Arthur J. Gallagher & Co. v. Tarantino

Background

Arthur J. Gallagher & Co. sued four former employees—Don Tarantino, Bernadette Heater, Michael Machette, and Spencer Brush—and Alliant Insurance Services, which hired the former employees. Gallagher alleged that the defendants solicited Gallagher’s customers and employees and took confidential information and trade secrets, including client lists, client contacts, client policy information, internal business strategies, financial information, and client-retention information.

Gallagher asserted claims including breach of employment contracts, federal and California trade-secret misappropriation, breach of fiduciary duty, aiding and abetting, intentional interference with prospective economic advantage, intentional interference with contractual relations, unfair competition under California Business and Professions Code § 17200, unjust enrichment, conspiracy, and injunctive relief.

The defendants moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which tests whether a complaint alleges enough facts to state a legally plausible claim.

Breach of Contract

Gallagher claimed that Tarantino and Machette violated their employment agreements by soliciting Gallagher’s customers and employees, and that all four individual defendants violated confidentiality obligations by taking or using Gallagher information.

The defendants argued that Tarantino’s and Machette’s written agreements had expired. The court rejected that argument, reasoning that the agreements’ restrictive provisions referred to termination of employment, not merely the end of the initial fixed employment term. Because both men continued working for Gallagher after those initial terms ended, the agreements were not unenforceable on that basis.

The court nevertheless held that the noncompete and broad nonsolicitation provisions in Tarantino’s and Machette’s agreements were unenforceable under California law. California Business and Professions Code § 16600 generally voids contracts that restrain lawful work, while § 16601 provides an exception for certain restrictions connected to the sale of a business and its goodwill. The court concluded that these provisions were too broad because their time limits were tied to the end of employment rather than the business sales, and their activity restrictions extended beyond the customers and employees of the businesses that Tarantino and Machette had sold to Gallagher.

The court dismissed with prejudice the contract claims against Tarantino and Machette to the extent they were based on the unenforceable noncompete provisions. It did not dismiss the confidentiality-based contract theory. Gallagher adequately alleged that all four individual defendants plausibly breached confidentiality obligations by misappropriating information.

Trade-Secret Misappropriation

Gallagher brought claims under the federal Defend Trade Secrets Act and the California Uniform Trade Secrets Act. The defendants argued that Gallagher had not identified its trade secrets specifically enough and had not adequately alleged that any defendant acquired, disclosed, or used them.

The court held that Gallagher adequately identified the alleged trade secrets. The allegations concerning Tarantino and Heater described client information, business strategies, financial information, and retention and renewal information, and identified specific documents. The allegations concerning Machette and Brush were a closer question, but the court found them adequate in light of Gallagher’s clarification that the information involved client contact and client policy information.

The court also found sufficient allegations against the individual defendants. Gallagher alleged that Heater and Brush emailed trade-secret information to personal accounts shortly before resigning, that the information concerned clients, and that some of those clients later moved to Alliant. Gallagher also alleged that Tarantino directed Heater and Machette directed Brush to take the information. The court found those allegations sufficient at the pleading stage.

The court dismissed the trade-secret misappropriation claim against Alliant without prejudice. Gallagher had not alleged specific facts showing that Alliant directed the individual defendants to take the information. The court stated that Alliant’s alleged benefit from the information and the fact that Alliant had previously been sued were not enough to establish such a directive. The court left open the possibility that Gallagher could seek permission to amend if discovery uncovered supporting evidence.

Other State-Law Claims

The court held that the California Uniform Trade Secrets Act partially preempted Gallagher’s other civil claims to the extent they were based on the same facts as the alleged trade-secret misappropriation. The claims were not entirely preempted because some alleged conduct, such as competing with Gallagher while still employed, could constitute wrongdoing independent of trade-secret misappropriation.

The court allowed Gallagher’s breach-of-fiduciary-duty claim against Tarantino and Machette to proceed because Gallagher adequately alleged that they held positions of trust and authority and solicited customers and employees while still working for Gallagher.

The court dismissed Gallagher’s aiding-and-abetting claim against Alliant without prejudice because the complaint did not adequately allege that Alliant directed the individual defendants to engage in unlawful conduct.

The court held that Gallagher adequately stated an intentional-interference-with-prospective-economic-advantage claim against Tarantino and Machette. It dismissed that claim without prejudice as to Alliant, Heater, and Brush. As to Heater and Brush, the court found no alleged contract restriction or special relationship that would make their conduct independently wrongful for purposes of that claim. As to Alliant, the court found the allegations insufficient for reasons consistent with its trade-secret analysis.

The court dismissed with prejudice Gallagher’s intentional-interference-with-contractual-relations claim against Alliant. The claim relied on alleged breaches of nonsolicitation provisions that were unenforceable as to Tarantino and Machette, while Heater and Brush were not subject to such provisions.

The court treated the unfair-competition and unjust-enrichment claims as derivative claims that would rise or fall with the other claims. It allowed Gallagher to amend to clarify that conspiracy was a theory of liability and that injunctive relief was a remedy, rather than independent causes of action.

Disposition

The court granted in part and denied in part the defendants’ motion to dismiss. It dismissed the specified claims and theories with or without prejudice as stated above, allowed other claims to proceed, and gave Gallagher four weeks to file an amended complaint only where the court expressly permitted amendment. The order disposed of Docket No. 23. Judge Edward M. Chen signed the order.