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Raul Lizalde, Dba Vebs; and Vebs, Inc v. Advanced Planning Services

June 22, 2012


The opinion of the court was delivered by: Hon. Anthony J. Battaglia U.S. District Judge


Now before the Court are several motions to dismiss this copyright infringement and breach of contract action. The Court found the motions suitable for decision on the written briefs. Local Civil R. 7.1(d). For the reasons stated below, the Court denies the motions to dismiss the Second Amended Complaint ("SAC").


Plaintiffs Raul Lizalde and VEBS, Inc. ("Plaintiffs") filed a SAC against three groups of Defendants. When appropriate the Court refers to them collectively as "Defendants," but at various points it is necessary to distinguish between the actors. "ICA Defendants" refers to the primary defendants -- the corporate entity Independent Career Agency, Inc., and its principal, Michael Rodman. See SAC ¶¶ 25, 48, 51. The Court uses the term "APS Defendants" to refer to ICA's affiliate, Advanced Planning Services, Inc., and its two principals, Jeff and Lori Roediger. Id. The third group is the "Insurance Agent Defendants" (or "Agents"). This group includes nine individuals (Beth Chalmers, Larry Chalmers, Charles Dzama, Miriam Feldman, Stan Friedman, Gus Gonzalez, Marilyn Miller, Robert Padilla, and Angela Parrish) and their companies (Chalmers Agency, Inc. and Premier Financial Solutions, LLC), who operate independent insurance firms throughout the United States.*fn1 Id. ¶¶ 10-21, 26, 50.

Plaintiffs sell insurance products, including life insurance, annuities, and long-term care policies. SAC ¶¶ 27-28. Plaintiffs also have "an expert understanding of retirement programs for federal employees." Id. Plaintiffs combined these two interests by designing an educational program to inform federal employees about their options for retirement benefits and financial planning. Id. ¶ 29. Plaintiffs created, and registered copyrights, on a booklet and six power-point presentations. Id. & Exs. B, F, G. Plaintiffs refer to these materials as the "VEBS Program." Plaintiffs contract with various federal agencies to present the information at workshops. Id. ¶ 29. After the presentation of the VEBS Program, Plaintiffs meet with individual employees and often sell them additional insurance products. Id. ¶ 30.

A. Three Contracts

In July 2008, Plaintiffs met with the ICA and APS Defendants to discuss a marketing venture involving the Insurance Agent Defendants. Id. ¶ 50. Ultimately, there are three related contracts, though each actor played a different role in the endeavor and signed different contracts. The parties agreed to share any commissions earned from sales generated by the VEBS Program.

1. Marketing Agreement

The first of the three contracts is the Marketing Agreement. The Marketing Agreement established a direct contractual relationship between ICA Defendants and Plaintiffs. ICA Defendants agreed to locate, train, and support other insurance agents to generate additional business for Plaintiffs' products and services. SAC Ex. D. Plaintiffs licensed the VEBS Program to ICA Defendants so that they, in turn, could distribute it to independent insurance agents who would generate sales to other retiring federal employees. Id. ¶ D.

By comparison, APS Defendants were involved in the discussions, but were not signatories to the Marketing Agreement. APS is an "insurance wholesaling firm" and a "master general agent" with several insurance companies. Id. ¶ 30. APS had an existing network of agents and companies who had their own insurance products to sell.

The final group, the Insurance Agent Defendants would pay an initial fee to be trained on the VEBS Program, and a monthly fee to continue using Plaintiffs' copyrighted materials in their own workshops to federal agencies.

With this structure in mind and following further discussion, Plaintiffs executed the contract with ICA Defendants in October 2008. SAC Ex. D. Neither APS Defendants nor the Insurance Agent Defendants signed the Marketing Agreement.

The Marketing Agreement designated Plaintiffs' copyrighted materials and other documents as "Confidential Information" that must be protected. E.g., id. ¶¶ B, C, 3-4, 11, 13-19. Plaintiffs granted ICA Defendants the "exclusive license" to use the VEBS Program and to license the Confidential Information to its agents "subject to the condition that ICA enter into a Confidentiality Agreement with its Agents." Id. ¶ 4; id. ¶ 11 ("ICA will not permit the use of Confidential Information by persons or Agents that are not authorized . . . and have not entered into a Confidentiality Agreement with ICA"). "ICA agrees not to modify or create a derivative work of the Confidential Material without the prior consent of VEBS." Id. ¶ 12. The Marketing Agreement imposed a duty on ICA "to protect VEBS Confidential Information" and to use it "only in pursuance of its business relationship with VEBS and its Agents." Id. ¶ 14, 15 ("ICA will take all reasonable measures to avoid disclosure, dissemination or unauthorized use"), 16.

The Marketing Agreement had a three-year term, but the contract could be terminated upon thirty-days written notice. "In the event that VEBS terminates this Agreement, ICA shall have the right to continue to use the Confidential Information with Agents already licensed by it and agrees to continue to pay VEBS override commissions."

Id. ¶ 6. Upon termination, ICA agreed to provide a list of Agents with existing licenses, but promised to "no longer use the Confidential Information in regard to any additional Agents." Id.

The Marketing Agreement further provided that even if the parties terminated the contract, certain provisions governing confidentiality "expressly survive." Id. ¶ 22. Among the surviving provisions, ICA promised not to permit the use of Confidential Information by unauthorized agents and promised to split commissions and renewals generated under the Marketing Agreement. Id. ¶ 11, 13, 14.

In addition, the Marketing Agreement included an arbitration clause of "[a]ny dispute arising out of or related to this Agreement." Id. ¶ 31; accord id. ¶ 14.

2. Confidentiality Agreements

With the possible exception of Dzama and Beth Chalmers, each of the named Insurance Agent Defendants signed the required Confidentiality, Nondisclosure, and Ownership of Intellectual Property Agreement (hereinafter "Confidentiality Agreement") with Plaintiffs and ICA.*fn2 SAC Exs. C-1 to C-10. In addition, Rodman and Jeff and Lori Roediger signed a Confidentiality Agreement. Id.

As the title suggests, this agreement protected Plaintiffs' confidential and copyrighted material. It was drafted by ICA. SAC ¶ 37. The Confidentiality Agreement designated both Plaintiffs and ICA Defendants as the party "disclosing" the Confidential Information to each Agent, who was the "receiving" party of the VEBS Program. It specified that "Receiving Party may use Confidential Information only in pursuance of its business relationship with the Disclosing Party." SAC Ex. C-2 ¶ 2.

"Except as expressly provided in this Agreement, the Receiving Party will not disclose Confidential Information to anyone without the Disclosing Party's prior written consent." Id. "All Confidential Information will remain the exclusive property of the Disclosing Party." Id. ¶ 4. Moreover, the disclosure of the VEBS Program under the contract "will not constitute an express or implied grant to the Receiving Party of any rights to or under the Disclosing Party's parent [sic], copyrights, trade secrets, trademarks of [sic] other intellectual property rights." Id. Above the signature line, the Confidentiality Agreement emphasized in all capital letters that: "This agreement affects your rights to improvements and developments you make during your relationship with Disclosing Party, and restricts your right to use or disclose Disclosing Party's Confidential Information during or after the termination of your relationship with Disclosing Party." Id. at 2.

On the issues of scope and termination, the Confidentiality Agreement stated: This Agreement is intended to cover Confidential Information disclosed by Disclosing Party both prior and subsequent to the date hereof. This Agreement automatically will terminate upon the completion or termination of the parties' business relationship; provided, however, that Receiving Party's obligations with respect to Disclosing Party's Confidential Information will survive such termination.

Id. ¶ 7.

The Confidentiality Agreement contained the following forum selection clause: "Exclusive jurisdiction over and venue of any suit arising out of or relating to this Agreement will be in the state and federal courts of the County of San Diego, California." Id. ¶ 8.5.

3. Termination Agreement

In early 2009, Plaintiffs complained that they were not receiving the monthly report or their share of the profits. SAC ¶ 54. Plaintiffs allege that Defendants Larry and Beth Chalmers and Parrish created a website using the VEBS Program. Id. ¶ 55. Plaintiffs also allege that in March 2009, ICA and APS Defendants initiated a plan to put Plaintiffs "out of the picture" and begin a partnership with a competitor. Id. ¶ 57.

On June 4, 2009, Plaintiffs sent a cease and desist letter to ICA and APS Defendants stating that they were terminating the Marketing Agreement for cause. Id. ¶ 56.

In October 2009, Plaintiffs and ICA Defendants signed an Agreement to Terminate Marketing Agreement (hereinafter "Termination Agreement"), with a retroactive effective date of June 4, 2009. SAC Ex. E. The parties attached the Marketing Agreement as an exhibit, and the Termination Agreement uses terms and definitions from the Marketing Agreement. E.g., id. at 1, ¶¶ B, O. "The parties intend that this Termination shall constitute a full and complete resolution of all their rights, duties and disputes concerning the subject matter of the Marketing Agreement." Id. ¶ O.

Although APS had not signed the Marketing Agreement, it did sign the Termination Agreement as to form in order to acknowledge "awareness of, and its consent to" the terms. Id. at 1 ("Advanced Planning Services, Inc. was not a party to the Marketing Agreement, and it is thus not a party to this Termination. Nonetheless, the Parties desire that Advanced Planning Services, Inc. acknowledge its awareness of, and its consent to this Termination, and Advanced Planning Services, Inc. is willing to do so in the interest of helping to facilitate this Termination between the Parties."); id. at 5 (Rodman signs on behalf of APS to acknowledge and consent to Termination Agreement).

The Termination Agreement required ICA to return, or certify it had destroyed, Plaintiffs' confidential or proprietary materials. Id. ¶ E. In order for that promise to reach the independent insurance agents who had already received the VEBS Program, ICA promised to "employ diligent efforts" to notify them of the Termination Agreement and that they could not make "future use" of the copyrighted materials. Id. ¶ I.

As long as the business generated through the Marketing Agreement had been entered into prior to June 4, 2009, the existing profit sharing agreement applied and ICA had a duty to report those commissions. Id. ¶¶ B, C, D.

The Termination Agreement provided for jurisdiction in the Superior Court of San Diego. Id. ¶ K. The forum selection clause applied to any dispute over the Termination Agreement as well as the Marketing Agreement that had been terminated. Id.

Finally, the contract contained a mutual release. "Except for the respective duties, rights and performances expressly set forth . . . VEBS . . . hereby releases ICA, together with ICA's successors, assigns, affiliated entities (including but not limted to Advanced Planning Services, Inc.), employees, agents, partners, and members, from all [sic] any and all claims, rights or causes of action, known or unknown, arising from, or in any way ...

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