Virginia Lawyers Weekly VA Lawyers Weekly
Where an insurance broker alleged its former employee diverted business to its competitors and solicited existing clients to move their business to competitors, it plausibly alleged a claim for breach of fiduciary duty.
Background
In January 2021, USI Insurance Services LLC terminated the employment of Dwight Drew Ellis II for unspecified misconduct. After Ellis’s termination, USI discovered that Ellis had diverted business from USI to its competitors and solicited existing USI clients to move their business to USI’s competitors.
In its amended complaint, USI sues Ellis for breach of his employment contract for soliciting clients and active prospective clients (Counts One and Two); breach of his employment contract’s implied covenant of good faith and fair dealing (Count Three); breach of the duty of loyalty (Count Four); unjust enrichment (Count Five); tortious interference with contractual relations (Count Six) and statutory business conspiracy (Counts Seven and Eight. Ellis moves to dismiss Counts Three through Eight.
Count Three
With respect to Count Three, Ellis argues that a breach of the covenant of good faith and fair dealing does not create an independent cause of action. He says that, at best, Count Three duplicates the breach of contract claims in Counts One and Two.
Although USI makes identical allegations in Counts One and Two, it asserts a separate theory of how Ellis breached the employment agreement in Count Three. Accordingly, USI states a claim upon which relief may be granted.
Count Four
USI alleges Ellis breached his duty of loyalty by diverting business to competitors, removing confidential information and conspiring with USI’s competitors. Ellis argues that the economic loss doctrine prevents USI from prevailing at the motion to dismiss stage because USI has not identified a separate source of the duty of loyalty outside the employment agreement.
Because USI has identified the common law as the source of Ellis’s duty of loyalty to USI, the economic loss doctrine does not prevent USI’s recovery in tort. Viewed in the light most favorable to the plaintiff, the amended complaint adequately pleads a breach of Eilis’s duty of loyalty to USI because it identifies instances in which Ellis competed with USI.
Count Five
USI alleges Ellis unjustly enriched himself when he steered significant client accounts and small employee accounts to USI competitors and received kickbacks. Ellis moves to dismiss Count Five, arguing that the existence of an employment contract precludes the extra-contractual remedy of unjust enrichment. The court agrees. The Virginia Supreme Court and the Fourth Circuit have consistently held that the undisputed existence of a valid contract precludes a claim for unjust enrichment. Given the express employment contract at the heart of this dispute, USI fails to state a claim for unjust enrichment.
Count Six
USI alleges that Ellis tortiously interfered with its contractual relations (1) by steering significant client accounts to a competitor and (2) by diverting small employee accounts to other competitors instead of USI’s own Small EB Unit or its preferred referral brokerages. Ellis argues that USI has failed to plead this count with sufficient detail. Second, Ellis asserts that the economic loss doctrine forecloses the plaintiff’s recovery.
The court finds that USI has alleged improper methods, specifically that Ellis misused confidential information and USI’s resources (including Ellis’s USI email account) to help a competitor prepare a quote for a significant client account’s business. The court also finds that economic loss doctrine does not prevent USI from pleading this claim.
Counts Seven and Eight
USI alleges that Ellis conspired with others to deprive USI of income from both small employee accounts (Count Seven) and significant client accounts (Count Eight). Ellis argues that USI has not pleaded these counts with sufficient detail to satisfy Twombly and Iqbal pleading standards. Viewing the facts alleged in the light most favorable to the plaintiff, the court finds the plaintiff has adequately pleaded business conspiracy.
Defendant’s motion to dismiss granted in part, denied in part.
USI Insurance Services LLC v. Ellis, Case No. 3:21-cv-797, Feb. 27, 2023. EDVA at Richmond (Gibney). VLW 023-3-095. 12 pp.
