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First Financial Security, Inc. v. Freedom Equity Group, LLC

United States District Court, S.D. California

August 22, 2014

FIRST FINANCIAL SECURITY, INC., a Delaware corporation, Plaintiff,
v.
FREEDOM EQUITY GROUP, LLC, a California limited liability company, Defendant.

ORDER GRANTING MOTION TO DISMISS [Docket No. 8]

ROGER T. BENITEZ, District Judge.

Before this Court is the Motion to Dismiss filed by Defendant Freedom Equity Group, LLC (FEG). (Docket No. 8). For the reasons stated below, the Motion is GRANTED.

BACKGROUND

Plaintiff First Financial Security, Inc. (FFS) is a life insurance brokerage agency which sells life insurance policies through a national sales force of independent contractors. (Compl. ¶¶ 6-7). The sales force is organized into teams, each of which has a hierarchical structure with a tiered compensation plan. ( Id. ¶ 8). FEG is also a life insurance brokerage company using a similar independent contractor model. ( Id. ¶ 11). The two companies are competitors. ( Id. ¶ 12).

All of FFS's contractors enter into an identical Sales Contractor Agreement and FFS Terms and Conditions (collectively, "SC Agreement"). ( Id. ¶ 13 & Ex. A). The S.C. Agreement imposes restrictions on the ability of contractors to induce or attempt to induce any FFS contractor to terminate his or her affiliation with FFS. ( Id. ¶ 14 & Ex. A). In relevant part, the S.C. Agreement states that:

Sales Contractor covenants that he/she will not, at any time during the term of this Agreement, and for a period of two (2) years thereafter, directly or indirectly:
i) induce or attempt to induce any person who is contractually affiliated with FFS as a Sales Contractor or in other capacity, or any member of FFS's administrative staff, to terminate their relationship with FFS; or
ii) hire, induce or attempt to hire or induce any such persons to sell or solicit products and services that are competitive with the Products and Services for any person or entity other than FFS.

( Id. Ex. A § C(3)).

The S.C. Agreement also prohibits contractors from inducing, or attempting to induce, FFS customers to terminate or reduce coverage under their policies. ( Id. ¶ 15). In relevant part:

Sales Contractor covenants that he/she will not, at any time during the term of this Agreement, and for a period of two (2) years thereafter, directly or indirectly, individually or in concert with another, induce or attempt to induce any Customer to terminate, reduce coverage under or replace any of the [FFS] Products and Services that have been sold by Sales Contractor or his/her Downline Sales Contractors.

( Id. Ex. A § C(2)).

The S.C. Agreement also contains restrictions on the use, dissemination, or revelation of confidential information and trade secrets, including customer lists and lists of FFS contractors. ( Id. ¶ 16 & Ex. A § C(4)). It requires the return of all documents, files, and lists containing such information upon termination of the agreement. ( Id. ¶ 17 & Ex. A § C(4)).

Contractors are also required to acknowledge that all members of the sales network have executed identical agreements, and that inducing or attempting to induce a breach constitutes wrongful interference with contractual rights of FFS with that member. ( Id. ¶ 19 & Ex. A § C(6)).

Two of FFS's sales contractors were Gilles Moua and Mai Lee. ( Id. ¶ 21). Moua was an "Executive Field Chairman, " the highest compensation level of the FFS compensation plan. ( Id. ¶ 24).

FFS alleges on "information and belief" that in April 2014, "Moua, Lee or both of them were in talks with FEG concerning the mass solicitation of FFS contractors to work at FEG, in violation of the S.C. Agreement." ( Id. ¶ 20). FFS asserts that this belief is based on "among other things, information learned by FFS in the course of negotiating with Moua concerning a dispute over compensation." ( Id. )

FFS alleges that it learned on or about May 10, 2014 that Moua and Lee were "soliciting and inducing FFS sales contractors to leave FFS and join FEG." ( Id. ¶ 21). Moua and Lee resigned on May 10, 2014. ( Id. ¶ 22). The same day, Moua and Lee allegedly held a meeting for FFS sales contractors at their home. ( Id. ¶ 23). They "invited certain key team members" to the meeting and encouraged Moua's team members to terminate their relationship with FFS to work for Moua and Lee at FEG. ( Id. ) FFS alleges that it had received 250 sales contractor resignations by May 12, 2014; approximately 500 resignations by May 13; over 600 resignations by May 14; and over 1, 300 resignations by May 22. ( Id. ¶¶ 25-28). FFS asserts that there were only 732 sales contractor resignations from 2003 to April 2014. ( Id. ¶ 29). FFS alleges that Moua and Lee breached their S.C. Agreement by recruiting other contractors during the S.C. Agreement, and that the ...


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