A legal battle between two insurance brokerages over whether a former employee violated non-compete agreements and poached numerous employees is not over yet but the brokerage bringing the charges has scored key early victories.
The lawsuit brought by U.K.-based Aon plc accuses defendants Newport, Calif.-based Alliant Insurance Services Inc. and executive Michael Heffernan, a former Aon employee, of staging “a raid” last year and allegedly taking more than two dozen Aon employees and closely-held information on Aon clients.
Aon’s suit, filed Feb. 3, 2016, seeks injunctive relief and damages arising out of Heffernan’s alleged breaches of restrictive covenants contained in agreements between Heffernan and Aon, as well as statutory and common law duties, and Alliant’s alleged aiding and abetting of those breaches.
The case is still in the early stages, but Alliant has been dealt two blows that several legal experts contacted by Insurance Journal believe have given Aon a definitive edge.
The first blow was Aon winning a temporary restraining order last year.
Then last month the court handed Aon another gift in ruling that the case will be heard in Illinois, rather than in California as Alliant wanted, because that’s what Heffernan agreed to in a non-compete agreement he entered into while employed by Aon.
Taking the case out of California against Alliant’s wishes and placing it in Illinois was a blow to Alliant’s defense, according to Kerry Fields, professor of clinical finance and business economics at the Marshall School of Business at the University of Southern California.
“The laws of more than 30 states enforce covenants not to compete against employees,” Fields said. “Illinois is a state that will enforce these covenants.”
California would likely have not done so, according to Lisa Von Eschen, partner with Lamb and Kawaskami LLP in Los Angeles.
“That’s a big win for Aon,” Von Eschen said. “California is notoriously the worst place to try and enforce any sort of non-compete.”
The agreement with Heffernan prevented him from contacting clients he worked with at Aon for two years and contacting any prospective clients for six months from the time he left.
“Both of those are ways to be broad to try and be enforceable in California,” Von Eschen said. “In California, there is such a strong public policy in favor of free-market competition.”
Attorneys for Alliant and Heffernan likely knew that and thus filed a motion to have the employment agreements ruled unenforceable under California law; they actually filed that motion before Aon filed its suit.
“If they had succeeded they would be in a lot better shape to fight these claims and have these agreements held unenforceable,” Von Eschen said.
Terese M. Connolly, a partner in the Chicago office of Culhane Meadows PLLC, also views the order to move the case to Illinois as a bad sign for Alliant.
“Unfortunately for defendants the judge did deny the motion to dismiss and said the proceedings are going to be governed by the substantive law of Illinois,” Connolly said. “That’s not going to bode well for the defendants.”
Alliant and Aon both declined to comment for this story.
Heffernan was an employee and executive at Aon from March 2000 through January 26, 2016. At the time he resigned, Heffernan was executive vice president and regional managing director of Aon’s construction services group and was the head of Aon’s San Jose office, according to the lawsuit.
The day of Heffernan’s resignation, according to the lawsuit, Alliant “raided Aon’s officers, employees, and clients by orchestrating a mass exodus of Heffernan and 26 other Aon employees from Aon’s San Jose office.”
Alliant appointed Heffernan executive vice president in its San Jose office the same day. According to the suit, prior to Jan. 26, 2016, Alliant did not have an office in San Jose, but following the exodus, Heffernan and most of the 26 employees joined the newly-created San Jose office.
The day he left Aon to join Alliant, Heffernan filed the preemptive action in California seeking a declaration that the restrictive covenants he signed with Aon were unenforceable under California law. The agreements with Aon included restricted stock unit agreements, according to the suit.
“Pursuant to these agreements, Heffernan agreed to be bound by, among other things, restrictions from competing with Aon, soliciting Aon clients or employees to leave Aon or join an Aon competitor, and improperly taking or using Aon confidential or trade secret information,” the suit states. “Heffernan entered into these agreements in consideration for, among other things, substantial awards of cash or stock.”
Heffernan and Alliant employees have since solicited Aon clients to join Alliant, according to the suit, in which Aon also claims it possesses an email solicitation apparently sent by Heffernan to an Aon client.
An attorney for Heffernan did not reply to requests for comment.
According to the suit, Alliant has done this sort of thing before.
In 2011, Alliant and Peter Arkley, another former Aon executive allegedly led a prior raid on Aon’s clients and employees. Aon filed an action in a New York court seeking to enforce the restrictive covenants in Arkley’s employment agreement, and Arkley and Alliant sought to dismiss the action on grounds of the prior action pending in California.
The New York court maintained the action in New York, finding, among other things, that “the evident disfavor California law holds for restrictive covenants, supports the motion court’s finding that the California action was a preemptive measure undertaken to gain a tactical advantage so as to negate the force and effect of the restrictive covenants, which the parties had freely agreed upon.” The case was Aon Risk Services v. Cusack.
Also according to the lawsuit, shortly before resigning from Aon, Heffernan requested access to AonWrap, the company’s proprietary software and data management system, which Aon says includes confidential data files on wrap up insurance projects.
“No Aon competitor has access to AonWrap or the data and analysis of the data that Aon compiles, develops and maintains within it related to the thousands of construction projects for which Aon’s San Francisco office managed the Wrap-Up Insurance from 1998 to present, or for that expansive date range,” the lawsuit states. “This is utterly unique and proprietary data, and includes data for construction projects throughout the United States, from coast to coast.”
According to the complaint, Heffernan on Jan. 12, 2016, downloaded a report from AonWrap’s database that contained data related to construction projects performed by over 8,000 companies. The lawsuit alleges that was the only time since at least August, 2015 that Heffernan downloaded any report from AonWrap.
“It is evident that Heffernan wanted and improperly downloaded the AonWrap data file, and the confidential and trade secret information belonging to Aon contained therein, so that he could use it for Alliant’s benefit once, as planned, he resigned from Aon and moved to Alliant,” the suit states.
Connolly said it’s at this point that Heffernan would have been best advised to talk to an attorney if he did as the suit states. “It’s advisable for people who are going to leave and who have agreements that contain restrictive covenants to get advice before doing anything that could remotely, possibly violate those agreements to avoid situations like this,” Connolly said.
In February 2016, the court granted a temporary restraining order enjoining the client and employee solicitation and confidential information use prohibited by the stock unit agreements.
That was blow number one.
The next decision favoring Aon occurred in February of this year, when the court issued an order for the case to be heard in Illinois.
Fields, the USC professor, said most often courts try to hold cases where it’s most convenient for employees. Though Heffernan resides in California, the court in this case held that the claims in the case outweighed everything else.
“He received a number of opportunities, which in exchange for these opportunities – which are the restricted stock – he promised that he would not use any of their confidential trade secret information,” Fields said.
Days after the order for the case to be heard in Illinois, attorneys for Alliant and Heffernan filed a motion for reconsideration, claiming that Illinois law requires the application of California law to plaintiffs’ claims “because California has a materially greater interest than Illinois in this case and California’s policy in favor of employee mobility and against restraints on employment is fundamental.”
Earlier this month the court ordered plaintiffs to respond to the motion and scheduled a status hearing update on April. 7. Aon attorneys filed a lengthy response on Monday arguing for denial of the motion.
Fields offered up six questions — along with answers — that a court will ultimately entertain in a case like this:
- Is there a state statute that will enforce the covenant? Yes.
- What’s the employer’s interest that’s at stake. Is it material? Yes.
- Was the agreement executed and done without duress? Heffernan received stock.
- What’s the reasonableness and scope of this agreement they want to enforce against Heffernan? He could have information that pertains to Aon’s affairs in many states.
- What duty would he have as a perspective employee to disclose that he’s bound by these agreements? He would have such a duty.
- Are there any prohibitions against solicitations of Aon’s customers? Yes.
Connolly believes a court trial is unlikely.
“More often than not these cases settle,” Connolly said.
Fields, who agreed on the likelihood of a settlement, said from what has happened in the early stages of the case, Alliant and Heffernan are not in a favorable position so far.
“If I were counsel for this gentleman, I would be concerned that a well-financed industry player had sued him,” Kerry said. “And these cases are usually settled and rarely go to trial because the employers win so often.”
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