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HCC Specialty Underwriters, Inc. v. Woodbury

United States District Court, D. New Hampshire

January 30, 2018

HCC Specialty Underwriters, Inc.
John Woodbury, et al.



         Plaintiff HCC Specialty Underwriters, Inc. (“HCC”) brings suit against defendant John Woodbury, a former employee of HCC, and defendant Buttine Underwriters Agency, LLC d/b/a Prize and Promotion Insurance Services (“PPI”). PPI is both Woodbury's current employer and a competitor of HCC. HCC's claims arise out of Woodbury's alleged breaches of noncompete and nondisclosure agreements. HCC seeks a preliminary injunction requiring both defendants to abide by the terms of Woodbury's noncompete and nondisclosure restrictions. Defendants object. The court held a two-day evidentiary hearing on HCC's motion. For the following reasons, HCC's motion is granted in part and denied in part.


         To obtain a preliminary injunction, a plaintiff “must establish that he is likely to succeed on the merits, that he is likely to suffer irreparable harm in the absence of preliminary relief, that the balance of equities tips in his favor, and that an injunction is in the public interest.” Bruns v. Mayhew, 750 F.3d 61, 65 (1st Cir. 2014) (quoting Winter v. Nat. Res. Def. Council, Inc., 555 U.S. 7, 20 (2008)). The first factor, likelihood of success, is “[t]he sine qua non of [the] four-part inquiry, ” New Comm Wireless Servs., Inc. v. SprintCom, Inc., 287 F.3d 1, 9 (1st Cir. 2002), and the second factor, irreparable harm, also “constitutes a necessary threshold showing for an award of preliminary injunctive relief, ” González-Droz v. González-Colon, 573 F.3d 75, 79 (1st Cir. 2009). The third factor focuses upon the “hardship to the movant if an injunction does not issue as contrasted with the hardship to the nonmovant if it does.” Rosario-Urdaz v. Rivera-Hernandez, 350 F.3d 219, 221 (1st Cir. 2003). The final factor concerns “the effect, if any, that an injunction (or the withholding of one) may have on the public interest.”[1] Corp. Techs., Inc. v. Harnett, 731 F.3d 6, 9 (1st Cir. 2013).

         The movant bears the burden of establishing entitlement to preliminary injunctive relief. See Esso Standard Oil Co. (Puerto Rico) v. Monroig-Zayas, 445 F.3d 13, 18 (1st Cir. 2006).


         Before delving into the evidence presented at the hearing, some context will be helpful. The court therefore briefly discusses the industry in which the parties operate, and HCC's general allegations against defendants.

         I. Specialty Insurance Industry

         Both HCC and PPI are providers of specialized insurance products. Relevant here are three types of insurance: prize indemnity, contractual bonus, and over-redemption. Prize indemnity insurance provides insurance for promotions where prizes are distributed upon the occurrence of a specified contingency. Examples include a half-court shot promotion at a basketball game and a “spin-the-wheel” promotion at a retailer. Contractual bonus insurance exists for contracts under which an athlete or coach receives an incentive payment if he or she meets a certain goal. Thus, if a professional basketball player is contractually entitled to receive a bonus payment for winning a league championship, contractual bonus insurance covers that risk. Over-redemption insurance protects against the risk that too many consumers will redeem a coupon or discount issued by a business.

         There are a No. of different actors within the industry. Insurance companies, like HCC and PPI, analyze risks and underwrite policies. The insured can be the entity seeking to cover a particular risk, like a store running a prize promotion for customers. In the case of prize indemnity insurance, the insured can also be a third-party promotional agency, which runs the promotion on behalf of a business. There are also insurance brokers, who act as intermediaries between entities seeking insurance and the insurance companies providing such insurance. Finally, there are reinsurers, who agree to cover some of the risk underwritten by an insurance company in exchange for a portion of the premium paid by the insured. The arrangement between an insurance company and a reinsurer may be negotiated as to each individual policy, or the parties may have a standing agreement that allows the insurance company to bind the reinsurer to a certain No. of policies without requiring additional approval.

         Policies issued by insurance companies in this industry are generally nonrenewable. That is, unlike other forms of insurance, clients come to insurance companies to cover specific risks, and the policies do not automatically renew once the policy term has elapsed. When combined with the fact that promotions tend to occur on an irregular basis, the result is that the business of these insurance companies is not consistent, but cyclical. Still, the record shows that brokers, promotional agencies, and businesses tend to develop relationships with certain insurance companies, such that insurance companies have an expectation that a portion of their client base will return when a particular risk or promotion needs to be covered.

         II. HCC's Allegations against Defendants

         Woodbury worked for HCC, or one of its predecessors, [2] from 1992 to June 2016. HCC alleges that, in that time, Woodbury signed two agreements that restrict his ability to work for PPI. In 1996, Woodbury executed the first agreement with HCC (the “1996 Agreement”). The 1996 Agreement imposes two kinds of restrictions on Woodbury.

         The first relates to competition (the “noncompete restrictions” or “noncompete obligations”). Woodbury agreed that, during his employment and for a period of two years following his termination, he would not engage in certain types of competitive activities:

[T]he Employee shall not . . .
(i) divert or attempt to divert business from the Employer including but not limited to soliciting, attempting to solicit or accepting business from any policy holder, or person or entity underwritten by the employer or any of the employer's clients; . . .
(iii) interfere in any material respect with any business relationship between the Employer and any other person; or
(iv) render any services as an officer, director, [or] employee . . . to . . . any person who is engaged in activities which, if performed by the Employee, would violate [these provisions].

Doc. no. 82-1 at 4 of 5. The Agreement goes on to state that “[t]he foregoing restrictions are not intended to restrict the Employee in securing employment in any other insurance-related business endeavor.” Id.

         The second restriction relates to nondisclosure and confidentiality (the “nondisclosure restrictions” or “nondisclosure obligations”). Woodbury agreed that he would not “at any time during or after the date of this Agreement” disclose or use HCC's confidential information without authorization. Id. at 3 of 5. Confidential information is defined to include “business strategies; customer lists; the particular demands and requirements of customers and insureds generally; client insurance, financial and commercial data including underwriting information and guidelines, policy language and premium data; and the business and financial records of the Employer.” Id.

         Woodbury agreed that, with respect to either set of restrictions, “remedies at law for any breach” would be inadequate and that “temporary or permanent injunctive relief may be granted . . . without the necessity of proof of actual damages.” Id. at 4 of 5. The Agreement recites as consideration that Woodbury could receive discretionary bonuses during his employment, and would be entitled to receive a mandatory severance payment upon termination of his employment. The severance payment would increase depending on the length of Woodbury's employment, up to a cap of $20, 000. The 1996 Agreement is governed by Massachusetts law.

         HCC alleges that Woodbury later reaffirmed these restrictions in a second agreement. Specifically, in October 2001, the parent company of HCC (HCC Insurance Holdings, Inc.) entered into a security purchase agreement with a predecessor of HCC (ASU International), whereby HCC's parent company acquired the stock of HCC's predecessor. Woodbury executed a release as part of the acquisition (the “2001 Release”). Under the 2001 Release, Woodbury confirmed his obligations under “any applicable nondisclosure [or] non-competition” agreements, and further agreed that the provisions of such agreements would be “specifically incorporated” into the Release. Doc. no. 46-1 at 5 of 6. The consideration recited in the 2001 Release is the payments Woodbury would receive in connection with the acquisition, which ultimately exceeded $132, 000.[3] The 2001 Release is governed by Delaware law.

         The present litigation arises from Woodbury's decision to leave HCC in June 2016. Immediately after leaving HCC, Woodbury joined Buttine Underwriters Agency (“Buttine”), which created PPI-a new division within the company-to provide insurance in the three categories of insurance that Woodbury specialized in while at HCC: prize indemnity, contractual bonus, and over-redemption. HCC contends that since joining PPI, Woodbury has repeatedly violated both the noncompete and nondisclosure covenants in his agreements. Regarding competition, HCC alleges that Woodbury has solicited businesses, promotional agencies, and brokers that had active business relationships with HCC.[4] In some cases, Woodbury succeeded in enticing entities to work with PPI over HCC. Regarding confidentiality, HCC alleges that Woodbury has used HCC's confidential information without authorization, by copying HCC policy language for PPI's policies, and by using his knowledge of HCC's pricing practices to undercut HCC's prices. HCC further alleges that PPI has encouraged Woodbury to violate his noncompete and nondisclosure restrictions.

         In its amended complaint, HCC raises claims for specific performance of the 1996 Agreement and 2001 Release (Count I); breach of the 1996 Agreement by Woodbury (Count II); breach of the 2001 Release by Woodbury (Count III); misappropriation of trade secrets by both defendants (Count IV); tortious interference with the 1996 Agreement and 2001 Release by PPI (Count V); a declaratory judgment that the 1996 Agreement and 2001 Release are valid and enforceable (Count VI); and a claim against both defendants under the New Hampshire Consumer Protection Act (Count VII).

         III. Preliminary Injunction Hearing

         The court now summarizes the relevant testimony and evidence presented by the parties at the preliminary injunction hearing. The court organizes the testimony and evidence chronologically, by witness.

         a. Defendant John Woodbury

         Woodbury began working at HCC in 1992, after serving as an intern at the company. Woodbury described his tenure at HCC as one involving a steady increase in responsibilities, authority, and pay. He first held the position of risk analyst. Woodbury described the position as involving “special projects” as well as administrative work. He would create spreadsheets, conduct research on different risks, perform data entry, and answer phones. By 1994, he was working in the prize indemnity market, preparing and proofreading policies, conducting research, and coordinating with reinsurers on policies.

         Woodbury became an account manager in 1995. As an account manager, Woodbury's principal tasks were to manage client relationships and analyze risks. Generally, Woodbury testified that his basic duties and expectations over the next two decades remained the same-assess risks, manage clients, and, to a lesser degree, market the company-but that the scope and autonomy of his duties increased and “evolved” over time. That is, as he was promoted, he had more autonomy in assessing risks, issuing policies, managing accounts, and generating business. In addition, his responsibility to generate business became a more central part of his job over time.

         At the hearing, Woodbury downplayed the nature and extent of his responsibilities as an account manager in 1996. He asserted that generating business was not a significant duty- rather, the company handled the marketing-and that his responsibilities were more circumscribed and subject to oversight than in later years. The evidence supporting Woodbury's claim is mixed. On the one hand, there is evidence that, in September 1996, his responsibilities of preparing quotes, issuing policies, and conducting marketing in the three relevant product categories required the approval of superiors. But there is also evidence that, by February 1997, Woodbury was managing the prize indemnity, contractual bonus, and over-redemption division, administering hundreds of accounts, creating new promotional ideas, and assessing complex risks.

         Regardless of the exact time at which he became involved in generating business, Woodbury testified that HCC took active steps to assist Woodbury in marketing the company. During Woodbury's tenure, HCC hired a marketing consultant, joined a promotional marketing association, and reimbursed Woodbury for expenses associated with cultivating and maintaining client relationships-for example, by reimbursing Woodbury for the cost of dinners with HCC clients. Woodbury came to develop strong relationships with businesses, brokers, and promotional agencies, some of whom would run the same promotion, and obtain the same insurance from HCC, year after year. In Woodbury's words, these clients simply “liked working with me, ” which Woodbury attributed to his professionalism and honesty. As a result, Woodbury had intimate knowledge of certain repeat promotions.

         In 2001, HCC promoted Woodbury to senior vice president, the position he would hold until his resignation. In that role, Woodbury came to oversee his division, handle more and larger accounts, and underwrite policies on his own authority.

         With respect to the 2001 Release, Woodbury testified that, while he does not recall executing it, he does not dispute its authenticity. He testified that he did receive payments as a result of the 2001 acquisition of ASU International by HCC's parent company, totaling more than $200, 000 over the course of several years.[5] In addition to those payments, Woodbury also executed two stock option agreements with HCC's parent company in 2001 and 2007. These stock option agreements contained clauses requiring Woodbury to forfeit any gains he made from the agreements if he competed against, or misused the confidential information of, HCC within one year of his termination.

         Beginning in January 2016, Woodbury discussed the possibility of moving to Buttine with Rejean Audet, one of Buttine's principals.[6] They had multiple meetings, the exact content of which Woodbury could not recall at the hearing. Documentary evidence, such as email correspondence, sheds some light on the content of those discussions. At a meeting in late January, Woodbury disclosed details of his work at HCC, including (1) the percentage of clients he had that were businesses and the percentage that were intermediaries like promotional agencies and brokers; (2) his expectation for the amount of business he could underwrite at Buttine; (3) the fact that he was the only point person at HCC for a substantial portion of his clients; and (4) his overall “book of business” at HCC.

         There was also evidence that, during these negotiations, Woodbury pitched his potential move to Buttine as one where Buttine was essentially buying a “book of business, ” which Woodbury estimated could amount to $3-$5 million in gross premiums. At the hearing, Woodbury narrowly defined a “book of business” to mean “business that would want to work with me.” He testified that he would not be taking clients away from HCC once he sought out their business for Buttine, because those clients were free to choose their insurer.

         As part of Woodbury's negotiations with Audet, Buttine hired an attorney to examine the 1996 Agreement. Woodbury testified that, despite his belief that the 1996 Agreement was not enforceable, he was concerned that HCC would attempt to enforce it. Prior to resigning from HCC, Woodbury reviewed his personnel file; neither the 2001 Release nor the stock option agreements were in that file.

         The documentary evidence suggests that, by May 2016, Woodbury had agreed to join Buttine and run PPI. Woodbury testified that his final employment agreement with PPI tied his compensation to the revenue he generated. Woodbury agreed that, by joining PPI, he would “probably be competing” with HCC.

         On the morning of June 30, 2016, Woodbury delivered a resignation letter to William Hubbard, chairman of HCC, and notified Hubbard that he accepted a position at Buttine. Woodbury intended for his resignation to be effective as of July 8, 2016. After learning of Woodbury's resignation, Matthew Overlan, then HCC's chief operating officer, sent two letters to him: one informed Woodbury that his final day would be June 30, not July 8; the other reminded Woodbury of his noncompete and nondisclosure obligations under the 1996 Agreement.

         HCC also deposited approximately $12, 000 into Woodbury's bank account.[7] Upon receiving the payment, Woodbury wrote a letter dated July 7, 2016 to Overlan, explaining that he viewed the 1996 Agreement as unenforceable. Woodbury also informed Overlan that he had returned all HCC documents and files in his possession, and that he would honor his confidentiality obligations. Believing the $12, 000 deposit to be the severance payment to which he was entitled under the 1996 Agreement, Woodbury included a $20, 000 check with his letter. Woodbury explained to Overlan that, in light of the unenforceability of the 1996 Agreement, it would be wrong to accept the deposit.

         Woodbury began working at Buttine on July 1. Buttine officially launched PPI in mid-July, and issued a press release announcing the launch. The press release states that PPI would be led by Woodbury.

         Woodbury testified that, in mid-August 2016, he began contacting businesses with whom he had worked while at HCC. The record is replete with evidence that Woodbury actively solicited businesses, brokers, and promotional agencies that had longstanding relationships with HCC. Woodbury testified that he went on to write policies for some of these entities. Nevertheless, Woodbury denied that, in doing so, he had diverted business from HCC.

         Woodbury denied using any of HCC's confidential information while at PPI. The evidence relating to Woodbury's use of confidential information is largely circumstantial. There is evidence that Woodbury retained company information after his resignation. For example, Woodbury conceded that he had compiled a list of email addresses of HCC clients prior to his resignation. He also took cell phone pictures of emails regarding a particular HCC promotion. And, on the day before tendering his resignation, Woodbury took a picture of HCC's 2016 budget with his cell phone. Woodbury could not explain why he took the picture; he conceded that it was not for “HCC business purposes.” Finally, Woodbury acknowledged that other HCC information remained on his personal email account and wife's computer even after he left HCC-including communications with HCC clients and a 2011 prize indemnity policy-but he claims this was unintentional.

         One piece of compelling circumstantial evidence that Woodbury used confidential information is worth highlighting. Woodbury acknowledged that, in May 2016, he informed HCC executives that his division had incorporated a rate increase with respect to some “hole-in-one” promotions. After joining PPI, Woodbury was able to convince some of those promotions to work with PPI. This circumstantial evidence suggests that Woodbury was able to use his knowledge of HCC's pricing to compete against HCC for those clients.

         Woodbury professed to have a narrow view of what constitutes confidential information. Woodbury testified that he did not believe that quotes, pricing, and client lists were necessarily confidential, because “a lot of information is . . . publicly known and publicly transferred, ” and because some of that information, like an insurance policy, is disseminated to the customer. Nevertheless, Woodbury conceded that he does not generally share price quotes, client lists, policy terms, premium amounts, or budget information to competitors, and he did not dispute that the 1996 Agreement broadly defined “confidential information” to include such materials.

         At the hearing, Woodbury described the specialty insurance market in which he worked while at HCC. The market is national, rather than regional, and Woodbury would seek out business throughout the country. He testified that his general task was to assess risks and manage client relationships. Some clients would run annual promotions and seek out insurance from HCC on a regular basis. When asked who HCC's client would be in a situation where a promotional agency is acting on behalf of a business to obtain insurance, Woodbury responded that “neither of them would be considered” HCC's client. He went on to explain that the business would be the promotional agency's customer, and the promotional agency “acts like a broker and . . . can go to other insurers if they choose to.”

         Near the end of his testimony, Woodbury emphasized that if he were precluded from working with insurance brokers, it would not only severely harm his business, it would limit brokers' ability to select the insurance executive whose judgment they most trust.

         b. Rejean Audet (President of Buttine)

         Rejean Audet is a partner and president of Buttine. Prior to joining Buttine, Audet worked at HCC. Audet worked at HCC for four years; he started in 1999 and left in 2003.

         Audet came to know Woodbury while working at HCC. Audet testified that, in late 2015, he reached out to Woodbury about joining Buttine. That discussion progressed such that, by January 2016, Woodbury had sent Buttine a copy of the 1996 Agreement and Buttine had received evaluations from attorneys regarding the enforceability and effect of the Agreement. Audet testified that he was not aware of the 2001 Release when Buttine was evaluating whether to hire Woodbury.

         An email sent by Audet to Buttine's other partners shows that Buttine intended to hire Woodbury as of January 22. In the email, Audet sets out his plan for Woodbury's hiring: Buttine would establish a new division providing prize indemnity, over redemption, and contractual bonus insurance; Buttine would provide Woodbury with administrative, licensing, and legal support; and both Buttine and Woodbury would share in the profits of the business Woodbury developed. One reasonable inference from this email is that, from the beginning, Audet's recruitment of Woodbury was premised on the idea that Woodbury's role would be to bring HCC's clients to Buttine. Audet did not dispute that the book of business Woodbury would bring to Buttine would be the business that he had developed while at HCC. Audet described Woodbury as one of the “two or three biggest names” in this niche market, and he conceded that his intent was that Woodbury would bring the business that he had developed to Buttine.

         An email chain between Woodbury and Audet shows that, in May 2016, Buttine and Woodbury reached a final agreement on the terms of Woodbury's employment. In the email chain, Woodbury states that there would be “no guarantees” regarding the amount of business he could generate “if HCC is playing hardball and undercutting.” Audet testified that he understood Woodbury's point to be that PPI would be in competition with HCC. Audet also testified that he knew Woodbury was contacting brokers, businesses, and promotional agencies that had relationships with HCC in order to obtain their business for PPI.

         Audet testified that, to his knowledge, Woodbury did not bring any confidential information to HCC or use any of HCC's confidential information while at PPI. Audet conceded, however, that during their negotiations he asked Woodbury about the financial results Woodbury had obtained during the prior three years at HCC.

         With respect to HCC's allegation that Woodbury had compiled and taken a list of HCC customers, Audet stated that PPI obtained information about potential customers through publicly available sources. Audet believed Woodbury was using that publicly-sourced information to initiate contact with potential customers. Audet also testified that the identities of the brokers and promotional agencies that bring business to insurance companies are “not a secret” in the industry. With respect to HCC's allegations that Woodbury had taken and misused confidential information relating to the terms and structure of various promotions, Audet testified that the broker or promotional agency provides that information to the insurance company.

         c. Robin Lang (Vice President of HCC)

         Robin Lang is the vice president of HCC. She has worked at HCC for almost fifteen years, and currently works in the promotions division, which covers prize indemnity, over redemption, and contractual bonus insurance. She worked with Woodbury on a daily basis from 2005 until his resignation.

         Lang testified about the business of the promotions division generally. She stated that HCC's clients include brokers, promotional agencies, and businesses holding promotions. Lang explained that, although insurance policies in the promotions division are generally nonrenewable, HCC develops ongoing relationships with brokers and promotional agencies which creates a likelihood of repeat business. Lang stated that HCC continues to have “ongoing discussions” with brokers and promotional agencies even when no active policies are in place. Lang testified that, while at HCC, Woodbury was the primary contact for most of the brokers, promotional agencies, and other insureds with whom HCC did business.

         Lang also discussed the effect that Woodbury's move to PPI has had on HCC. In January 2017, Lang first discovered that Woodbury had diverted an HCC client to PPI. Specifically, Lang testified that when she contacted Creative Promotional Solutions, Inc., [8] which had previously obtained insurance through HCC for one of its promotions, the agency informed her that it intended to obtain insurance through Woodbury instead. Then, in February, Lang learned that Woodbury was attempting to take the business of another longstanding promotion by undercutting HCC's pricing. Ultimately, HCC was able to retain that client by reducing its pricing for the promotion. Finally, in March, Creative Promotional Solutions informed HCC that it would be obtaining insurance for a second promotion through Woodbury.

         Lang testified that Woodbury's and PPI's actions have had an impact on HCC's business for all three relevant insurance products, and that HCC has lost a No. of significant clients to Woodbury and PPI.

         d. Matthew Overlan (CEO of HCC)

         Matthew Overlan is HCC's CEO. He summarized the corporate history of HCC. Originally, HCC was named American Sports Underwriters Incorporated. It then changed its name twice, to American Specialty ...

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