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Allstate Insurance Co. v. Papanek

United States District Court, S.D. Ohio, Western Division

December 9, 2019

ALLSTATE INSURANCE COMPANY, Plaintiff,
v.
MELISSA PAPANEK, et al., Defendants.

         DECISION AND ENTRY: (1) GRANTING IN PART AND DENYING IN PART PLAINTIFF'S MOTION TO RECONSIDER SUMMARY JUDGMENT (DOC. 303); (2) GRANTING IN PART AND DENYING IN PART DEFENDANTS' MOTION TO RECONSIDER SUMMARY JUDGMENT (DOC. 305); (3) DEFERRING A RULING ON PLAINTIFF'S MOTION FOR SANCTIONS UNTIL AFTER TRIAL (DOC. 224); AND (4) DENYING DEFENDANTS' MOTION FOR SANCTIONS (DOC. 249)

          Michael J. Newman United States Magistrate Judge

         This civil consent case arising under the Court's diversity jurisdiction, see 28 U.S.C. § 1332, concerns, inter alia, breach of contract claims following the termination of an exclusive agent agreement (“EA Agreement') between Allstate Insurance Company (“Allstate”) and its former exclusive agent Melissa Papanek (“Papanek”). Phoenix Insurance and Financial Group, LLC (“Phoenix”), an independent insurance agency founded by Papanek following her termination from Allstate, is also a Defendant in the case. Melissa's father, Michael Papanek, who was Melissa's employee both while she remained an Allstate exclusive agent and after she founded Phoenix, was previously a Defendant in this case, but has been voluntarily dismissed by Allstate. Docs. 256, 278.

         This case is presently before the Court on the parties' cross-motions for sanctions (docs. 224, 229), as well as the parties' second cross-motions for summary judgment (docs. 303, 305) --motions for summary judgment that the Court, for the reasons set forth herein, construes as motions for reconsideration of summary judgment. The Court has carefully considered the foregoing, including all opposition and reply memoranda, and these motions are now fully briefed and ripe for decision.

         I.

         Allstate filed this action against Defendants on July 6, 2015. Doc. 1. The operative pleadings before the Court now are Allstate's first amended complaint (doc. 22) and the first amended answer and counterclaim by Melissa Papanek and Phoenix (doc. 34). In the first amended complaint, Allstate asserted the following claims: (1) breach of contract against Melissa Papanek; (2) breach of contract against Mike Papanek; (3) misappropriation of trade secrets against all three Defendants; (4) tortious interference with contractual relationships against Phoenix; (5) tortious interference with business relationships against all three Defendants; and (6) unfair competition against all three Defendants. Doc. 22.

         Melissa Papanek asserted the following counterclaims against Allstate: (1) breach of contract; (2) tortious interference with contractual and business relationships; (3) violations of Ohio's Deceptive Trade Practices Act (“ODTPA”), Ohio Rev. Code § 4165.011 et seq.; (4) breach of the covenant of good faith and fair dealing; and (5) unfair competition. Doc. 34. Phoenix joined in Melissa's ODTPA and unfair competition counterclaims. See doc. 34 at PageID 458-61.

         After engaging in a lengthy period of discovery, a period that initially closed on February 28, 2018 (doc. 131), the parties filed cross-motions for summary judgment and memoranda supported by voluminous exhibits and deposition transcripts (hereinafter referred to as the parties' first motions for summary judgment”). See docs. 124, 168, 185, 195. After a careful and detailed review of the evidence presented by the parties in support of their first motions for summary judgment, the Court set forth the material facts as follows:

Contractual Relationship Between the Parties
In 1972, Mike opened an Allstate exclusive agency, which came to be called the Papanek Agency, at 4048 Colonel Glenn Highway in Beavercreek, Greene County. Doc. 161 at PageID 4001. In 2008, Melissa purchased Mike's economic interest in the Papanek Agency. Doc. 158 at PageID 3358-59. As part of the transfer of the Papanek Agency, Melissa entered into an exclusive agency agreement (“EA Agreement”) with Allstate on August 13, 2008. Doc. 185-1 at PageID 5065-74. The EA Agreement authorized Melissa to sell Allstate insurance products and prohibited her from “either directly or indirectly, solicit[ing], sell[ing], or servic[ing] insurance of any kind for any other company, agent, or broker, or refer a prospect to another company, agent, or broker, without the prior written approval of [Allstate].” Doc. 195-2 at PageID 5696.
After selling his economic interest to Melissa, Mike continued selling insurance for the Papanek Agency as a Licensed Service Provider (“LSP”), [1] and executed an LSP Agreement with the Papanek Agency on October 26, 2008. Doc. 130 at PageID 2639; doc. 130-2 at PageID 2700-01. Allstate was a third-party beneficiary of the LSP Agreement, an agreement in which Mike agreed to “not, either directly or indirectly, solicit, sell or service insurance of any kind for any other company, agent, or broker, or refer a prospect to another company, agent, or broker without the prior written consent of [Allstate].” Id.
Both Melissa's EA Agreement and Mike's LSP Agreement provided for the protection of Allstate's confidential information. Melissa's EA Agreement provided that confidential information, such as “the names, addresses, and ages of [Allstate] policyholders[, ]” were “wholly owned” by Allstate. Doc. 195-2 at PageID 5697, 5699. Melissa, however, was permitted “use” of such confidential information, but “only for the purposes of carrying out the provisions of [the contract], ” i.e., “soliciting, selling, and servicing insurance and other [Allstate] Business[.]” Id. Substantially similar provisions were set forth in Mike's LSP Agreement. See doc. 130-2 at PageID 2700.
Termination of the Relationship Between the Parties
In March of 2013, Mike suffered a stroke; he did not work during his recovery. Doc. 182 at PageID 4746. According to Allstate records, the Papanek Agency terminated Mike's LSP Agreement on March 4, 2013 after he suffered the stroke. Doc. 160 at PageID 3995. However, by November 2013, Mike's health had substantially improved, and he returned to his job as an LSP at the Papanek Agency. Doc. 182 at PageID 4746. The parties point to no evidence, however, that Mike executed a subsequent LSP Agreement upon his return in November 2013.
Melissa's EA Agreement was terminable by either her or Allstate, “with or without cause, upon providing ninety (90) days prior written notice to the other” party. Id. at PageID 5703. On September 2, 2014, Allstate exercised its right under the EA Agreement and, both in person and in writing, notified Melissa that it was terminating the EA Agreement effective December 1, 2014. Doc. 195-3 at PageID 5707-08; doc. 195-4 at PageID 5710. According to Allstate, it exercised its right to terminate Melissa's EA Agreement because she admitted to improperly issuing auto and homeowners policies without the customers' knowledge; intentionally refusing to remove vehicles from customers' auto policies; and delaying cancellation of certain policies until after December 2013 in order to receive year-end bonuses. Doc. 195-4 at PageID 5710.
Rights and Duties Upon Termination
Under the EA Agreement, Melissa was permitted to “transfer [her] entire economic interest in the business written under [the EA Agreement] . . . by selling the economic interest in the business to an approved buyer.” Id. at PageID 5702. Upon notifying Melissa of termination, Allstate reminded her of her ability to sell her economic interest so long as the sale occurred by the termination date of December 1, 2014. Doc. 198-5 at PageID 6359. Under the EA Agreement, however, Allstate “retain[ed] the right in its exclusive judgment to approve or disapprove such a transfer.” Id. Notably, “[a]pproval of a proposed transfer” was “conditioned upon[, ]” inter alia, “the execution of a then current agency agreement by the proposed transferee.” Id. Melissa was unable to sell her economic interest and, according to her, Allstate impeded her efforts in that regard despite interested purchasers. See doc. 198 at PageID 6317-18.
Pursuant to the EA Independent Contractor Manual, which was made part of the EA Agreement between the parties, in the event Melissa was unable to sell her economic interest, she could “elect to receive [a] termination payment, subject to the terms and conditions of the [EA] Agreement[.]” Doc. 158-1 at PageID 2538 (SEALED). Pursuant to the Supplement to the EA Agreement, which was also incorporated as part of the contract between the parties, termination payments “are subject to compliance with the terms of the confidentiality and non-competition provisions of the [EA Agreement], which survive termination of the agreement.” Doc. 158-1 at PageID 3553 (SEALED). Ultimately, Melissa accepted the termination payments; a dispute exists as to whether such choice was voluntary or whether such choice was forced upon her by Allstate. Doc. 195-23 at PageID 5991; doc. 195-24 at PageID 5993.
In addition to the foregoing, upon termination of the EA Agreement, Melissa Papanek was required to, inter alia, “immediately return all property belonging to [Allstate], or dispose of it in such manner as the Company specifie[d]” and “immediately cease” using all telephone numbers used to conduct business under the EA Agreement. Doc. 195-2 at PageID 5703. Further, for “one year following termination” of the contract, Melissa Papanek was also prohibited from “solicit[ing] the purchase of products or services in competition with those sold by [Allstate]” to certain people, companies, or organizations who were Allstate customers at the time of termination. Doc. 195-2 at PageID 5704. Specifically, Melissa Papanek could not solicit Allstate customers that: (1) she or anyone working on her behalf sold Allstate products to; or (2) whose identity was discovered because of access to Allstate confidential information. Id. Finally, upon termination of the agreement, Melissa Papanek agreed not to solicit the purchase of products in competition with Allstate products within a mile of the office in which she sold Allstate products during the contract period. Id. at PageID 5704. Mike's LSP Agreement had similar prohibitions. Doc. 130-2 at PageID 2700-01.
Papanek Conduct Immediately Following the Notice of Termination
Upon receiving the 90-day notice of termination from Allstate on September 2, 2014, Melissa's reaction was to “get Allstate” and she discussed with employees of the Papanek Agency her desire to solicit Allstate customers away to her independent agency. See doc. 158 at PageID 3379. Almost two months later, in late October 2014, Melissa spent ten to twelve hours a day, for four straight days, printing confidential information for hundreds of Allstate customers with the specific intent of using such confidential material to solicit them for her new insurance agency. Doc. 196-1 at PageID 6109-11. In fact, Melissa admits she printed the voluminous amount of confidential information intending “to take back the book” from Allstate. Id. at 6111. Melissa acknowledges that printing the confidential information was “a bad decision” and testified in her deposition that, upon realizing her actions were wrong, she shredded the documents. Id. at 6110.
It is also undisputed that Papanek hung a sign on the door of the Papanek Agency after receiving the 90-day notice of termination from Allstate. See doc. 158 at PageID 3401. The sign on the door read:
The Papanek Agency
Thanks You for your business
Mike & Melissa are opening an Independent Insurance Agency at their previous North Dixie location, 3801 North ...

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