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Employment – Insurance Regional Manager – Nonsolicitation – Proprietary Information

A Roanoke U.S. District Court says an insurance company can pursue both contract and tort claims against its former regional manager of a 30-county area in Virginia, who allegedly violated noncompete and nonsolicitation agreements and fiduciary duties, and committed tortious interference and conversion, when he allegedly went to work for a competitor while still employed by plaintiff and began recruiting plaintiff’s employees and soliciting its policyholders.

The non-competition provision in paragraph 7(a) of defendant’s contract prohibits him, for a period of two years following the termination of his employment, from selling, or attempting to sell, any form of accident, health or life insurance issued by any other company to Combined’s policyholders. The prohibition on competition is limited geographically to “any geographic areas for which the Executive has been responsible during the two year period before the date the Executive’s employment terminates.”

The non-solicitation provision in paragraph 7(c) of the contract prohibits defendant, for a period of two years following termination of his employment, from inducing or attempting to induce Combined’s sales agents or employees to leave the company for another insurance company. Like the non-competition provision, the prohibition solicitation is limited to “any geographic areas for which the Executive has been responsible during the two year period before the date the Executive’s employment terminates.

The contract further states that for purposes of paragraph 7, “the counties comprising the [Executive’s] Sales Territory shall be those counties reflected in the Schedules of Position and Territory of the Executive” for the 24-month period immediately preceding termination of the contract.

While defendant attacks the geographic scope of the provisions as too broad, the court agrees with Combined that under Virginia law, such geographic limitations do not render the restrictive covenants facially unenforceable as a matter of law. To the contrary, the Supreme Court of Virginia has upheld covenants that are virtually indistinguishable from the ones at issue, where the geographical limitation is defined with reference to the territories in which an employee worked prior to his termination. Here, the agreements do not cover Combined’s entire market area or any sales territory ever covered by defendant. The court is unable to conclude at this stage of the litigation that the restrictive covenants are facially unenforceable as a result of their geographic scope.

Defendant argues the nonsolicitation provision is overbroad because it prevents him from soliciting any sales agent to work for another company, regardless of whether the agent has ever worked for Combined. But that argument is based on defendant’s narrow, selective reading of the provision. Read in its entirety, paragraph 7(c0 clearly prohibits defendant only from soliciting Combined’s sales employees and agents; it does not prohibit him from soliciting employees or agents of other companies.
The court also denies defendant’s motion to dismiss Combined’s claims for tortious interference with contractual and/or prospective business relations, breach of fiduciary duties and conversion. The court is constrained to conclude the tort claims asserted by Combined do not exist solely by virtue of the contract, and they may be pled in conjunction with Combined’s breach of contract claims.

Inasmuch as it is clear that Virginia law recognizes the tort of breach of fiduciary duties in the employment context, and inasmuch as it is clear that almost all employment relationships are founded on contract, it is abundantly clear that the Supreme Court of Virginia did not intend to render the two causes of action mutually exclusive.

The court also rejects defendant’s contention that the tort claims are preempted by the Virginia Uniform Trade Secrets Act, Va. Code § 59.1-341, drawing on decisions from the Eastern District of Virginia. Because Combined’s claims for tortious interference and breach of fiduciary duty are not entirely dependent on defendants’ alleged misappropriation of trade secrets, these claims, as pled, are not preempted. The conversion claim is premised solely on the misappropriation of confidential, proprietary information. Nonetheless, because the determination of whether such information qualifies as a trade secret is a question of fact, and because defendant specifically disputes whether the information at issue is “proprietary to Combined,” the court declines to conclude at this stage that Combined’s conversion claim is preempted by the Trade Secrets Act.

Finally, the court agrees with Combined that its conversion claim – based on defendant having allegedly e-mailed from his Combined business e-mail account to his personal e-mail account a confidential list of persons targeted for recruitment by Combined – does not fail merely because the property at issue is “an electronic version of the list rather than a hard copy.

Motion to dismiss denied.

Combined Insurance Co. of America v. Wiest (Conrad, J.) (Published) No. 7:08cv00218, Aug. 11, 2008; USDC at Roanoke, Va. VLW 008-3-310, 22 pp.

VLW 008-3-310

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