortious interference with a contract.
Dezzani admitted signing the restrictive covenant and terminating her services with the plaintiff. She claims, however, that the termination was due mainly to her concerns for her job security after finding out that the plaintiff was considering selling the business to another agency. Dezzani and Sinclair raise four special defenses: the agreement was not supported by consideration, Dezzani does not pose a legally cognizable threat to the plaintiff's customer relationship and even if she does pose a threat to the customer relationship, the agreement is overbroad and thus unenforceable; and the agreement reserves to Dezzani the right to compete in case the plaintiff sells its business and the plaintiff is in the process of being sold.
In fact, the business was sold to a New Jersey insurance agency on November 1, 2004.
Dezzani became employed by the plaintiff after it had acquired Clark Dodd in 1990, an insurance agency which had employed Dezzani since 1985. After the acquisition, Dezzani became an at-will employee of the plaintiff where she continued doing what she did before — selling personal lines policies "in-house" to phone-in and walk-in customers. She was also acting as a customer service representative for customers whose last names started with letters A through F. At that time, her compensation was mainly salary-based. She received a commission only on occasional sales that came in specifically to her.
In 1994, the plaintiff's president went to an insurance conference where he obtained a form for a noncompete agreement, which he distributed to all of the employees. The plaintiff told Dezzani that everyone in the agency had to sign it. The relevant parts of the agreement state as follows: "In consideration of the compensation mentioned above and/or elsewhere in this contract, the Producer hereby covenants that he shall not: A. Canvass, solicit or accept business for any other insurance agency, from any present or past clients of the Agency. B. Give any other person, firm or corporation the right to canvass, solicit or accept any business for any other insurance agency, from any present or past clients of the Agency. C. Directly or indirectly request or advise any present or future clients of the agency to withdraw, curtail or cancel their business with the Agency. D. Directly or indirectly disclose to any other person, firm or corporation the names of past, present or future clients of the agency. Directly or indirectly induce or attempt to influence any employee of the Agency to terminate his or her employment with the Agency . . . The provisions of this section . . . shall apply during the employment and shall also apply for a period of two years after termination of employment . . ."
Dezzani took the agreement home to discuss it with her husband, which led to two changes to the agreement. Dezzani asked to be free of any restraints if she were fired or the agency was sold. The exceptions were added to the agreement and both parties signed it. On January 24, 1995, the plaintiff distributed to its employees an Employee Handbook which, among other things, states that the information handled by the agency is of a personal nature to its clients and is never to be discussed outside the office, and the agency information, such as expiration lists, is the property of the agency. In 1997, Dezzani and the plaintiff agreed she could receive commissions for a new category of life and health insurance policies and executed an addendum to that effect.
On April 23, 2004, Dezzani obtained from the plaintiff a list containing a compilation of the policy expiration dates for a number of the plaintiff's clients. In May 2004, Dezzani was contacted by a headhunter working for Sinclair, she interviewed for the position and was ultimately offered employment. After the interview, but before Dezzani made a decision whether to accept the new position, the plaintiff announced to its employees that it was engaging in a transaction for the sale of its assets. Out of concern for her job, Dezzani went to the plaintiff to discuss her future job prospects. She was told that she would be recommended for a position with the new owner and that there were others in the agency who would not be good prospects for long-term employment with the new owners. After this conversation, Dezzani accepted the position with Sinclair on June 11, 2004.
DISCUSSION BREACH OF CONTRACT
The plaintiff argues that Dezzani breached the contract she had with the plaintiff, in particular the plaintiff alleges Dezzani is in breach of the covenant not to compete. The plaintiff argues that Dezzani "surreptitiously obtained" a compilation list of the plaintiff's clients and the expiration dates of their policies and subsequently quit her job with the plaintiff and accepted a position with Sinclair, the plaintiff's competitor. The plaintiff further argues that Dezzani "directly or indirectly" disclosed to Sinclair the names of the plaintiff's clients and that, as a result, a significant number of the plaintiff's clients switched their accounts to Sinclair. The plaintiff also argues that the restrictive covenant is reasonable and thus should be enforced.
Dezzani argues that she did not breach the agreement between her and the plaintiff because the covenant not to compete is overbroad rendering it unenforceable. She further argues that, even if the agreement is not overbroad, it still should not be enforced because she does not pose a threat to the plaintiff's relationship with the customers.
"In order to be valid and binding, a covenant which restricts the activities of an employee following the termination of his employment must be partial and restricted in its operation in respect either to time or place . . . and must be reasonable — that is, it should afford only a fair protection to the interest of the party in whose favor it is made and must not be so large in its operation as to interfere with the interests of the public. The interests of the employee himself must also be protected, and a restrictive covenant is unenforceable if by its terms the employee is precluded from pursuing his occupation and thus prevented from supporting himself and his family." (Citations omitted; internal quotation marks omitted). Scott v. General Iron Welding Co., 171 Conn. 132, 137, 368 A.2d 111 (1976). "The five factors to be considered in evaluating the reasonableness of a restrictive covenant ancillary to an employment agreement are: (1) the length of the time the restriction operates; (2) the geographical area covered; (3) the fairness of the protection accorded to the employer; (4) the extent of the restraint on the employee's opportunity to pursue his occupation; and (5) the extent of interference with the public's interests." Robert S. Weiss Associates, Inc. v. Wiederlight, 208 Conn. 525, 529, n. 2, 546 A.2d 216 (1988). "The five-prong test of Scott is disjunctive, rather than conjunctive; a finding of unreasonableness in any one of the criteria is enough to render the covenant unenforceable." New Haven Tobacco Co. v. Perrelli, 18 Conn.App 531, 534, 559 A.2d 715, cert. denied, 212 Conn. 809, 564 A.2d 1071 (1989).
The covenant in this case is unenforceable due to the nature of Dezzani's employment, she is in no position to threaten the plaintiff's interests in its customer relationships. Although Dezzani may have had initial contact with the plaintiff's customers while selling the insurance policies, normally her contact with the customers would end there. The transactions were also conducted largely over the phone and entertaining or socializing with the clients was extremely rare. In addition, the original sales agents did not renew the policies at the expiration time because such renewals were handled by the insurer and not the agent, making Dezzani's sales a one-time deal. Thus, Dezzani's contact with the customers was too infrequent and irregular to pose any threat to the plaintiff's relationships with its customers.
In addition, the restrictive covenant in this case is overbroad. The covenant in question not only prevents Dezzani from soliciting or accepting any business from the plaintiff's past or present clients, but also bans her from requesting or advising any future clients of the plaintiff to withdraw or cancel their business with the plaintiff. This language, thus, prevents Dezzani from being able to solicit and attract any possible future clients who have no relationship with the plaintiff but are looking for insurance and are in the plaintiff's range of business. Since such a restriction puts unnecessary restraints on ordinary competition, it is against public policy.
Using the Scott criteria Dezzani has proved that the covenant not to compete in this case is unreasonably broad in that it affords more protection to the employer than necessary, interferes with the interests of the public and prevents Dezzani from pursuing her occupation. Accordingly, the application to enforce the non-compete clause of the employment contract cannot be granted.
CUTSA
The plaintiff argues that Dezzani and Sinclair violated the Connecticut Uniform Trade Secrets Act (CUTSA) General Statutes § 35-50 et seq., by taking and misappropriating the plaintiff's customer lists. The plaintiff claims its customer lists are entitled to protection under the act because it constitutes a trade secret. The plaintiff further claims that its customer lists are extremely valuable commercially, not "readily ascertainable by proper means" and its efforts to maintain its secrecy are "reasonable under the circumstances."
Dezzani and Sinclair counter that the plaintiff's customer lists are not entitled to protection under CUTSA because the plaintiff fails to establish that the list is in fact a trade secret. They argue that the plaintiff's customer lists were readily obtainable, were not protected in any way and the information in the list does not have any "independent economic value."
CUTSA defines a trade secret as "information, including a formula, pattern, compilation, program, device, method, technique, process, drawing, cost data or customer list that: (1) Derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use, and (2) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy." General Statutes § 35-51(d). See also Elm City Cheese Co. v. Federico, 251 Conn. 59, 69-70, 752 A.2d 1037 (1999). There are a number of factors the courts must consider when deciding whether something constitutes a trade secret. These factors are: "(1) the extent to which the information is known outside the business; (2) the extent to which it is known by employees and others involved in the business; (3) the extent of measures taken by the employer to guard the secrecy of the information; (4) the value of the information to the employer and to his competitors; (5) the amount of effort or money expended by the employer in developing the information; and (6) the ease or difficulty with which the information could be properly acquired or duplicated by others. Additional factors cited by courts are: (7) the extent to which the principal-agent relationship was a confidential or fiduciary one; (8) the method by which the former agent acquired the alleged secret; (9) the former agent's personal relationship with the customers; and (10) the unfair advantage accruing to the former agent from the use of his former principal's alleged secret." Nationwide Mutual Ins. Co. v. Stenger, 695 F.Sup. 688, 691 (D.Conn. 1988).
The court is not convinced in this case that the plaintiff's customer list constitutes a trade secret, which is to be protected. The information contained in the list, although no doubt of value to the plaintiff, was not protected by reasonable measures designed to limit access to it, thus undermining the plaintiff's argument that the list contains information confidential in nature. The plaintiff also did not provide enough evidence to show that it extended substantial time, money and effort in collecting the information on the list. In fact, the list of customers was generated in the ordinary course of business. There was no special incentive used to create such a customer list. Because there is no evidence that Dezzani acquired and that Sinclair used any trade secrets of the plaintiff, there has been no misappropriation of a trade secret by Dezzani and Sinclair. The court, thus, is not persuaded that the list in question merits protection as a trade secret. Accordingly, the court finds that there was no violation of CUTSA in this case.
BREACH OF FIDUCIARY DUTY
The plaintiff argues that Dezzani, as an employee, owed a fiduciary duty of loyalty, good faith and honesty. The plaintiff claims that Dezzani was entrusted with its "protected information" which she promised not to disclose or use against the plaintiff. The plaintiff further argues that Dezzani violated this fiduciary duty by breaching her contractual obligations to work for the plaintiff's competitor, Sinclair, by disclosing and misappropriating the confidential information for her own benefit and soliciting the plaintiff's clients for her own and Sinclair's commercial advantage.
Dezzani responds that there was nothing in her employment contract that dealt with trade secrets and confidentiality or the disclosure of underwriting information, renewal dates, etc. She argues that her employment contracts only prohibited the disclosure of customer names to protect their privacy.
"An agent is a fiduciary with respect to matters within the scope of his agency." Taylor v. Hamden Hall School, Inc., 149 Conn. 545, 552, CT Page 18255 182 A.2d 615 (1962). "The very relationship implies that the principal has reposed some trust or confidence in the agent and that the agent or (employee) is obligated to exercise the utmost good faith, loyalty and honesty toward his principal or employer. In the absence of clear consent or waiver by the principal, an agent during the term of the agency, is subject to a duty not to compete with the principal concerning the subject matter of the agency." (Citation omitted.) News America Marketing v. Marquis, Superior Court, complex litigation docket at Stamford, Docket No. X00 CV 00 0177440 (October 22, 2003, Rogers, J.)
In the present case, no evidence was presented that Dezzani used any confidential information to compete with the plaintiff's business before her resignation from the position with the plaintiff. Although there is evidence that several of the plaintiff's clients terminated their policies and Dezzani even admitted she caused all but one or two of those cancellations, the customers who canceled their insurance policies with the plaintiff did not do so until well after Dezzani left her employ with the plaintiff. Dezzani thus did not compete with the plaintiff's business while still employed there. Accordingly, Dezzani did not breach her fiduciary duty to the plaintiff.
One of the plaintiff's witnesses testified that the plaintiff would normally receive two to three policy cancellations in a year. The witness further testified that the plaintiff received over twenty documents terminating the plaintiff's relationship with its clients after Dezzani left.
CUTPA
The plaintiff claims that Dezzani and Sinclair violated the Connecticut Unfair Trade Practices Act (CUTPA) General Statutes § 42-110a et seq., by "immorally, unethically, deceitfully and unscrupulously . . . misappropriating [the plaintiffs] Protected Information, including (but not limited to) deceptively taking such information while [Dezzani] was in [the plaintiff's] employ." Dezzani and Sinclair argue that they did not make an unfair use of any of the plaintiff's "trade secrets" and that Sinclair's intention of bring Dezzani was not to misappropriate the plaintiff's information.
"No person shall engage in unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce." General Statutes § 42-110b. "Connecticut courts, when determining whether a practice violates CUTPA, will consider (1) whether the practice, without necessarily having been previously considered unlawful, offends public policy as it has been established by statutes, the common law, or otherwise — whether, in other words, it is within at least the penumbra of some common-law, statutory, or other established concept of unfairness; (2) whether it is immoral, unethical, oppressive, or unscrupulous; (3) whether it causes substantial injury to consumers (or competitors or other businessmen) . . . Thus, a violation of CUTPA may be established by showing either an actual deceptive practice . . . or a practice amounting to a violation of public policy . . . Whether a practice is unfair and thus violates CUTPA is an issue of fact . . . The facts found must be viewed within the context of the totality of circumstances which are uniquely available to the trial court." (Citation omitted; Internal quotation marks omitted.) De La Concha of Hartford, Inc. v. Aetna Life Ins. Co., 269 Conn. 424, 433-34, 849 A.2d 382 (2004).
There was no evidence presented in this case that the hiring of Dezzani by Sinclair was unscrupulous, unfair or deceptive nor is there any evidence that such behavior violates any public policy. Dezzani interviewed with Sinclair after receiving a call from a headhunter working for Sinclair. Sinclair offered her a position with the company on much better terms than the plaintiff did. She was to receive a better compensation package, and to be relieved of her customer service representative duties and allowed to branch into the commercial lines side of the insurance business, which is usually much more lucrative. Although Dezzani enjoyed her work for the plaintiff, she decided to accept the position, mainly because the plaintiff was about to sell its business and she was worried about her future position. There was no evidence presented that hiring an individual already employed by another offends any public policies. Sinclair simply hired an experienced worker with relevant knowledge of the insurance industry to provide better service for its customers. In fact such actions are normally seen as a good practice for the public by creating competition and promoting the improvement of one's skills. No showing was made that Dezzani or Sinclair used unfairly any "trade secrets" of the plaintiff, since the plaintiff did not prove that Dezzani misappropriated any such secrets. Accordingly, Dezzani and Sinclair did not violate CUTPA.
TORTIOUS INTERFERENCE WITH CONTRACT
Lastly, the plaintiff alleges that Sinclair intentionally and maliciously induced Dezzani to breach her obligations under her employment contract, despite Sinclair's knowledge of the existence of this employment contract. Sinclair denies these allegations and argues that there was no tortious interference with a contract because the contract is not enforceable.
"A claim for tortious interference with contractual relations requires the plaintiff to establish (1) the existence of a contractual or beneficial relationship, (2) the defendants' knowledge of that relationship, (3) the defendants' intent to interfere with the relationship, (4) the interference was tortious, and (5) a loss suffered by the plaintiff that was caused by the defendant's tortious conduct." (Internal quotation marks omitted.) Appleton v. Board of Education, CT Page 18257 254 Conn. 205, 212-13, 757 A.2d 1059 (2000). "Although Connecticut courts long [have] recognized a cause of action for tortious interference with contract rights . . . [the case law indicates, nonetheless,] that not every act that disturbs a contract or business expectancy is actionable . . . [F]or a plaintiff successfully to prosecute such an action it must prove that the defendant's conduct was in fact tortious. This element may be satisfied by proof that the defendant was guilty of fraud, misrepresentation, intimidation or molestation . . . or that the defendant acted maliciously . . . [An] action for intentional interference with business relations requires the plaintiff to plead and prove at least some improper motive or improper means . . . The plaintiff in a tortious interference claim must demonstrate malice on the part of the defendant, not in the sense of ill will, but intentional interference without justification . . . In other words, the [plaintiff] bears the burden of alleging and proving lack of justification on the part of the [defendant].
"Stated simply, to substantiate a claim of tortious interference with a business expectancy, there must be evidence that the interference resulted from the defendant's commission of a tort. [A] claim is made out [only] when interference resulting in injury to another is wrongful by some measure beyond the fact of the interference itself . . . [Not e]very act of interference is . . . tortious." (Citation omitted; internal quotation marks omitted.) Downes-Patterson Corp. v. First National Supermarkets, Inc., 64 Conn.App. 417, 429, 780 A.2d 967, cert. granted 258 Conn. 917, 782 A.2d 1242 (2001) (appeal dismissed June 25, 2002).
The plaintiff did not allege and prove any lack of justification on the part of Sinclair. While the evidence shows the existence of a contract between Dezzani and the plaintiff as well as the fact that Sinclair was aware of the existence of such an employment contract, the plaintiff did not establish an intent to interfere with that relationship on the part of Sinclair. Sinclair hired Dezzani because it considered her a skilled professional insurance salesperson whose expertise would benefit Sinclair's customers. The plaintiff also did not demonstrate any malice or intentional interference on the part of Sinclair. There is no evidence on record that Sinclair required Dezzani to bring in the plaintiff's clients or to misappropriate any company information as a condition of her employment.
While hiring one of the plaintiff's employees may be viewed as an interference with the plaintiff's business, it does not mean that it is tortious since not all interference is considered to be tortious. The plaintiff failed to prove the five elements necessary to establish tortious interference with a contract.
Accordingly, the court enters judgment in favor of the defendants Dezzani and Sinclair on all counts.
Frank S. Meadow, Judge Trial Referee