Two former Lockton producers breached their contracts when moving to rival Alliant without advance notice and owe the insurance brokerage firm more than $9 million in attorneys’ fees, a federal appeals court ruled Wednesday.
The ruling marks a victory for brokerages enforcing restrictive covenants against high-earning executives based in California, which has strong restrictions on noncompete clauses.
In West Series of Lockton Companies, LLC v. Eric D. Kaufman, the U.S. Court of Appeals for the Eighth Circuit in St. Louis upheld the enforceability of Missouri choice-of-law and forum-selection clauses in the brokers’ contracts, as well as customer nonsolicitation covenants. It also reversed a district court ruling that had excused the brokers from breaching a 30-day notice requirement before leaving.
Eric Kaufman and Sallie Giblin together earned about $30 million in profit distributions over 15 years as Lockton producers, according to the ruling. They were based in California but signed employment agreements requiring them to resolve disputes in Missouri, where Lockton is based. They “primarily serviced California-based clients,” the judges wrote. “But at times they worked with Missouri-based teams and support staff, and incurred Missouri tax obligations (which Lockton paid on their behalf).”
In July 2022, Mr. Kaufman said he was terminating his Lockton membership “effective immediately,” after Lockton sold a significant portion of his book of business as part of a 2021 asset sale, according to the ruling. His lawyer later told Lockton that because he worked and lived in California, he was “entitled to the protections of California law” and “workplace mobility,” according to Lockton’s 2022 complaint against Mr. Kaufman.
Ms. Giblin also departed “effective immediately” in November 2022. Ms. Giblin alleged harassment and retaliation, which Lockton’s original complaint says was an attempt to get her released from her contract.
Lockton sued Mr. Kaufman and Ms. Giblin in federal court in Missouri after they moved to Alliant Insurance Services, headquartered in Irvine, California. The brokers had sued Lockton in California state court, arguing their contracts’ restrictive covenants were unenforceable there.
Writing for the majority, Judge Bobby E. Shepherd, joined by Judge Morris S. Arnold, ruled that “California’s interest in the parties’ dispute is not materially greater than Missouri’s.” The brokers were not “mere Lockton employees” but profit-shared owners in the Missouri entities. “The Members are owners, not employees, and California does not take such a strong position against agreements not to compete in those circumstances.”
Voiding the contracts because the brokers were based in California “would give short shrift to the very real interests of Missouri in protecting Missouri businesses that operate on a nationwide or global scale,” the judges added.
The court rejected the brokers’ reading of a notice provision that would have let them quit on the spot. The opinion concluded the provision “permits producer members to terminate their interests in only one way: ‘on thirty … days’ written notice.’”
It also upheld the district court’s attorneys’ fee awards of $4.9 million in the case against Ms. Giblin and $4.3 million in the case against Mr. Kaufman. “Both sides hired extremely skilled and competent counsel because that is what these bet-the-business cases demanded,” they wrote.
Separately, it vacated a nominal damages award for the brokers’ breach of the forum-selection clauses and ordered the district court to calculate Lockton’s actual damages, including litigation costs from the California lawsuits, on remand.
Judge Ralph R. Erickson dissented, arguing the case never belonged in federal court in the first place and calling Lockton’s claim that the brokers took trade secrets, which gave it a path to federal court, “a ruse to get into federal court and circumvent” adverse California rulings in similar cases.
