An insurance broker’s good faith, duty of loyalty, tortious interference and conspiracy claims against a former employee alleged to have diverted several existing and prospective client accounts to competitors have survived dismissal in the Eastern District of Virginia.
The employee claimed the broker’s tort claims either didn’t create an independent cause of action or were grounded in his employment agreement and therefore barred by the economic loss doctrine.
Senior U.S. District Judge John A. Gibney Jr. disagreed.
“Although the other claims may prove to be little more than window dressing on a suit for breach of contract, they plausibly state claims that can survive a motion to dismiss,” the judge said.
The ruling is USI Insurance Services LLC v. Ellis (VLW 023-3-095).
USI Insurance Services acquired Wells Fargo Insurance in 2017. Dwight Ellis II worked for Wells Fargo for about 10 years as a “Commercial Risk [Insurance] Producer” and his employment agreement was assigned to USI.
Ellis’ agreement contained a two-year non-solicitation and non-service clause for “Client Accounts” and six-month clauses for “Active Prospective Accounts.” He worked for USI in the same position for four years before he was terminated for unspecified conduct in January 2021.
USI claims it later discovered that Ellis had diverted several small accounts to a competitor named Brandon Chisolm, conspired with a former Wells Fargo employee named Barbara Bailey to divert four significant client accounts to her competitor employer and “parked” some former USI clients with another competitor.
USI sued Ellis for breaches of his employment agreement, the implied covenant of good faith and fair dealing and the duty of loyalty, as well as unjust enrichment, tortious interference with contractual relations and statutory business conspiracy. They claimed damages of at least $340,000.
Ellis moved to dismiss all but USI’s breach of employment agreement claims.
Ellis said USI’s claim for breach of the covenant of good faith and fair dealing merely duplicated its breach of contract claims and didn’t create an independent cause of action.
Although contained in every Virginia contract, Gibney explained that the implied covenant of good faith and fair dealing “‘cannot be a vehicle for rewriting an unambiguous contract in order to create duties that do not otherwise exist.’”
Rather than a claim in tort, a breach of the implied duty of good faith and fair dealing must be raised in a claim for breach of contract, the judge said, adding that USI correctly plead its claim when it alleged bad faith and unfair dealing.
USI asserted that Ellis committed two ongoing acts of bad faith and unfair dealing: solicitation of four significant clients to move their business to Bailey and diversion of several small clients to Chisolm. It also characterized Ellis’ actions as willful and wanton because he was aware or should have been aware that his actions were improper.
Gibney said these allegations were sufficient.
“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,” the judge wrote. “Accordingly, USI states a claim upon which relief may be granted.”
Ellis argued that the economic loss doctrine barred USI’s duty of loyalty claim because they failed to identify a source of the duty outside the employment agreement. USI, however, said its claim was grounded in the “common law duty of loyalty.”
Gibney agreed with USI.
“Virginia courts ‘have long recognized that under the common law an employee, including an employee-at-will, owes a fiduciary duty of loyalty to his employer during his employment.’ Subsumed within this general duty of loyalty is the more specific duty that the employee not compete with his employer during his employment.”
— Senior U.S. District Judge John A. Gibney Jr.
“Virginia courts ‘have long recognized that under the common law an employee, including an employee-at-will, owes a fiduciary duty of loyalty to his employer during his employment,’” Gibney pointed out. “Subsumed within this general duty of loyalty is the more specific duty that the employee not compete with his employer during his employment.”
Some conduct — including solicitation of an employer’s clients before termination of employment — plainly constitutes a breach of the duty of loyalty an employee owes to his employer.
“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,” Gibney wrote. “Viewed in the light most favorable to the plaintiff, the amended complaint adequately pleads a breach of Ellis’s duty of loyalty to USI because it identifies instances in which Ellis competed with USI.”
Ellis said USI didn’t sufficiently allege that he employed improper methods, a necessity for a tortious interference claim.
Gibney was unpersuaded because improper methods may include misuse of inside or confidential information or breach of a fiduciary relationship.
“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 judge pointed out.
Finally, Virginia recognizes an independent duty not to interfere in other’s contractual relations. And USI said Virginia courts haven’t applied the economic loss doctrine in cases involving intentional torts.
“USI has adequately pleaded tortious interference with contractual relations because it has detailed Ellis’s alleged improper methods and identified an independent duty not to interfere with contractual relations,” Gibney said. “The economic loss doctrine does not prevent USI from pleading this claim.”
As such, USI’s amended complaint stated a claim upon which relief may be granted.