In a case with lessons for all agency owners, a California Court of Appeal upheld a preliminary injunction won by a Huntington Beach brokerage against both three former employees and their current employer.
Excelsure Insurance Services won the challenge to keep the Superior Court’s injunction in place. It bars the departed brokers and their employer, Santa Ana-based ERM Insurance Brokers, from soliciting Excelsure’s customers and from using information about the customers that they learned during their employment at Excelsure.
ERM and the three brokers Paul Beakes, David Tostado, and Rocio Tlaseca filed the appeal attempting to lift the Superior Court’s injunction and void the nondisclosure and confidentiality provisions their signed employment agreements with Excelsure contained. The agreements also include nonsolicitation provisions if they left Excelsure’s employment.
“It is one of the worst cases I’ve seen,” says Excelsure lawyer Dylan Wiseman of the Sacramento office of the Buchalter law firm. “It was a planned effort to take down Excelsure’s business, a willful malicious misappropriation. They were directed by ERM principals on how to divert clients from Excelsure. It’s really unbelievable.”
The court agreed with Excelsure that the provisions are protected by a statutory exception that shields trade secrets. And the court went on to explain its reasoning towards a likely win by Excelsure at trial.
According to the court filings, the dispute erupted after Beakes and Tostado resigned from Excelsure without notice in June 2018. Tlaseca left a month later. All three went to work at ERM and, according to court filings, began soliciting Excelsure clients – eventually convincing four commercial clients to follow them to ERM.
ERM Recruiting Tactics & Data
The decision also notes that ERM attempted to recruit a fourth Excelsure broker, Rebecca Plank, with an offer of 100% first-year commission on any business she brought from Excelsure within the first 90 days. Plank testified that during the recruitment, ERM told her that new employees were to sit down on their first day and make a list of every former client they could remember and then begin calling to solicit those clients.
Among the tactics they used, Plank testified, are that Beakes told clients –– and this quote is from the Appellate Court’s decision –– “that Excelsure was going out of business, that ‘half their company quit,’ ‘that Excelsure was going under,’” and that Plank was also leaving Excelsure. She testified she received a call from another client that the client had been “’bombarded’” with high-pressure sales tactics by Tlaseca.”
Evidence produced in the case indicated that one of the brokers, Tostado, had sent copies of customer lists and contact numbers from Excelsure’s database to his private e-mail on four separate occasions just days before leaving Excelsure, according to the court.
The preliminary injunction prohibited defendants “[f]rom soliciting or attempting to solicit business from any customers of Excelsure . . . named in the e-mails by defendant [Tostado] from Plaintiff’s database to himself (at his personal e-mail account) on June 19, 2018, June 24, 2018, June 27, 2018, June 28, 2018, as well as the lists created by defendants Beakes, Tlaseca and Tostado attached to their opposition as Exhibit 4.” Exhibit 4 consisted of the handwritten lists the individual defendants had created at the commencement of their employment at ERM.
Critical Litigation Details
Excelsure filed the initial complaint in July 2018 alleging violations of California’s unfair business practices statute, breach of contract, breach of duty of loyalty and fiduciary duty, misappropriation of trade secrets, unjust enrichment, and conspiracy. It sought the injunction to prevent any further solicitation of its clients, which the trial court granted.
On appeal, the court’s critical issue was whether or not the client’s information was a protectable trade secret. The court notes that the information Excelsure sought to protect was more than a simple list of customers. The data pulled from its database included the identities of the contact person at each customer, the renewal dates, and the types of coverage each customer purchased.
“The trial court considered evidence that because companies are most likely to consider switching brokers around the time their policies renew, renewal dates are valuable information which can assist a competitor in targeting which customers to solicit, and when,” the court of appeal noted. “Based on the evidence we find the trial court properly concluded that the information Excelsure sought to prevent ERM from using was protectable as trade secrets, and based on the record, we conclude the trial court did not abuse its discretion in finding Excelsure was likely to prevail on the merits of its cause of action.”
The Appellate Court faulted ERM for failing to summarize evidence that was both favorable and unfavorable to its position.
The court specifically noted ERM’s arguments overlooked facts showing that Tostado e-mailed Excelsure’s customer lists to his private e-mail just days before leaving Excelsure then argued that the client lists were created from the brokers’ memories.
“Given that the defendants have made no attempt to evenhandedly discuss the evidence in the record, we conclude they have waived any issue of substantial evidence … Moreover, were we to consider this issue on the merits, we would conclude that the evidence Excelsure submitted, including substantive declarations with supporting documentation, was more than sufficient to support the court’s factual findings,” the court wrote.
The court sustained the injunction and even awarded Excelsure its costs on appeal.
Copies of the court’s decision can be found in our Resources section or by clicking here.