Transamerica Premier Life Ins. Co. v. Selman & Co., LLC (Maryland U.S.D.C.)

Filed: July 9, 2019

Opinion by: Ellen L. Hollander

Holding:

The United States District Court for the District of Maryland denied a motion for failure to state a claim for (1) breach of contract, in light of ambiguous extrinsic evidence of intent to create a novation, and (2) unjust enrichment, where the existence of a contract governing the subject matter was in dispute.

Facts:

Plaintiff (“Insurer”) underwrote insurance products brokered and administrated by Defendant (“Agent”). Agent and Insurer’s business relationship eventually came to include products called TRICARE Supplements: voluntary plans offered to members of the military and their families that covered the various out-of-pocket costs not covered by the government-provided TRICARE health insurance program.

As Insurer and Agent transacted their insurance business together, three relevant sets of contracts came into being: one from 2002 (the “Original”), two acquired by assignment in 2014 (the “Acquired”), and a 2016 amendment to the 2002 agreement (the “Amendment”).

Under the 2002 Original agreement, Agent would administer and manage certain life and health insurance products, but the Original agreement’s language did not contemplate TRICARE supplement policies and lacked an exclusivity clause.

Pursuant to the 2014 Acquired agreement, Agent began to market, sell, and administer TRICARE Supplement policies in consideration of a portion of the premiums collected on those policies. In order to help Agent meet its contractual obligations, Insurer provided significant confidential and proprietary information (such as customer leads, records, risk analysis, performance results, and other non-public data). Agent and Insurer agreed to a confidentiality clause in order to protect this information, and to a narrow exclusivity clause with regard to the TRICARE Supplement policies marketed toward employers. An at-will termination clause allowed either party to terminate the Acquired agreement with 180 days' notice.

The 2016 Amendment reaffirmed the Original agreement but replaced the original fee schedule with a revised one that included the TRICARE accounts Agent had taken on since 2014. Two years passed.

In a November 2018 meeting, an Agent executive informed an Insurer executive about Agent's intent to move its TRICARE Supplement policies to one of Insurer’s competitors on January 1, 2019. Agent’s executive acknowledged the existence and enforceability of the exclusivity clause but implied that the provision only served to limit Insurer’s rights to underwrite coverage – not to limit Agent’s rights to move its business elsewhere.

Insurer promptly requested Agent cease and desist taking actions to transfer the policies, but Agent failed to comply. Insurer brought suit, alleging breach of contract (of the exclusivity and confidentiality clauses), anticipatory breach of contract (for failure to adhere to the 180-day notice requirement), and unjust enrichment (for taking Insurer’s data, services, and commission payments without consideration).

Agent moved to dismiss for failure to state a claim.

Analysis:

The court began by noting that in order to survive a Rule 12(b)(6) motion, the complaint must contain facts sufficient to state a claim to relief that is plausible at face value. Sufficiency required more than bald accusation or mere speculation, but less than detailed factual allegations: enough to suggest a cause of action even if the actual proof was improbable or recovery was unlikely. Accordingly, the court indicated the authenticity and import of the contract documents at issue and noted it would consider them at the 12(b)(6) complaint stage.

The court next evaluated whether the 2016 Amendment constituted a novation. If so, it would supersede the terms of the earlier Original and Acquired agreements, eliminating any language about exclusivity or confidentiality and mooting Insurer’s claims for breach of contract.

A novation forms a new contractual relationship and requires four elements: (1) a previous valid obligation, (2) agreement of the parties to the new contract, (3) validity of the new contract, and (4) the extinguishment of the old contract by substitution.

The court was ultimately unpersuaded that the parties had intended a novation because the contract text failed to clearly establish the parties’ intent to extinguish the 2002 Original and 2014 Acquired documents with the 2016 Amendment. The court considered the parties’ conflicting and ambiguous extrinsic evidence about their motivations for the 2016 Amendment to indicate lack of the requisite clear intent. In a light most favorable to Agent, the extrinsic evidence suggested an intent to keep separate and in force certain terms. Due to the conflicting extrinsic evidence, the court considered it premature (at the 12(b)(6) stage) to conclude that a novation could have occurred. Because the court declined to find a novation at this stage, Insurer had clearly stated a viable claim for breach of contract. The court separately noted that although Insurer had established sufficiency for its anticipatory breach claim, it would construe the count as one for breach of contract because the “anticipatory” relationship to January 1, 2019 had expired.

Finally, the court evaluated the unjust enrichment claim, explaining the general rule that no quasi-contractual claim for relief could arise where an actual contract existed. But a plaintiff is not barred from pleading such a theory in the alternative where existence of a contract was in dispute. At the 12(b)(6) stage, the court found it premature to conclude that one or the other or no contract language might govern the claim at issue. Accordingly, Insurer had met its burden of sufficiency for a claim of unjust enrichment.

The court denied Agent’s motion to dismiss in its entirety.

The full opinion is available in PDF.

Hogans v. Hogans Agency, Inc. (Ct. of Special Appeals)

Filed:  August 28, 2015

Holding: A corporation may require a stockholder, who is a direct competitor of the corporation, to sign a confidentiality agreement before inspection of the corporation’s books of accounts and other corporate records.

Facts:  Stockholder (the “Stockholder”) owns 37.5% of stock in an insurance and real estate brokerage company (the “Corporation”).  Stockholder also owns another real estate brokerage company that is a competitor to the Corporation.  The Stockholder asserted that his right to request an inspection of company records falls under Sections 2-512 and 2-513 of the Maryland General Corporation Law (the “MGCL”). Section 2-513 broadens the rights for stockholder's who have had at least 5% of the outstanding stock of a corporation, for at least six months. A stockholder who fits the criteria has the right to inspect the "book of accounts" of the corporation. 

The Corporation responded to the request by providing the Stockholder with copies of the Corporation’s bylaws, minutes of the proceedings of the Corporation’s stockholders, an annual statement of affairs for the prior tax year and the name, address, and shares of each of the Corporation’s stockholders. The Corporation agreed to allow for the onsite inspection and copying of the books of accounts, under the condition that the Stockholder sign a confidentiality agreement, prohibiting the Stockholder from sharing the information with a third party. The Stockholder refused and filed a pro se Complaint for Stockholder’s Right to Inspect requesting: 1) to gain immediate access to a copy of the books of account for inspection; 2) access to the Corporation’s photocopier free of charge; 3) the Corporation to pay for a complete audit of company records and 4) the Corporation to pay the Stockholder’s attorney’s fees and costs.

The trial court granted the Corporation’s motion for summary judgment ordering that a confidentiality agreement must be signed by the Stockholder in order for him to be allowed access to inspect corporate records. 

Analysis:  On appeal, the Stockholder argued the MGCL does not require that a stockholder sign a confidentiality agreement prior to inspection of a corporation’s records and that “possible competition” between a stockholder and a corporation is not sufficient to deny a stockholder his right of inspection.  The Court noted that the right of a stockholder to inspect the corporate records of a corporation is provided for under Sections 2-512 and 2-513 of the MGCL, which delineates the differences between the rights of any stockholder versus that of a stockholder who has owned more than 5% for six months.

The Court pointed to two case holdings regarding stockholder access to corporate records, that were reconciled through a treatise authored by James J. Hanks Jr.  In Weihmayer vs Bitner, 88 Md. 325 (1898), it was determined that a stockholder was entitled to an absolute right to inspect corporate records, that can be refused only through a finding that the intended use was “evil, improper of unlawful.”  In Wright v. Hebin, 111 Md. 644 (1910) the court decided it would allow for the refusal of access, if the court issued a writ of mandamus, where it decided what the proper safeguards to protect the interests of all concerned would be. Stockholders could gain access to information for “legitimate purposes.” 

Hanks agreed that a five-percent, six-month stockholder was entitled to inspect the books, for the purpose of protecting his equity investment, “but not for any other purpose, such as competing with the corporation.”  Hanks goes on to state that a corporation may take reasonable measures, such as conditioning the right to inspect corporate records upon the stockholder signing a confidentiality agreement, “to protect the corporation against disclosure and misuse of confidential documents and information.”

The Court relied upon this explanation of the rights of a stockholder to inspect, and agreed with the trial court’s “exercise of sound discretion” in requiring the Stockholder to sign a confidentiality agreement prohibiting him from sharing information with third parties.  The condition of allowing access, after a confidentiality agreement was signed, was found to be a reasonable means to prevent the Stockholder from using the inspection rights to gain information that could be used to advance his own competing business.

The full opinion is available in PDF.