Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_07-cv-05495/USCOURTS-cand-3_07-cv-05495-0/pdf.json

Parties Involved:
Andreini & Company
Defendant
James De La Torre
Defendant
Gallagher Benefit Services, Inc.
Plaintiff

Document Text:

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

GALLAGHER BENEFITS SERVICES, INC,

Plaintiff,

 V

JAMES DE LA TORRE AND ANDREINI &

COMPANY,

Defendants.

 /

No C 07-5495 VRW

ORDER

On October 29, 2007, Gallagher Benefit Services, Inc

(Gallagher) filed a complaint and application for Temporary

Restraining Order (TRO) in this court against James De La Torre

(“De La Torre”) and Andreini & Company (“Andreini”) (collectively

“defendants”). Gallagher is a company that sells insurance

products to federal employees and federal associations, through its

“Federal First” program. Doc #1 ¶¶6-9. De La Torre was employed

by Gallagher on or about October 5, 1998 as an account executive. 

As a condition of his employment, De La Torre signed Gallagher’s

Executive Agreement, wherein he agreed in relevant part:

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[De La Torre] agrees that, for a period of two (2) years

following the termination of his employment for any reason

whatsoever, he will not divulge [Gallagher’s] Confidential

Information or make use of it for his own purpose or the

purpose of another. In addition, [De La Torre] understands

and agrees that for a period of two (2) years following the

termination of his employment for any reason whatsoever, he

will not, directly or indirectly, solicit, place, accept, aid,

counsel or consult in the renewal, discontinuance or

replacement of any insurance by, or handle self-insurance

programs, insurance claims or other insurance administrative

functions for, any existing [Gallagher] account or any

actively solicited prospective account of [Gallagher] for

which he performed any of the foregoing functions during the

two-year period immediately preceding such termination, if the

loyal and complete fulfillment of his duties in connection

with the performance of any of the foregoing functions would

likely call upon [De La Torre] to reveal, make judgments upon,

or to otherwise use or divulge any of the Confidential

Information or to otherwise violate any provision of this

Agreement.

Doc #1, Ex A ¶13A.

De La Torre voluntarily resigned from Gallagher on or

about October 15, 2007 in the position of Vice President. Doc #1

¶3. Gallagher Branch Manager, David Brown, represents that De La

Torre handled business and/or negotiated with the following

Gallagher clients and prospective clients during De La Torre’s

employment with Gallagher: National Counsel of Bankruptcy Clerks,

Department of Justice Recreation Association, Treasury Department

Recreation Association, Nurses of the Veterans Association,

American Foreign Service Association, American Society of Military

Comptrollers, Federal Firefighters Association, National

Association of Air Traffic Specialists, Environmental Protection

Agency Employee Recreation Association and Federal Law Enforcement

Officers Association. Doc #3 ¶¶5, 22. 

De La Torre is now employed by Andreini, a company also

in the business of private insurance brokerage. Doc #1 ¶4.

Gallagher alleges that:

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Since leaving Gallagher, De La Torre utilized or disclosed

Gallagher’s confidential information about current clients and

contacts in this niche market to solicit those clients on

behalf of Andreini, and for himself, in order to terminate

Gallagher’s contracts with certain of Gallagher’s contracts

[sic] with certain existing clients and to persuade

prospective clients to sign contracts with Andreini. 

Specifically, De La Torre has utilized Gallagher’s

confidential and proprietary information to target existing

clients and persuaded them to terminate their business with

Gallagher and follow De La Torre to Andreini. De La Torre has

also utilized Gallagher’s confidential and proprietary

information to target Gallagher’s prospective clients who had

not yet purchased coverage through Gallagher to follow De La

Torre to Andreini.

Doc #1 ¶37. Gallagher further alleges that De La Torre has

utilized Gallagher’s confidential and proprietary information to

target and solicit at least two of Gallagher’s clients that De La

Torre serviced before moving to Andreini. Doc #1 ¶42. Gallagher

states that its current clients have alerted Gallagher to De La

Torre’s solicitation. Doc #1 ¶46. 

On October 30, 2007, this court entered a temporary

restraining order, which provided as follows:

(a) defendants shall not use or disclose confidential

information obtained by De La Torre during his employment with

Gallagher;

(b) defendants shall not fail to return to Gallagher any

confidential, proprietary and trade secret information

obtained by De La Torre during his employment with Gallagher;

(c) defendants shall not fail to return to Gallagher all 

originals and all copies of files, data and information

removed by De La Torre from Gallagher, including, but not

limited to, any disc and data removed from Gallagher by De La

Torre, all electronic information regarding Gallagher stored

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on De La Torre’s Blackberry and all information e-mailed to De

La Torre’s personal e-mail account from his Gallagher e-mail

account;

(d) defendants shall not fail to preserve without change from

the date of this order all discs and electronic storage

devices to which De La Torre had or has access during his

employment with Andreini; and

(e) defendants shall not solicit clients of Gallagher whose

business De La Torre handled while working at Gallagher, and

defendants shall not place or accept the insurance business of

such clients.

Doc #8. Defendants were further ordered to appear on November 5,

2007 to show cause, if any, why the temporary restraining order

should not be entered as a preliminary injunction. Doc #8.

At the hearing, defendants stipulated to sections (a)-(d)

of the restraining order but refused to agree to a restraining

order prohibiting them from soliciting accounts of Gallagher which

defendant De La Torre serviced while there employed or prohibiting

defendants from accepting such business. 11/5/07 Hr’g Tr, Doc #14. 

Counsel for defendants stated:

Now, your Honor, I can tell you that it’s not Mr De La Torre

or Andreini’s intention until further order of this Court to

try and take any further accounts or business from Gallagher. 

What they have, they got before there was any restraining

orders, and we’d like to litigate that issue as to the

propriety of them doing business with these people but not

under a restraining order. 

Doc #14 at 9:7-14.

Defendants argued that before De La Torre became employed

by Gallagher, De La Torre developed educational seminars used to

sell insurance to federal employees and, accordingly, these

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seminars did not constitute proprietary information belonging to

Gallagher and De La Torre should not be enjoined from using these

seminars. Doc #14 at 4-7. Defendants also argued that an

injunction was unnecessary because actual damages would be

ascertainable given the recordkeeping nature of the business. Doc

#14 at 9:15-10:4. In response, counsel for plaintiff clarified

that it is not the seminars that Gallagher seeks to protect but

rather “the prospects, the clients, the method of doing business.” 

Doc #14 at 11-13. Counsel for plaintiff also argued that damages

might not be sufficient and that injunctive relief was necessary

because defendants’ conduct threatened to put Gallagher out of

business. Doc #14 at 21:24-22:10.

The court lifted the TRO as to section (e) on the grounds

that, even if it could be proved that De La Torre improperly

solicited clients from Gallagher, it was unlikely that harm would

be so great as to make the court unable to rectify it with damages

and/or further injunctive relief. Doc #14 at 20:13-20; 22:24-

23:10. The court ordered further briefing and set the matter for

further hearing on November 15, 2007. Doc #14 at 19-23. The

matter is now fully briefed and argued.

“In the Ninth Circuit, a district court may issue a

preliminary injunction when the moving party demonstrates either

(1) a combination of probable success on the merits and the

possibility of irreparable injury or (2) the existence of serious

questions going to the merits and the balance of hardships tips

sharply in its favor.” See Lockheed Missile & Space Co v Hughes

Aircraft Co, 887 F Supp 1320, 1322 (ND Cal 1995), citing Arcamuzi v

Continental Air Lines, Inc, 819 F2d 935, 937 (9th Cir 1987); Los

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Angeles Memorial Coliseum Comm’n v National Football League, 634

F2d 1197, 1201 (9th Cir 1980). “These formulations are not

different tests but represent two points on a sliding scale in

which the degree of irreparable harm increases as the probability

of success on the merits decreases.” Big Country Foods, Inc v

Board of Educ of the Anchorage School Dist, 868 F2d 1085, 1088 (9th

Cir 1989). Under either formulation of the test, in order to

obtain preliminary injunctive relief plaintiff must show a “fair

chance of success on the merits, or questions serious enough to

require litigation.” Arcamuzi, 819 F2d at 937. 

 Gallagher’s motion for order to show cause regarding

preliminary injunction, which will be treated here as a motion for

preliminary injunction, focuses on defendants’ alleged

misappropriation of trade secrets and the use of those trade

secrets to compete against Gallagher. Amongst other claims,

Gallagher argues that the alleged misappropriation of trade secrets

violates the Uniform Trade Secrets Act (UTSA), codified as

California Civil Code § 3426 et seq, and California Business &

Professions Code § 17200 et seq, which broadly prohibits unfair

competition. Doc #1. Both of these statutes expressly permit

injunctive relief. See Cal Civ Code § 3426.2 and Cal Bus & Prof

Code § 17203. 

 Gallagher alleges that defendants misappropriated its

customer lists and other information and that these items

constitute trade secrets. Doc #1. “Trade secrets” are defined in

the UTSA as: “information, including a formula, pattern,

compilation, program, device, method, technique, or process, that:

(1) Derives independent economic value, actual or potential, from

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not being generally known to the public or to other persons who can

obtain economic value from its disclosure or use; and (2) Is the

subject of efforts that are reasonable under the circumstances to

maintain its secrecy.” Cal Civ Cod § 3426.1. Customer lists and

related information that are “procured by substantial time, effort,

and expense” are protectable trade secrets under this provision. 

Courtesy Temporary Service, Inc v Camacho, 272 Cal Rptr 352, 357

(Cal App 1990). 

 Gallagher asserts that its proprietary information “has

been accumulated, refined and developed over many years and at

great expense.” Doc #1 ¶8. Gallagher further asserts that it “has

invested substantial time and money in developing information and

knowledge about the * * * industry, its employees, volunteers and

preferences with regard to a wide range of insurance products.” 

Doc #1 ¶10. This information includes:

data related to Gallagher’s unique marketing and servicing

programs, procedures and technique; business, management and

personnel strategies; criteria and formulae used by Gallagher

in pricing its insurance products and claims management, loss

control, and information management services; the structure

and pricing of special insurance packages and products that

Gallagher has negotiated with various underwriters; lists of

prospective clients, their interests and needs; the identity,

authority and responsibility of key contacts at Gallagher

accounts and at prospective client companies and associations;

highly sensitive details concerning the structure, conditions

and extent of their existing insurance coverages; policy

expiration dates and renewal information, if applicable;

premium accounts; commission rates; risk management service

arrangements; loss histories; and other data showing the

particularized insurance requirements and preferences of the

accounts.

Doc #1 ¶11.

Gallagher represents that “[t]here is no comparable

program in the marketplace that combines the administration,

marketing, and website and member support as Gallagher’s Federal

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First business [and] Gallagher has spent extensive resources and

time collecting and analyzing data about special insurance packages

that the Company has negotiated with various underwriters and the

peculiar risks inherent in their operations.” Doc #1 ¶8. Although

Gallagher’s evidence in support of these allegations is not

overwhelming, Gallagher has provided a declaration by its Area

President, David Brown, that discusses the content of Gallagher’s

databases and the measures taken by Gallagher to keep its

information confidential. See Brown Decl (Doc #3) at ¶¶7-13. As a

result, Gallagher has demonstrated a reasonable likelihood that its

customer lists and other data qualify as trade secrets. 

 Gallagher alleges that, upon his resignation, De La

Torre initially agreed to meet with Brown to provide detail about

De La Torre’s work, including clients and prospects, educational

commitments made, policy holder information and the identities of

key decision makers on De La Torre’s accounts. Doc #9 at 7. 

Gallagher represents that De La Torre reneged on this agreement. 

Doc #9 at 7; Doc #3 ¶20. Gallagher also alleges that, upon his

resignation, De La Torre continued to use his Blackberry to access

Gallagher’s confidential and proprietary information, email

programs and servers. Doc #1 ¶35. A search of defendants’

electronic files, conducted by a forensic scientist hired by

Gallagher, revealed that on October 14, 2007, the day before De La

Torre resigned, he accessed and copied 150 files from Gallagher. 

Doc #22 ¶¶6-9. It was also discovered that on July 3, 2007 between

2:44 and 2:51pm, De La Torre accessed and likely copied 1117 files. 

Doc #22 ¶¶6-9. According to Gallagher, these files include

\\

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marketing budgets and client and program business plans, among

other files – all Gallagher property. Doc #18 at 7. 

 As stated above, after leaving Gallagher, De La Torre

joined Andreini, one of Gallagher’s competitors. De La Torre and

Andreini have used Gallagher’s proprietary information to solicit

the National Council of Bankruptcy Clerks (NCBC) and the Federal

Law Enforcement Officers Association (FLEOA), Gallagher’s current

and prospective client and endorser. Doc #19 ¶¶3-4. Brown

represents that FLEOA and NCBC constitute roughly 63% of

Gallagher’s entire business, and that loss of this business will

result in an estimated loss to Gallagher of at least $750,000 per

year. Doc #19 ¶5. 

 In sum, Gallagher has produced evidence showing that De

La Torre took and utilized information central to Gallagher's

competitive advantage, including customer lists, for De La Torre’s

own use in the course of his employment with one of Gallagher’s 

competitors. It is likely that many of the allegedly

misappropriated materials would qualify as trade secrets under the

UTSA. But defendants’ alleged misconduct exceeds trade secret

misappropriation. Even if all the materials appropriated by

defendants do not qualify as trade secrets, defendants’

appropriation of Gallagher’s materials in order to compete against

Gallagher and target Gallagher’s customers should still be enjoined

under California Business and Professions Code section 17200 et

seq, which prohibits unfair competition. See Courtesy Temporary

Service, 272 Cal Rptr at 360. “Indeed, the cases are legion

holding that a former employee’s use of confidential information

obtained from his former employer to compete with him and to

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solicit the business of his former employer’s customers, is

regarded as unfair competition.” 272 Cal Rptr at 360. 

Gallagher has, therefore, demonstrated a probability of

success on the merits. In order to obtain preliminary injunctive

relief, Gallagher must also demonstrate some degree of irreparable

harm. In general, the imminent use of a trade secret constitutes

irreparable harm. See e g, Campbell Soup Co v ConAgra, Inc, 977

F2d 86, 92-93 (3rd Cir 1992). This is particularly true when the

trade secret is a customer list, for solicitation of plaintiff’s

customers by defendants cannot be remedied by money damages alone. 

See e g, American Credit Indemnity Co v Sacks, 262 Cal Rptr 92, 96-

97. Moreover, to the extent that defendants have already persuaded

clients to terminate their contracts with Gallagher, Gallagher’s

ability to serve its customers has been compromised. The

consequent loss of business and good will cannot be compensated by

damages alone. 

 As a result, under the facts as presented, Gallagher has

shown a probability of success on the merits and a likelihood of

irreparable harm. Gallagher represents that it only seeks an

injunction as to those Gallagher clients and prospective clients

with whom De La Torre conducted business or attempted to conduct

business during his employment with Gallagher. Doc #1 at 23:3-6. 

The court finds this to be consistent with the terms of De La

Torre’s Executive Agreement. Doc #1, Ex A ¶ 13A. Accordingly, 

IT IS HEREBY ORDERED, effective upon the posting of the

bond hereinafter provided and until October 14, 2009, or such

earlier time as this order shall be modified or withdrawn, that

defendants and both of them are hereby enjoined and restrained from

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soliciting, placing or accepting business from the following

current and prospective clients of Gallagher: National Counsel of

Bankruptcy Clerks, Department of Justice Recreation Association,

Treasury Department Recreation Association, Nurses of the Veterans

Association, American Foreign Service Association, American Society

of Military Comptrollers, Federal Firefighters Association,

National Association of Air Traffic Specialists, Environmental

Protection Agency Employee Recreation Association and Federal Law

Enforcement Officers Association.

Gallagher shall post a bond in the amount of $30,000 not

later than November 20, 2007. 

 

IT IS SO ORDERED.

 

VAUGHN R WALKER

United States District Chief Judge

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