Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_04-cv-02527/USCOURTS-cand-3_04-cv-02527-6/pdf.json

Nature of Suit Code: 890
Nature of Suit: Other Statutory Actions
Cause of Action: 28:1331 Fed. Question

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United States District Court

For the Northern District of California

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United States District Court

For the Northern District of California

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

ALLIED NORTH AMERICA INSURANCE

BROKERAGE CORP. OF CALIFORNIA,

Plaintiff,

 v.

WOODRUFF-SAWYER, a California

Corporation

and

DERMOD HOUWELING, an individual,

Defendants. /

No. C 04-2527 MJJ

ORDER GRANTING IN PART AND

DENYING IN PART DEFENDANTS’

MOTIONS FOR SUMMARY

JUDGMENT; DENYING PLAINTIFF’S

MOTION FOR SUMMARY JUDGMENT 

Before the Court are Defendant Dermod Houweling’s (“Houweling”) and Defendant

Woodruff-Sawyer’s (“Woodruff”) motions for summary judgment. Plaintiff Allied Insurance

Brokerage Corporation of California (“Allied”) has also moved for summary judgment on the Third,

Fourth, and Tenth Causes of Action of Plaintiff’s First Amended Complaint. For the reasons set

forth below, the Court GRANTS IN PART AND DENIES IN PART Houweling’s motion,

GRANTS IN PART AND DENIES IN PART Woodruff’s motion, and DENIES Allied’s motion.

BACKGROUND

This action arises out of Houweling’s change of employment from Allied to Woodruff, an

insurance brokerage and competitor of Allied’s, in June 2004. In 1998, Houweling joined Allied

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1

 Houweling also entered into a “Termination Agreement” which terminated his former position

of President and established that the Producer Agreement superceded Houweling’s previous

employment contract.

2

(having come from another brokerage firm, ABD Insurance and Financial Services) as a stockholder

and President. On December 1, 2001, Houweling sold his stock to Allied and one of the company’s

founders, James Untiedt. As part of this sale, Houweling and Untiedt entered into the “Stock

Purchase Agreement.” In that agreement, Houweling agreed to hold Allied confidential information

in a fiduciary capacity for a period of thirty months and not to induce several of Allied’s clients to

move their business to a competitor during that time. On the same day, Houweling entered into an

employment agreement, the “Producer Agreement,” whereby he was to continue his employ with

Allied under the new title “Executive Vice President” for a period of five years.1 As part of that

agreement, Houweling agreed to protect and maintain the confidentiality of Allied’s client

information and not to “interfere” with Allied’s client relationships, that is, in essence, solicit or

otherwise induce Allied’s clients to break off their relationship with Allied, throughout his

employment and for a period of two years following the termination thereof. He also agreed to

return all of Allied’s property immediately upon termination of his employment.

During his tenure as Executive Vice President, Houweling transferred many electronic files

to his home computer, including company contact lists and client files, both via email and utilizing

disks supplied by Allied. Allied alleges that Houweling made these transfers intending to utilize the

information contained therein to compete with Allied in future employment. Houweling stated that

he transferred these files to his home computer in order to work from home. Further, Untiedt

testified that this is a common practice at Allied—the company even supplies employees with

software to better facilitate the availability of company data for home work—and, specifically, that

he was aware that Houweling regularly worked from home, utilizing Allied files, and was free to do

so. 

Some time in late April 2004, Houweling contacted Chuck Shoemaker, Woodruff’s

Construction Group Practice Leader. At that time, he indicated that he was considering leaving his

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2Allied claims that Houweling told the two Amoroso representatives that he was leaving Allied;

however, Allied offers no evidence in support of this allegation. Further, this claim is rebutted by the

declaration of Dana McManus (Amoroso principal) who claims in his declaration that he knew nothing

of Houweling’s plans until after Houweling’s resignation on June 15.

3 Because of the prominent role that these three companies play in this litigation, they will also

be referred to collectively as the “Id’d Clients.”

4 Houweling testified that this announcement was planned prior to Houweling’s resignation and

was the purpose of his June 14 email to John Ward. Declaration of Gabrielle Wirth in Support in

Support of Motion for Preliminary Injunction (“Wirth Decl.”) Ex. A p. 90, Excerpt of Deposition of

Dermod Houweling.

3

employment with Allied and, though he was not yet prepared to take that step, inquired about

Woodruff’s business practices. On June 2, Houweling and Shoemaker met for the first time and

discussed Houweling’s possible move to Woodruff. At that time, Houweling gave Shoemaker

copies of the Producer Agreement and Stock Purchase Agreement. It appears from handwritten

notes on Woodruff’s copies of those agreements that Woodruff was informed of the existence of

confidential Allied files on Houweling’s computer in conjunction with this meeting. Subsequently

they entered into employment negotiations and Woodruff made a written offer to Houweling on June

11. On June 13, Houweling entertained, at Allied’s expense, four representatives of Allied clients,

including two from S.J. Amoroso Construction Co., Inc. (“Amoroso”).2 On June 14, Houweling

emailed a list of contacts for several Allied clients including contacts at Amoroso, Gonsalves &

Stronck (“G&S”), and Overaa Construction (“Overaa”)3

 to John Ward, a Woodruff employee. 

On June 15 at 8:30 am, Houweling gave written notice of his resignation to Untiedt. 

Houweling stated that he raised the issue of returning confidential documents to Untiedt at that time

and raised it again in the ensuing days without response. Untiedt asserts that he regularly attempted

to contact Houweling to discuss the return of these documents without response. 

Houweling began his employment at Woodruff later in the day on June 15. At 11:30 am,

Woodruff sent a general “announcement” of Houweling’s move to Woodruff clients, prospects,

underwriters, and other professionals including contacts listed in Houweling’s June 14 email to John

Ward.4

 Houweling later confirmed these contacts with phone calls and a personal visit to G&S’s

offices. Having received the announcement from Woodruff, both Amoroso and G&S made

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5

The TRO also prohibited Houweling from servicing the Accounts of Amoroso, G&S, and

Overaa. On July 28, 2004, the Court modified the TRO to lift the restriction on Houweling servicing

the account of these three clients.

4

arrangements to move their business to Woodruff that same day. Gerry Overaa, having not yet

received Woodruff’s announcement, received a phone call from Untiedt who informed him of

Houweling’s move and made a pitch to retain Overaa’s business. After conversations with Untiedt

and Houweling, Overaa moved its business to Woodruff on June 21.

Although Allied alleges otherwise, the principals of the Id’d Clients, McManus, Stronck, and

Overaa, all state in their declarations that they did not know of Houweling’s move until after

Woodruff sent out the announcement on June 15. Additionally, all stated that they moved their

business because of their extensive and positive experiences with Houweling in the past and not

because of any solicitation by Houweling or Woodruff. 

As part of its employment offer, Woodruff instructed Houweling not to use any of Allied’s

files to service his clients at Woodruff. As a result, Houweling requested information from the Id’d

Clients in order to build new files in the first weeks of his employment at Woodruff. Houweling

also emailed 14 messages from his home computer to his Woodruff email account, at least some of

which related to Allied clients. Allied has also produced evidence that at least some of these

documents were originally created before Houweling’s resignation. (See generally Third

Declaration of Andrew Crain in Support of Plaintiff’s Motion for Preliminary Injunction (3d Crain

Decl.)) Other than three documents allegedly shown exclusively to Shoemaker, none of those

documents have been sent beyond Houweling’s computer to any other employee at Woodruff. 

On June 24, 2004, Allied filed its complaint in this action. On July 1, 2004, the Court issued

a Temporary Restraining Order (“TRO”) that required Houweling and Woodruff to return to Allied

all Allied property in their possession.5

 Houweling passed away on November 20, 2004. His estate

was substituted in as a defendant on March 24, 2005.

On June 21, 2005, Allied filed its First Amended Complaint. Allied initially failed to obtain

the stipulation of Houweling or an order from the Court for leave to file an amended complaint. 

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Allied eventually moved for leave of Court to file the amended complain, and Defendants opposed

the motion. After hearing oral argument on the motion, the Court denied Allied leave to file the

amended complaint. 

LEGAL STANDARD

 The summary judgment procedure is a method for promptly disposing of actions. See FED.

R. CIV. PROC. 56. The judgment sought will be granted if “there is no genuine issue as to any

material fact and [ ] the moving party is entitled to judgment as a matter of law.” FED. R. CIV. PROC.

56(c). “[A] moving party without the ultimate burden of persuasion at trial [ ] may carry its initial

burden of production by either of two methods. The moving party may produce evidence negating

an essential element of the nonmoving party’s case, or, after suitable discovery, the moving party

may show that the nonmoving party does not have enough evidence of an essential element of its

claim or defense to carry its ultimate burden of persuasion at trial.” Nissan Fire & Marine Ins. Co.,

Ltd., v. Fritz Companies, 210 F.3d 1099, 1102 (9th Cir. 2000). If the movant meets its burden, the

nonmoving party must come forward with specific facts demonstrating a genuine factual issue for

trial. Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). 

If the nonmoving party fails to make a showing sufficient to establish the existence of an

element essential to that party’s case, and on which that party will bear the burden of proof at trial,

“the moving party is entitled to a judgment as a matter of law.” Celotex Corp. v. Catrett, 477 U.S.

317, 323 (1986). In opposing summary judgment, the nonmoving party may not rest on her

pleadings. She “must produce at least some ‘significant probative evidence tending to support the

complaint.’” T.W. Elec. Serv., Inc. v. Pacific Elec. Contractors Ass’n, 809 F.2d 626, 630 (9th Cir.

1987) (quoting First Nat’l Bank v. Cities Serv. Co., 391 U.S. 253, 290 (1968)).

 The Court does not make credibility determinations with respect to evidence offered, and is

required to draw all inferences in the light most favorable to the non-moving party. See T.W. Elec.,

809 F.2d at 630-31 (citing Matsushita, 475 U.S. at 587 ). Summary judgment is therefore not

appropriate “where contradictory inferences may reasonably be drawn from undisputed evidentiary

facts . . . .” Hollingsworth Solderless Terminal Co. v. Turley, 622 F.2d 1324, 1335 (9th Cir. 1980). 

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ANALYSIS

I. Computer Fraud and Abuse Act, 18 U.S.C. §§ 1030 et. seq., (“CFAA”)

Allied alleges violations of the CFAA, 18 U.S.C. Sections 1030(a)(4) & (a)(5)(iii). Both

sections initially require that the defendant access a protected computer without authorization. Id. 

Once a plaintiff establishes unauthorized access, section 1030(a)(4) requires proof that a defendant

accessed that computer with fraudulent intent and in furtherance of a fraudulent scheme. 

Alternatively, a plaintiff can prove that a defendant caused damage to a computer, 18 U.S.C.

§ 1030(a)(5)(A)(iii), causing loss to an individual in excess of $5,000 in one year. 18 U.S.C.

§ 1030(a)(5)(B)(I). 

There is no dispute between the parties that Allied’s computers are “protected” within the

meaning of the statute. The parties do, however, contest the question of authorization. Allied

argues that Houweling either exceeded his authority by accessing data bearing no relationship to his

work or lost his authority by acquiring interests adverse to Allied. Allied also argues that

Houweling acted with fraudulent intent, as that phrase is used in the CFAA context, acquired

information valued in excess of $5,000, and that his actions caused a loss to Allied exceeding

$5,000. 

Defendants argue that Allied has produced no evidence to support its CFAA claim. First,

they point out that Houweling was authorized to access Allied’s computers and data and that his

post-resignation access of Allied files was on his home computer which he also had authorization to

access. Defendants also contend that there is no evidence that Houweling was acting at Woodruff’s

direction between April and June 2004. Additionally, Defendants argue that Allied cannot

demonstrate fraudulent intent as required by section 1030(a)(4), and that Houweling did not cause

$5,000 worth of damage as required by section 1030(a)(5).

As an initial matter, the Court must decide whether Allied has raised an issue of fact as to

whether Houweling exceeded his authority in accessing Allied’s computers prior to his resignation

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Because “the crux of the offense under [the CFAA] . . . is the abuse of a computer to obtain the

information,” Shurgard Storage Centers v. Safeguard Self Storage, Inc., 119 F. Supp. 2d 1121, 1128

(W.D. Wash. 2000) (quoting S. Rep. No. 104-357, at 3 (1996)), the Court must look for unauthorized

access to a protected computer, not to the unauthorized access or use of electronic data. 

7 Just as Allied is unable to establish Houweling’s state of mind sufficiently to allow the Court

to find that he lost his authority to access Allied’s computers, a fortiori, Allied is unable to establish

fraudulent intent as required by section 1030(a)(4).

7

and on his own computer after his resignation.6 It is undisputed that Houweling was authorized to

use his home computer and Allied has not alleged that Houweling has accessed Allied computers at

any time after his resignation. As a result, Allied’s CFAA claims must rest on his use of Allied

computers prior to his resignation.

A party exceeds their authority when they access data they are not entitled to obtain or alter. 

18 U.S.C. § 1030(e)(6). While Allied argues that Houweling accessed information that he “had no

business accessing” because it related to clients with whom Houweling had no relationship and/or

related to completed business, the Court disagrees. It is clear from the deposition testimony of

Untiedt that Houweling had largely unfettered access to all of Allied’s data and was free to transfer

files as he wished. The mere fact that Houweling had never sent similar documents home, or the

same volume of documents, is simply not enough to raise an inference that Houweling was storing

these documents for later use. As a result, Allied has failed to raise an issue of fact regarding

whether Houweling exceeded his authority in downloading files for use at home.

Allied has also failed to produce evidence that would tend to establish that Houweling

became an agent of Woodruff prior to resigning from Allied. While the undisputed evidence shows

that Houweling was investigating a change of employment as early as April 2004, Allied has not

produced any evidence to support a finding that Houweling was accessing files during that period in

order to compete with Allied on behalf of Woodruff or any other potential employer.7

 See Coghlan

v. American SeaFoods Co. LLC, 413 F.3d 1090, 1095 (9th Cir. 2005) (stating that when the plaintiff

relies on circumstantial evidence, that evidence must be specific and substantial to defeat a motion

for summary judgment). 

In sum, because Allied has failed to raise a genuine issue of material fact regarding whether

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Houweling accessed Allied computers without authorization, the Court GRANTS Defendants’

motions for summary judgment as to Allied’s CFAA claims.

II. Breach of Contract

A. The Stock Purchase Agreement

Allied alleges material breach of provisions of the Stock Purchase Agreement which was

signed on or around December 1, 2001. In that agreement, Houweling agreed not to induce any of

Allied’s clients to break off their business relationship with Allied. He also agreed not to disclose

any of Allied’s confidential or proprietary information or use such information except for the benefit

of Allied for a period of 30 months following the date of the agreement. As previously discussed,

Allied alleges that Houweling transferred client files to his home computer during the restrictive

period for the purpose of later using the information against Allied’s interests.

By its terms, the 30-month “Restrictive Period” ended May 30, 2004. Although Houweling

appears to have been considering a change in employment prior to the termination of the restrictive

period, the undisputed record reflects that Houweling did not begin serious discussions with

Woodruff until June 2, after the expiration of the Restrictive Period. Despite Allied’s assertion to

the contrary, the Court does not find it reasonable to infer from Houweling’s June discussions with

Woodruff that Houweling was transferring Allied’s data to his home for nefarious purposes during

the Restrictive Period ending May 30. Because Allied offers no competent evidence supporting a

finding that Houweling breached his duties under the Stock Purchase Agreement, the Court

GRANTS Defendant Houweling’s motion for summary judgment as to the breach of the Stock

Purchase Agreement claim.

B. The Producer Agreement

1. The Non-Compete and Non-Solicitation Provisions/ Misappropriation

The third claim of Allied’s First Amended Complaint alleges that Houweling breached the

Producer Agreement by soliciting Allied’s clients and by misappropriating Allied’s confidential and

proprietary property. Allied also alleges a breach of the “Non-Interference” provision of Paragraph

14 of the Producer Agreement, which specifically prohibits Houweling from competing with Allied

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8

As discussed infra, the definitions of proprietary and confidential information established by

Paragraphs 11 and 13 also play a role in determining the validity of Paragraph 14.

9

Paragraph 11 establishes that Allied owns all of Houweling’s work product produced during

his employment with Allied. In Paragraph 12, Houweling agrees not to divulge or appropriate any

secret, confidential or proprietary information or knowledge regarding Allied or its clients—including

the names and addresses of Allied clients–at any time either during or after his employment with Allied.

Paragraph 13 establishes the proprietary and confidential nature of all files, records, customer lists, and

other materials either furnished to Houweling by Allied or used by Houweling on Allied’s behalf. Thus,

Paragraph 12 prohibits the use or disclosure of proprietary and confidential information as defined in

Paragraphs 11 and 13, including Houweling’s knowledge of Allied clients, as established by Paragraph

12. 

9

during his employment and soliciting Allied customers with whom he had dealings during the last

year of his employment for a period of two years following the termination thereof.8

 

a. Non-Solicitation Provision

As an initial matter, Houweling contends that Allied’s breach of contract claim as to the nonsolicitation provision fails because the evidence conclusively establishes that Houweling engaged in

no solicitation either before or after he resigned from Allied. Allied responds that the mailing list

Houweling provided to Woodruff, and the subsequent follow-up phone calls and personal visits,

constitute impermissible solicitation using confidential, proprietary or trade secret information.

As the Court previously found in its preliminary injunction order, the non-solicitation

agreement may be enforced provided that it seeks to protect confidential and/or proprietary

information without requiring proof that such information constitutes a trade secret. The nonsolicitation provision of Paragraph 14 appears to protect Allied’s confidential and proprietary

information as defined by Paragraphs 11, 12, and 13, which includes knowledge of Allied clients

Houweling acquired during his employ with Allied.9

 This restriction on solicitation is necessary to

protect that information given the difficulty in allowing Houweling to deal with former clients while

somehow ensuring sequestration of his proprietary and/or confidential knowledge. As a result, the

non-solicitation and non-disclosure provisions of paragraphs 12 and 14 are not voided by section

16600.

Because the Court once again finds the non-solicitation provision of the Producer Agreement

valid, the Court must decide whether there is any evidence from which a reasonable inference may

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10In Sacks, the court acknowledged the right of individuals and companies to announce new

affiliations; however, the court found that where such an announcement goes on to discuss the new

employer’s services and invites inquiries, that announcement becomes solicitation. 213 Cal. App. 3d

at 636-37. 

11Thus, issues of material fact also exist regarding whether Allied suffered damages as a result

of the breach of the non-solicitation provision.

10

be drawn that Houweling breached the provision. While Defendants argue that the Id’d Clients left

Allied for Woodruff without being solicited, Defendants’ argument ignores the evidence that,

whatever reasons the Id’d Clients may have had for moving their business, it is Houweling’s

solicitous actions, not the motivations of the Id’d Clients, that is relevant to the determination of

whether or not Houweling breached Paragraph 14. Therefore, if Houweling’s conduct in connection

with the June 15 “announcement” rises to the level of solicitation, he would have breached his

contractual obligations. Allied responds, relying on American Credit Indemnity Co. v. Sacks, 213

Cal. App. 3d 622 (2d Dist. 1989), to support its contention that the announcement was

impermissibly solicitous.10 The Court, therefore, must address the parties dispute over the legal

significance of this announcement.

As the Court previously found in its preliminary injunction order, the fax sent by Woodruff

on June 15 appears to be a simple announcement of Houweling’s new affiliation and contact

information; however, Houweling called the Id’d Clients to ensure that the principals had received

the announcement and invited their questions. During a responsive call from Dana McManus,

Houweling specifically discussed Woodruff’s qualifications. Houweling also personally visited

G&S on June 15. Therefore, regardless of the factors that may have contributed to the Id’d Clients’

move to Woodruff, Houweling’s solicitous actions in connection with the announcement lend

credibility to the factual inference that Houweling intended to solicit Allied’s customers.11

Accordingly, Houweling’s motion for summary judgment as to the breach of the non-solicitation

provision is DENIED.

b. Non-Compete Provision

Regarding the non-compete provision, the parties agree that the provision is void unless it

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falls within Business & Profession Code Section 16601, which provides that:

Any person who sells the goodwill of a business, or any owner of a business

entity selling or otherwise disposing of all of his or her ownership interest in the

business entity, or any owner of a business entity that sells (a) all or substantially

all of its operating assets together with the goodwill of the business entity, (b) all

or substantially all of the operating assets of a division or a subsidiary of the

business entity together with the goodwill of that division or subsidiary, or (c) all

of the ownership interest of any subsidiary, may agree with the buyer to refrain

from carrying on a similar business within a specified geographic area in which

the business so sold, or that of the business entity, division, or subsidiary has been

carried on, so long as the buyer, or any person deriving title to the goodwill or

ownership interest from the buyer, carries on a like business therein.

“The thrust of Business and Professions Code § 16601 is to permit the purchaser of a business to

protect himself or itself against competition from the seller which competition would have the effect

of reducing the value of the property right that was acquired.” Monogram Indus., Inc. v. Sar Indus.,

Inc., 64 Cal. App. 3d 692, 701 (1995). 

In an attempt to bring the non-compete provision within the scope of §16601, Allied asserts

that the provision was executed in connection with the sale of all of Houweling’s stock. Defendants

respond that the non-compete provision was located in the Producer Agreement, not the Stock

Purchase Agreement, and thus conclude that § 16601 is inapplicable in this case. Both parties move

for summary judgment as to this issue.

In California, summary judgment is proper only if the contract or the provision in question is

unambiguous. Brobeck, Phleger & Harrison v. Telex Corp., 602 F.2d 866, 871 (9th Cir. 1979)

(interpreting California law). If an ambiguity exists, the Court cannot resolve the dispute on

summary judgment. National Union Fire Ins. Co. v. Argonaut Ins. Co., 701 F.2d 95, 97 (9th Cir.

1983). “The rationale for this proposition is simple: ambiguity in a contract raises a question of

intent, which is a fact question precluding summary judgment.” Id.

The Court finds that Allied’s position is expressly contradicted by the language of the

Producer Agreement. The Producer Agreement provides that “this agreement constitutes the entire

agreement between the parties and supercedes all prior understandings and agreements regarding

Producer’s employment by Employer.” (Producer Agreement at ¶18.7.) The Producer Agreement

does not reference the Stock Purchase Agreement or Houweling’s sale of stock. Moreover, there is

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nothing in the Stock Purchase Agreement that states that Houweling will enter into a separate

agreement that contains a non-competition agreement. In fact, the Stock Purchase Agreement

contained its own restrictive covenants, the subject matter of which was essentially the same as the

restrictive covenants found in paragraph 14 of the Producer Agreement. The Stock Purchase

Agreement makes clear that the restrictive covenants Houweling agreed to enter into in exchange for

the money he was paid for his stock are those set forth in the Stock Purchase Agreement:

Accordingly, Houweling agrees that the covenants set forth in this Section 6

(collectively, the “Restrictive Covenants”) are reasonably necessary to protect the

interest of Untiedt in the Shares and that any violation thereof by Houweling

would materially diminish the value of the Shares and the goodwill embodied

therein.

(Stock Purch. Agmt. ¶6.)

Given these considerations, the Court finds that no triable issues of fact exists with respect to

whether the non-compete provision in the Producer Agreement was executed in the connection with

the sale of Houweling’s stock. Accordingly, Houweling’s motion for summary judgment as to

breach of the non-compete provision is GRANTED and Allied’s motion for summary judgment is

DENIED. 

c. Misappropriation

The Court finds that there is sufficient evidence to demonstrate that Houweling

misappropriated Allied information. Paragraph 13 of the Producer Agreement required Houweling

to return to Allied, immediately upon his termination or resignation, all property issued to or

generated by Houweling during the course of his employ. The parties dispute the extent to which

Houweling sought to return these documents. What is clear from the record, however, is that

Houweling did not return any of Allied’s confidential property until so ordered by the Court. Allied

has proffered evidence of files that were in Houweling’s possession that he has not yet returned,

including files that Houweling was filmed removing from Allied’s office late on May 30 and

electronic files that Houweling transferred first to his home computer and then to Woodruff’s

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12See e.g. Email, from Houweling at Allied to his Comcast email account at home on May 20,

2004. That email was entitled “COC” and contained the attachments COC app. Tracy.doc, GL delivery

letter 6.19.03-04, and GL pol notes 6.10.03-04. This email appears to trace to an email from

Houweling’s Comcast account to his account at Woodruff on June 14, 2004, entitled “FW COC” and

attaching the same set of documents. See also expensereport.xls emailed as an attachment to

Houweling’s Comcast account on April 22, 2004, which later appeared as an exhibit to the Shoemaker

Decl. Finally, and most clearly, is the list of client contacts emailed on June 14, 2004.

13

computers.12 Allied also notes that Defendants initially denied possession of any floppy disks, only

later to acknowledge possession of two, which were subsequently turned over. Further, Shoemaker

admits in his declaration “Re: Return of Property” that Woodruff is in possession of electronic files,

such as those discussed above, emailed from Houweling’s home email account. Accordingly, the

Court finds that genuine issues of material fact exist regarding whether Houweling misappropriated

Allied property in violation for the Producer Agreement, and Defendant Houweling’s motion for

summary judgment on this issue is DENIED. 

2. Five-Year Term of the Producer Agreement

The Producer Agreement provides in pertinent part as follows:

Employer hereby employs Producer and Producer hereby accepts such

employment under the terms and conditions hereinafter contained. Subject to the

provisions of this Section, Producer’s employment shall continue for a term of

five years, commencing as of December 1, 2001 and terminating on November

30, 2006 . . . . In addition to any other rights or remedies provided by law and

under this Agreement, Employer shall have the right to terminate Producer’s

employment hereunder for “good cause,” effective immediately upon written

notice. “Good cause” shall mean the following: i) the loss or suspension of any

license required for the performance of Producer’s duties; ii) commission by

Producer of a felony, whether or not related to the performance of Producer’s

duties; iii) voluntary termination by Producer of his employment or material

breach by Producer of his obligations under this agreement, which breach is not

cured to the reasonable satisfaction of Employer within 30 days following written

notice to Producer . . . . 

(Producer Agreement at ¶1.)

Allied alleges that Houweling breached the Producer Agreement because he was required by

its terms to work for Allied for a term of five years. Defendant Houweling asserts that the five-year

term in the Producer Agreement was not mutual, and only required that Allied not terminate

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13While Defendant Houweling also argues that the five-year provision is unconscionable and

therefore unenforceable, the Court disagrees. The California Labor code explicitly contemplates that

an employers and employee will enter an employment contract for a “specified term.” See Cal. Labor

Code §§ 2922, 2925. 

14Section 2925 provides that “[a]n employment for a specified term may be terminated by the

employee at any time in case of any willful or permanent breach of the obligations of his employer to

him as an employee.” However, the Court has not found a single case interpreting Section 2925 as

setting forth the sole means by which a contract of employment for a specified term may be terminated

by the employee.

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Houweling within the five-year period except for specified reasons.13 Both parties move for

summary judgment on this issue.

After considering the arguments of the parties, the Court finds that whether the five-year

term in the Producer Agreement was mutually binding on both parties is open to reasonable

interpretation. While the five-year term certainly applies to “Producer’s employment,” the contract

fails to explicitly state whether Allied, Houweling, or both are bound by that term. Standing alone,

the Court would be inclined to interpret the five-year to term to apply to both employer and

employee. However, while the contract clearly states that Allied may only terminate Houweling for

“good cause” prior to the end of the five-year term, the contract does not create a similar

requirement for Houweling to terminate his employment.14 In fact, the contract seems to

contemplate that “voluntary termination” by Houweling is acceptable. To be certain, the “voluntary

termination” language creates ambiguity regarding whether Houweling could terminate his

employment without cause. Given the ambiguity in the contract language, the Court cannot resolve

this dispute at the summary judgment stage. Accordingly, Defendant Houweling motion for

summary judgment as to the five-year employment term is DENIED. Allied’s motion for summary

judgment as to this issue is also DENIED.

III. Unfair Competition/ Breach of Fiduciary Duty and Duty of Loyalty

Allied initially seeks to establish unfair competition on the basis of Houweling’s alleged use

of confidential information. Allied also alleges that Houweling’s contractual breaches and breach of

fiduciary duty and duty of loyalty to Allied constitute unfair competition subject to Section 17203. 

Defendants respond that Allied has not produced sufficient evidence of unfair competition to support

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the claim.

“[A] former employee’s use of confidential information obtained from his former employer

to compete with his old employer and to solicit business of his former employer’s customers, is

regarded as unfair competition.” Rigging Int’l Maint. Co. v. Guin, 128 Cal. App. 3d 594, 606 (1982).

The use of electronic, paper, or human intelligence representing Allied’s confidential information to

solicit Allied customers, therefore, would represent unfair competition. As discussed above, at a

minimum, Allied has raised an issue of fact regarding whether Houweling and Woodruff used the

contact list emailed on June 14 to solicit Allied customers. Thus, Defendants’ motion for summary

judgment as to the unfair competition claim is DENIED.

The Court also finds that issues of material fact exist regarding whether Houweling breached

his fiduciary duty to Allied. Although the explicit fiduciary duty established by the Stock Purchase

Agreement expired on May 30, 2004, it appears that Houweling, nonetheless, continued to stand in a

fiduciary capacity to Allied until his resignation. Bancroft-Whitney v. Glen, 64 Cal. 2d 327, 345

(1996) (holding that officers and directors of corporations are held to “stand in a fiduciary relation to

the corporation.”); GAB Business Svc., Inc. v. Lindsey & Newsom Claim Svc., Inc., 83 Cal. App. 4th

409, 417 (4th Dist. 1990) (a corporate officer loses his fiduciary capacity only through resignation). 

Additionally, as noted above, Houweling agreed in Paragraph 12 of the Producer Agreement not to

use or disclose to any third party Allied’s proprietary information at any time during or after his

employment with Allied. This additionally appears to establish a fiduciary relationship between

Houweling and Allied.

In support of its claim, Allied has produced evidence that Houweling emailed a list of contacts

to John Ward on June 14, 2004. This list was sent, pursuant to a pre-existing agreement between

Woodruff and Houweling, so that Woodruff could send out a targeted announcement of Houweling’s

change in affiliation immediately after his resignation. As noted above, this activity appears to have

exceeded the confines of a permissible change of affiliation announcement and, therefore, may

constitute solicitation. Thus, the evidence suggests that Woodruff entered into an agreement to use

contact information sent by Houweling in violation of his fiduciary duties and contractual obligations

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in order to solicit Allied customers. Accordingly, Defendant Houweling’s motion for summary

judgment as to the breach of fiduciary duty and duty of loyalty is DENIED.

IV. Interference with Contractual Relations

A claim for interference with contractual relations requires 1) a valid contract; 2) knowledge

of the contract; 3) intentional acts designed to induce breach or disruption of the contract; 4) actual

breach or disruption; and 5) resulting damage. See Silicon Knights, Inc. v. Crystal Dynamics, Inc.,

983 F. Supp. 1303, 1309 (N.D. Cal. 1997); Reeves v. Hanlon, 33 Cal. 4th 1140, 1148 (2004). Both

parties move for summary judgment as to this claim.

As an initial matter, the Court finds that Allied has produced significant evidence to support

its interference claim. Allied has produced evidence that suggests that Woodruff was aware of

Houweling’s obligations under the Producer Agreement, including the five-year employment term

and the non-solicitation provision. Houweling furnished a copy of this agreement to Woodruff early

in their negotiations. Furthermore, the handwritten notes in the margins of that copy strongly suggest

that Woodruff was aware of Houweling’s contractual obligations. These notes also suggest that

Shoemaker was aware of the existence of Allied files on Houweling’s computer. With this

background, the Court notes again that the evidence suggests that Houweling emailed a list of Allied

clients and contacts to Woodruff on June 14 and Woodruff used this list to send out the disputed

announcement. Further, this June 14 email was apparently part of a pre-existing agreement between

Houweling and Woodruff to make this announcement immediately upon Houweling’s resignation. 

Given these considerations, the Court finds that a issue of fact exists regarding Woodruff’s

complicity in Houweling’s June 14 breach. Accordingly, Woodruff’s motion for summary judgment

as to this issue is DENIED. 

However, contrary to Allied’s assertion, the evidence does not conclusively establish that

Woodruff is liable for inducing Houweling to breach the Producer Agreement. As previously noted,

the Court finds that factual questions exist regarding whether Houweling’s employment was for a

specified term or “at will.” If Houweling’s employment was “at will,” Woodruff would only be

liable for intentional interference with contractual relations if it engaged in some “independently

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15The Court also refuses, at this time, to address Allied’s ability to recover lost revenue in this

case or limit the period of time for which Allied can recover compensatory damages.

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wrongful act.” Reeves, 33 Cal. 4th at 1145. As discussed, while factual questions certainly abound

regarding Woodruff’s complicity in Houweling’s June 14 breach, the evidence produced by Allied

has not conclusively established that Woodruff committed an “independently wrongful act” during

the process of hiring Houweling. Accordingly, Allied’s motion for summary judgment as to its

claim of intentional interference with contractual relations is DENIED. 

V. Allied’s Damages Claim

Woodruff contends that Allied is barred from seeking, under Business and Professions Code

Sections 17200 et seq. (“UCL”), restitution of commissions it should have received from clients had

Woodruff not cancelled and reissued the policies issued to client by Allied and for commissions on

work in progress. In Korea Supply Co. v. Lockheed Martin Corp., 29 Cal. 4th 1134, 1149 (2003), the

California Supreme Court noted that “restitution [under the UCL] is broad enough to allow a plaintiff

to recover money or property in which he or she has a vested interest.” 

Here, Allied has produced evidence that it had already placed insurance on behalf of the

clients in question. In fact, Woodruff’s own expert agreed that Allied’s right to commissions from its

clients vested when mid-term Broker of Record letters were sent: “industry practice is that mid-term

Broker of Record letters are recognized almost immediately for servicing purposes but commissions

remain with the broker of record at inception until such time as the policy is renewed.” (Defendant’s

Expert Report of Donald Way.) Thus, the Court concludes that factual issues exist regarding whether

Allied had a vested interest in commissions it was to receive from its clients. Accordingly,

Woodruff’s motion for summary judgment as to damages under the UCL is DENIED.

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CONCLUSION

 For the foregoing reasons, Defendant Houweling’s motion for summary judgment is

GRANTED as to the following claims: violation of the CFAA; breach of the non-competition

provision; and breach of the Stock Purchase Agreement claim. Houweling’s motion for summary

judgment is DENIED on all other grounds. Defendant Woodruff’s motion for summary judgment is

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GRANTED as to following claims: violation of the CFAA and breach of the non-competition

provision. Woodruff’s motion for summary judgment is DENIED on all other grounds. Allied’s

motion for summary judgment is DENIED in its entirety. 

IT IS SO ORDERED.

Dated: September _25_, 2005 

MARTIN J. JENKINS

UNITED STATES DISTRICT JUDGE

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