The Business Litigation Session of the Massachusetts Superior Court Upholds Contractual Non-Solicitation and Non-Servicing Provisions Against Employees.
Massachusetts Superior Court
SUMMARY: (court decision – opens in PDF)
“The plaintiffs, ABD Insurance and Financial Services Inc., d/b/a Newfront Insurance Services, LLC (‘Newfront’), Louisa Bolick, Erika Papadopulos, Michael Talmanson and Brian Kelleher (‘Individual Plaintiffs’), commenced this action on July 25, 2022, against the defendant, Arthur J. Gallagher & Co. (‘Gallagher’), seeking declaratory relief. The plaintiffs filed their First Amended Complaint on August 15, 2022, seeking a declaration that certain restrictive covenants contained in the Individual Plaintiffs’ employment agreements with Gallagher are invalid and unenforceable. On November 8, 2022, Gallagher’s motion to add counterclaims was allowed. In its counterclaims, Gallagher alleges breach of contract against the Individual Plaintiffs and James Ciarleglio (collectively, ‘Individual Counterclaim Defendants’) (Count I), breach of fiduciary duty against the Individual Counterclaim Defendants (Count II), tortious interference with contractual relations against Newfront (Count III), civil conspiracy against Newfront and the Individual Counterclaim Defendants (Count IV), aiding and abetting against Newfront and the Individual Counterclaim Defendants (Count V), and unjust enrichment against Newfront and the Individual Counterclaim Defendants (Count VI). The case is before the court on Gallagher’s motion for a preliminary injunction against the Individual Counterclaim Defendants. The Individual Counterclaim Defendants oppose the motion. A hearing was held on December 15, 2022. After careful consideration of the written submissions and oral arguments, the motion is allowed in part. …
“Gallagher seeks to enjoin each of the Individual Counterclaim Defendants from soliciting, servicing or accepting business from Gallagher clients. …
“The Individual Counterclaim Defendants do not dispute that they may not take Gallagher’s confidential information, and the court will enter a preliminary order consistent with that restriction, which is contained in both Plaintiffs’ Agreements and Ciarleglio’s Agreement.
“The court next turns the enforceability of the non-solicitation and non-servicing provisions. …
“The main focus of the Individual Counterclaim Defendants’ arguments is the non-servicing provisions, which they contend are unenforceable. Since Bolick, Talmanson and Kelleher’s agreements arose in the context of the sale of a business, Gallagher urges the court to apply a more lenient standard in evaluating the enforceability of this provision as to these three individuals. See Alexander & Alexander, Inc. v. Danahy, 21 Mass. App. Ct. 488, 496-97 (1986) (noting ‘that noncompetition covenants arising out of the sale of a business be enforced more liberally than such covenants arising out of an employer-employee relationship’). In a situation involving restrictive covenants arising out of the sale of the business, ‘there is more likely to be equal bargaining power between the parties; the proceeds of the sale generally enable the seller to support himself temporarily without immediate practical need to enter into competition with his former business; and a seller is usually paid a premium for agreeing not to compete with the buyer.’ … A sale of a business that includes good will, may require a broad noncompetition agreement in order to ‘assure that the buyer receives that which he purchased.’ …
“On the other hand, Bolick, Talmanson and Kelleher urge the court to analyze the restrictive covenants in Plaintiffs’ Agreements under the traditional employee/employer framework since the provisions are not connected to the goodwill Gallagher acquired from William Gallagher. … They base this argument on several factors, including the fact that seven years have passed since the acquisition, and they claim that the clients who Bolick, Talmanson and Kelleher allegedly solicited, were not William Gallagher clients. They further argue that the ‘non-servicing’ provisions in the Plaintiffs’ Agreements are unenforceable under the more restrictive employer/employee framework because it is not necessary to protect a legitimate business interest. …
“The court disagrees. Similar to the circumstances in Alexander & Alexander, Inc., 21 Mass. App. Ct. at 497-98, the provisions at issue were an integral part of the sale negotiations and should be enforced as such. Thus, both the non-solicitation and non-servicing provisions are enforceable against Bolick, Talmanson and Kelleher.
“As to Papadopoulos and Ciarleglio, the non-servicing provisions in their agreements are to be interpreted under the employer/employee standard. … This case is further compounded by the fact that the court has been presented with substantial evidence that each of the Individual Counterclaim Defendants, other than Papadopoulos, have directly solicited Gallagher clients. Clearly, servicing those clients should be prohibited, even under the more stringent employer/employee standard. Since Bolick, Talmanson, Kelleher and Ciarleglio do not appear to understand their obligations under their agreements, the court finds it necessary to enforce the non-servicing provisions against them in order to protect Gallagher’s legitimate business interests.
“Gallagher has further established that absent an injunction it will suffer irreparable harm, since loss of clients constitutes irreparable harm in this context. … Finally, since the evidence is that that Bolick, Talmanson, Kelleher and Ciarleglio have actively solicited Gallagher clients in violation of their agreements, the balance of harms weighs in Gallagher’s favor when it comes to enforcing the non-servicing provisions against them at this stage in the litigation.
“In sum, based on a careful consideration of the First Amended Complaint, Amended Answer to the First Amended Complaint and Counterclaim, the memoranda submitted in support and opposition to this motion, and the arguments made at the hearing, the court finds that Gallagher has met its burden of establishing a likelihood of success on the merits. Gallagher has also established that it will suffer irreparable harm if an injunction is not issued and that the risk of irreparable harm to Gallagher outweighs the potential harm to the Individual Counterclaim Defendants in granting the injunction.”