Young v. Arthur J. Gallagher & Co.

Background

Aurora F. Young brought one claim seeking a declaratory judgment—a court ruling clarifying the parties’ legal rights—under 28 U.S.C. § 2201(a) and Federal Rule of Civil Procedure 57. She asked the court to declare that her employment agreement with Arthur J. Gallagher & Co. did not prohibit her from soliciting customers she had previously serviced while working for Gallagher.

Young worked as a compensation consultant for about twenty years. She joined Integrated Healthcare Strategies, LLC in 1999, and Gallagher acquired that company in 2015. Gallagher required Young to sign an employment agreement containing restrictive covenants. Young resigned in March 2021, and her employment ended on April 6, 2021. She joined ECG Management Consultants on April 12, 2021, as a principal in ECG’s Provider Financial Services Division.

After Young joined ECG, six former Gallagher customers contacted her about possibly moving their business to ECG. Gallagher told Young that further communication with those customers would be considered solicitation and would violate the agreement. Nine additional Gallagher customers later contacted Young about moving their business to ECG. Two of the fifteen customers had already begun, or would soon begin, transitioning.

Young estimated that the fifteen customers had generated about $682,500 in annual revenue. Her ECG compensation included incentive pay based on revenue from referrals, at a rate of $87.50 for every $1,000 in revenue. She also stated that she might lose equity compensation valued at more than $75,000 if she could not solicit her former customers.

The opinion notes that the parties disputed whether the employment agreement contains a non-solicitation provision. The court expressly stated that it did not need to decide whether such a provision exists or whether Young violated it in resolving the motion.

Motion and jurisdictional standard

Gallagher moved to dismiss under Federal Rule of Civil Procedure 12(b)(1), which permits dismissal when the court lacks subject-matter jurisdiction, meaning legal authority to hear the case. Gallagher argued that Young had not shown that the amount in controversy exceeded $75,000, as required for diversity jurisdiction under 28 U.S.C. § 1332(a).

Young alleged that she was a resident of Hennepin County, Minnesota, and that Gallagher was a Delaware corporation with its principal place of business in Itasca, Illinois. Gallagher did not challenge the parties’ alleged diversity; it challenged only the amount in controversy.

The court explained that jurisdiction exists if a fact finder could legally conclude, from the pleadings and evidence submitted before trial, that the amount at stake exceeds $75,000. If it is legally certain that the amount cannot exceed $75,000, jurisdiction is lacking. Because the parties submitted declarations beyond the pleadings, the court treated Gallagher’s challenge as a factual challenge and considered that additional material.

Analysis

The court held that Young could use her past performance with the same customers to help measure the value of the requested declaration. Gallagher argued that prior compensation was relevant to a non-competition agreement but not a non-solicitation agreement. The court rejected that distinction, reasoning that both types of restrictions can prevent an employee from engaging in activity that would otherwise produce compensation.

The court also rejected Gallagher’s argument that the jurisdictional amount depended on improper speculation. Young identified specific customers, provided estimates of their past revenues, and supplied the compensation formula used by ECG. Using Young’s estimates, the court stated that the customers could generate nearly $120,000 in incentive pay over the two-year period of the alleged restriction. Gallagher’s own calculations placed Young’s potential compensation at $71,100.03, which the court noted was close to the jurisdictional threshold and excluded two customers representing additional revenue.

The court distinguished cases in which parties offered no evidence about likely customers, revenue, or compensation. It found that Young had provided credible information and that the parties’ revenue estimates were not so different as to suggest bad-faith reporting. The court therefore concluded that the amount in controversy had been established sufficiently for diversity jurisdiction.

Disposition

Chief Judge John R. Tunheim denied Gallagher’s Motion to Dismiss [Docket No. 11]. The order did not decide the ultimate dispute over whether Young may solicit the former customers; it decided only that the court had subject-matter jurisdiction to hear the declaratory-judgment action.