2017-00223790-CU-BC

USI Insurance Services National, Inc. vs. Thomas R. Hucik

Nature of Proceeding: Motion for Preliminary Injunction

Filed By: Spencer, Daniela M.

The motion for preliminary injunction is GRANTED.

Overview

This is an action for breach of contract, breach of duty of loyalty, misappropriation of trade secrets, intentional interference with economic advantage, unfair business practices, and specific performance.

Plaintiffs USI Services National, Inc. and USI Insurance Services LLC’s (collectively “Plaintiffs”) allege that they acquired the business and assets of Wells Fargo Insurance Services USI, Inc. (“WFIS”) on November 30, 2017. Plaintiffs allege that in December 2010, WFIS purchased Defendant Thomas R. Hucik’s (“Hucik”) insurance brokerage firm pursuant to a Purchase Agreement (“Purchase Agreement”). WFIS paid Hucik approximately $1,000,000 for the company. In conjunction with the Purchase Agreement, Hucik also signed a Trade Secret Agreement (“Trade Secret Agreement”) which included non-solicitation and non-compete agreements. Plaintiffs allege that when they acquired WFIS, they acquired all outstanding shares of WFIS common stock and took full ownership of the company, including the Purchase and Trade Secret Agreements. They allege that they would not have agreed to pay the amount of consideration for WFIS without a guarantee that all of the assets, business and goodwill, including the Purchase and Trade Secret Agreements would be acquired.

Hucik resigned on December 4, 2017. Plaintiffs allege that Hucik breached the Purchase and Trade Secret Agreements when he joined Plaintiffs’ direct competitor,

co-defendant Interwest Insurance Services LLC (“Interwest”), misappropriated Plaintiffs’ confidential and proprietary client information and disclosed to Interwest, solicited Plaintiffs’ clients and competed against Plaintiffs.

Plaintiffs desire a preliminary injunction enjoining and restraining Hucik from “engaging in, committing or performing, directly or indirectly, any and all of the following acts: “engag[ing] in competition with [Plaintiffs] in the business of offering: (1) bid, performance, payment or other construction industry bonds; (2) commercial, personal or group or individual life or benefits insurance; (3) risk management services; (4) other products, services or activities conducted by [Hucik & Co] or [Plaintiffs]” for the period from December 4, 2017 to and including December 4, 2019 within the Restricted Area, including by working at InterWest. The Restricted Area includes all of the following counties in California: Sacramento, Amador, El Dorado, Placer, Nevada, Sierra, Yuba, Sutter, Yolo, Napa, Sonoma, Marin, Contra Costa, Alameda, Santa Clara, Santa

Cruz, San Mateo, San Francisco, San Joaquin; Calaveras, Alpine, and in Nevada, the counties of: Washoe, Storey, Carson City, Douglas, and Lyon.”

Plaintiffs also desire a preliminary injunction enjoining “Defendants and their agents, employees, representatives, and all persons acting in concert or participation with him or them, from engaging in, committing or performing, directly or indirectly, any and all of the following acts: from December 4, 2017 to and including December 4, 2019, soliciting, selling, servicing, accepting, managing or seeking to acquire the insurance business or employee benefits business of any entities that Hucik previously serviced for Plaintiffs and that had annual revenues of more than $1,000, including but not limited to: Basic Resources, Inc.; Clark & Sullivan Builders, Inc.; Clark & Sullivan Constructors, Inc.; JT2 Inc.; Ginno Construction of Idaho, Inc.; J.E. McAmis, Inc.; West Coast Contractors of Nevada, Inc.; Pacific Coast Building Services, Inc.; Pacific Coast Companies, Inc.; Pabco Clay Products, LLC; H Hunewill Construction Co. Inc.; United Construction Company; Dermody Properties; Aircon Energy, Inc.; Nicholas Construction, Inc.; Intech Mechanical Company LLC; K7 Construction Inc.; Gardner Engineering Inc.; Martin General Engineering, Inc.; D & D Roofing and Sheet Metal, Inc.; American Chiller Service, Inc.; Reno Iron Works.”

The Court notes that on January 9, 2018, Plaintiffs filed an Amended Order To Show Cause Re Preliminary Injunction and Temporary Restraining Order, which the Court signed (“Amended OSC”). (ROA 27.) The Amended OSC clarified that the Preliminary Injunction and TRO against “Defendants and their agents . . . ” excluded “any of those clients enumerated above who had an insurance brokerage relationship with InterWest Insurance Services, LLC, that pre-dated Hucik’s employment by InterWest for insurance products other than those offered by Hucik to those enumerated clients.” (Amended OSC, 3:8-11.)

Legal Standard

“As its name suggests, a preliminary injunction is an order that is sought by a plaintiff prior to a full adjudication of the merits of its claim[s]. [Citation.]” (White v. Davis (2003) 30 Cal. 4th 528, 554.) “The purpose of such an order ‘is to preserve the status quo . . .

. It ‘does not constitute a final adjudication of the controversy.’ [Citation.]” (Costa Mesa City Employees Assn v. City of Costa Mesa (2012) 209 Cal. App. 4th 298, 305.)

“To obtain a preliminary injunction, a plaintiff ordinarily is required to present evidence of the irreparable injury or interim harm that it will suffer if an injunction is not issued pending an adjudication of the merits. (White v. Davis (2003) 30 Cal. 4th 528, 554 [emphasis added]; see generally Code Civ. Proc. § 426, subd. (a)(2) [a preliminary injunction “may be granted . . . [w]hen it appears . . . that the commission or continuance of some act during the litigation would produce . . . great or irreparable injury . . . to a party to the action].)

“‘[T]he extraordinary remedy of injunction’ cannot be invoked without showing the likelihood of irreparable harm. [Citation.]” (Intel Corp. v. Hamidi (2003) 30 Cal. 4th 1342, 1352.) The threat of “irreparable harm” must be imminent. “An injunction cannot issue in a vacuum based on the proponents’ fears about something that may happen in the future.[..i]t must be supported by actual evidence that there is a realistic prospect that the party enjoined intends to engage in the prohibited activity.” (Korean Philadelphia Presbyterian Church v. California Presbytery (2000) 77 Cal. App. 4th 1069, 1084.)

“If the threshold requirement of irreparable injury is established, then [the court] must examine two interrelated factors to determine whether . . . a preliminary injunction should be [issued]: ‘(1) the likelihood that the moving party will ultimately prevail on the merits and (2) the relative interim harm to the parties from issuance or non-issuance of the injunction.’ [Citation.]” (Costa Mesa City Employees Assn., supra, 209 Cal. App. 4th at 306.) The greater the showing on one factor, the lesser the showing must be on the other. (Butt v. State of California (1992) 4 Cal. 4th 668, 678.) However, a preliminary injunction may not be granted, regardless of the balance of interim harm, unless it is reasonably probable that the moving party will prevail on the merits. (San Francisco Newspaper Printing Co. v. Superior Court (1985) 170 Cal. App. 3d 438, 442.)

The party seeking injunctive relief bears the burden of showing all elements necessary to support issuance of a preliminary injunction. (O’Connell v. Super. Ct. (2006) 141

Cal. App. 4th 1452, 1481.)

Irreparable Injury

Defendants argue that Plaintiffs fail to show irreparable injury and, that even if there is injury, monetary damages are sufficient.

The Court disagrees with Defendants. “The court may grant a preliminary injunction when there is evidence of the threat of committing an act in violation of the rights of another party respecting the subject of the action.” (ReadyLink Healthcare v. Cotton (2005) 126 Cal. App. 4th 1006, 1023 [plaintiff presented evidence that defendant posed a threat to its business operations.].) Here, Plaintiffs tender evidence of

irreparable injury and the threat to their business operations. After Hucik left Plaintiffs’ employ and joined Interwest, five of the clients Hucik serviced moved their business to Interwest. (Declaration of Diane L. Dusseau (“Dusseau Decl.”), ¶ 26.) These five clients produced annual revenues to Plaintiffs totally $213,000. (Id.) Hucik contacted two other clients and solicited to move business to Interwest. (Id., ¶ 27.) Additionally, Plaintiffs “have invested substantial time, money and resources in building and growing their business. [Their] success and growth has been fueled by [their] ongoing relationships with our clients and our effort to bring in new business.” (Id. ¶ 29.) Notably, in the Purchase Agreement, Hucik “acknowleg[ed] and agree[d] that remedies at law (such as monetary damages) for any breach of the covenants or obligations under this Section 2 would be inadequate. The Seller and Shareholder therefore agree and consent that if Seller or Shareholder commits any breach of a covenant under this Section 2 or threatens to commit any such breach, the Purchaser shall have the right (in addition to, and not in lieu of, any other right or remedy that may be available to the Purchaser) to temporary or permanent injunctive relief from a court of competent jurisdiction, without posting any bond or other security and without the necessity of proof of actual damage against that party or parties.” (Id. Ex. A, §2.6.)

Likelihood of Prevailing

The following provisions of the Purchase Agreement are at issue here:

2.3 Covenant Not to Compete. In consideration for the benefits offered in this Agreement and to protect the Business being purchased by Purchaser, Seller and Shareholder acknowledge and agree that during its or his respective Restricted Period they will not, individually, jointly or through associates, agents, employees, or others, directly or indirectly, do

any of the following:

2.3.1 engage in competition with Purchaser or Wells Fargo and affiliates in the business of offering: (1) bid, performance, payment or other construction industry bonds; (2) commercial, personal or group or individual life or benefits insurance; (3) risk management services; or (4) other products, services or activities conducted by the Purchaser or the Seller any time within the twelve (12) months prior to the Effective Date, or the Purchaser or Wells Fargo and affiliates during the Restricted Period (hereinafter the “Restricted Business”) within the Northern California and Reno, Nevada areas including all of the following counties in California: Sacramento, Amador, El Dorado, Placer, Nevada, Sierra, Yuba, Sutter, Yolo, Sonoma, Marin, Contra Costa, Alameda, Santa Clara, Santa Cruz, San Mateo, San Francisco, San Joaquin, Calaveras, Alpine, and in Nevada, the counties of: Washoe, Storey, Carson Douglas, and Lyon (“Restricted Area”);

2.4 Restricted Period. The Seller’s Restricted Period shall commence on the Effective Date and shall be in effect up through the fifth anniversary of the Effective Date. The Shareholder acknowledges and agrees that his Restricted Period shall commence as of Effective Date, continue at all times during the Shareholder’s employment with any successor or Wells Fargo and affiliates as employer and apply thereafter during the following time periods subsequent to the Shareholder’s termination of employment with Purchaser, any successor or Wells Fargo and affiliates as employer:

. . .

2.4.1.2. If the Shareholder is employed up to or beyond the third year anniversary of the Effective Date, the Restricted Period shall be in effect up through the anniversary of the date of the Shareholder’s termination of employment from the Purchaser, successor or Wells Fargo and affiliates.

10.1 Successors and Assigns. The terms and provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successor, permitted assigns personal representatives, legatees, devisees and heirs.

(Dusseau Decl., Ex. A [underline added, bold in original].)

The Trade Secret Agreement includes nearly identical non-compete terms. (Dusseau Decl., Ex. B, §§ 4-5.) ) It also includes an Assignment section which states “[t]he terms of this Agreement are binding upon and shall inure to the benefit of Wells Fargo and Hucik and their respective permitted successors and assigns, and shall survive any merger or any sale or other disposition of the stock, assets or business of Hucik & Company, Purchaser or Wells Fargo. Hucik expressly affirms that Wells Fargo may assign the covenants in Section 4 and 5 above to any affiliate and to any successor, including any successor by way of merger, stock sale or acquisition of assets.” (Id. Ex. B., ¶ 16 [emphasis added].)

Plaintiffs proffer evidence that on November 30, 2017, it “acquired the business and assets of WFIS, including all of their offices. Plaintiffs’ business model works [sic] is substantially identical to that of WFIS. (Dusseau Decl., ¶ 6.) After Hucik left Plaintiffs’ employ and joined Interwest, he solicited the clients whom he serviced while working for Plaintiffs and some have transferred to Interwest. (Id. ¶¶ 26-27.)

In opposition, Hucik contends that Plaintiffs cannot show a likelihood of success because Hucik’s non-compete agreement was with WFIS and not Plaintiffs, and Plaintiffs have no personal knowledge regarding that “meaning and intention” of the contract. According to Hucik, “[t]he Purchase Agreement, including my agreement not

to compete for five years, was with Wells Fargo and its affiliates; not USI. Section 2.3.1 of my purchase agreement with Wells Fargo does not mention USI or the term successor. (Declaration of Thomas R. Hucik (“Hucik Decl.”), ¶ 5.)

Although Section 2.3.1 may not mention the term “successor”, it includes the term “Restricted Period” which applies to Wells Fargo’s successor. Section 10.1 also makes the entire agreement binding on a “respective successor.” Lastly, the Trade Secret Agreement expressly applies to “successors and assigns” and “survive[s] any merger or any sale or other disposition of the stock, assets or business of Hucik &

Company, Purchaser or Wells Fargo.” Thus, the Court concludes that, for the purposes of this motion only, Plaintiffs have shown a likelihood of prevailing on the merits.

Balancing of Harms

The balancing of the harms favors Plaintiffs. The harm to Defendants associated with entering the injunction is less than the harm to Plaintiffs in

denying the injunction. Permitting Defendants to compete with and/or solicit Plaintiffs’ customers would threaten undue interim harm to Plaintiffs. Defendants have not demonstrated how they will be harmed by the issuance of

the injunction.

The Court will only rule on Defendants’ objections to evidence that are material to the Court’s decision. Defendants’ objection to paragraph 29 of the Dusseau Declaration is OVERRULED.

The motion for preliminary injunction is GRANTED. The order to show cause is discharged and the temporary restraining order is dissolved.

Neither party has addressed the issue of a bond. Although Hucik has contractually waived the bond requirement (Dusseau Decl., Ex. A. §2.6), Interwest has not. Thus, Plaintiffs shall post an injunction bond in the amount of $25,000 no later than January 26, 2018. (CCP §529.)

Plaintiffs shall submit a copy of the proposed preliminary injunction for the Court’s signature pursuant to CRC Rule 3.1312. The Court will sign the proposed preliminary injunction upon proof of posting of the injunction bond.