Bye v. Nationwide Mut. Ins. Co.

733 F.Supp.2d 805

Charles L. BYE, Jr. and Bye Insurance and Financial Services, Inc., Plaintiffs,

v.NATIONWIDE MUTUAL INSURANCE COMPANY, an Ohio Corporation, Defendant.

Case No. 08-10824.

United States District Court,

E.D. Michigan,

Southern Division.

Aug. 5, 2010.

Opinion Denying Reconsideration Oct. 10, 2010.

John R. Monnich, John R. Monnich Association, Royal Oak, MI, for Plaintiffs.

Bishop A.L.E. Bartoni, Thomas F. Kauza, Harvey Kruse, Troy, MI, James P. Schuck, Quintin F. Lindsmith, Sommer L. Sheely, Bricker & Eckler LLP, Columbus, OH, for Defendant.

OPINION AND ORDER (1) GRANTING DEFENDANT NATIONWIDE MUTUAL INSURANCE COMPANY'S MOTION FOR SUMMARY JUDGMENT AS TO COUNTS I, II, IV AND V OF PLAINTIFFS' COMPLAINT; (2) REQUESTING REBRIEFING ON COUNT III (BREACH OF CONTRACT) BY AUGUST 19, 2010 (UP TO 7 PAGES); AND (3) HOLDING IN ABEYANCE THE COURT' S RULING ON NATIONWIDE' S MOTION FOR SUMMARY JUDGMENT ON COUNTS I-V OF ITS COUNTERCLAIM

PAUL D. BORMAN, District Judge.

This matter is before the Court on Defendant Nationwide Mutual Insurance Company's ("Nationwide") Motion for Summary Judgment. (Dkt. No. 60.) Plaintiffs filed a Response (Dkt. No. 66) and Nationwide filed a Reply (Dkt. No. 69.) The Court held a hearing on July 28, 2010. For the reasons that follow, the Court GRANTS Nationwide's motion on Counts I, II, IV and V of Plaintiffs' Complaint, requests the parties to submit supplemental briefing on Count III of Plaintiffs' Complaint and holds in abeyance its ruling on Nationwide's motion for summary judgment on Counts I-V of its Counterclaim.

I. BACKGROUND

A. The History of Plaintiff's Tenure With Nationwide

Charles L. Bye, Jr. ("Plaintiff") worked for nine years as an insurance agent for Defendant Nationwide. In June, 1998, Plaintiff read an article describing a business opportunity with Nationwide and he contacted Nationwide about the position. (Def.'s Mot. Ex. 1, Deposition of Charles Bye Jr., June 18, 2009, 53.) Bye had previously worked as a sales manager for Pitney Bowes, a store manager for Zale Jewelers and had owned his own jewelry business, Hillcrest. ( Id. 42-48, 50-52.) Thus, Plaintiff had experience supervising staffs, hiring and firing employees, and controlling expenses, budgeting and marketing. ( Id. 48.)

On June 3, 1998, Nationwide offered Plaintiff the position of Financed Community Agent ("FCA") at a salary of $65,000 per year, contingent on Plaintiff passing a number of employment screens and completing certain training and licensing programs. (Def.'s Mot. Ex. 2.) On June 29, 1998, Plaintiff signed an FCA Agreement under which Nationwide placed Plaintiff in an agency location, paid his salary and bonuses and paid over $200,000 per year to cover his expenses, including office lease, furnishings, utilities and marketing expenses while Plaintiff continued to learn the business of selling insurance. (Def.'s Mot. Ex. 1, Bye Dep. 66, 69, 54-55; Def.'s Mot. Ex. 3.) In this agreement, Plaintiff agreed that Nationwide could increase its premiums without any prior notice to Plaintiff and could eliminate lines of businessor stop writing insurance in Michigan altogether, without notice to or consent from Plaintiff. (Def.'s Mot. Ex. 1, Bye Dep. 69.) Plaintiff understood that Nationwide was a mutual insurance company, owned by its policyholders, and that Nationwide would act under this provision, and even leave an entire market without notice to its agents, if it was in the best interests of its policyholders to do so. ( Id. at 72.) Plaintiff acknowledges that he understood and agreed to this provision, but he "assumed" that Nationwide, would not ever let its agents "go bankrupt" because "that's not the right thing to do." ( Id. 69, 70-71, 73.) Plaintiff acknowledged, however, that there was never an agreement or writing between himself and Nationwide in which Nationwide made any such agreement not "to pull the carpet up from under [him]." ( Id. at 74.)

After four years in the FCA program, Plaintiff became an Independent Contractor Agent ("ICA") with Nationwide and executed an Independent Contractor Agent's Agreement ("ICA Agreement") on May 2, 2002. (Def.'s Mot. Ex. 1, Bye Dep. 56, 83; Def.'s Mot. Ex. 4.) Like the FCA Agreement, the ICA Agreement contained a provision which authorized Nationwide to change prices, terms and to discontinue entirely writing or accepting policies or lines of insurance without notice to our consent of its agents and again Plaintiff indicated that he read and agreed to this provision at the time he signed the ICA. (Def.'s Mot. Ex. 1, Bye Dep. 84-85.)

A few months after becoming an ICA, Plaintiff, assisted by counsel, chose to begin to operate as a corporation and entered into a Corporate Agency Agreement ("CA Agreement") with Nationwide. ( Id. at 87; Def.'s Mot. Ex. 5.) This agreement, like the FCA and the ICA, contained a provision which allowed Nationwide to make business decisions regarding premium pricing and underwriting decisions entirely independent of and without any notice to its agents and Plaintiff testified that he read and agreed to this language "for the third time." (Def.'s Mot. Ex. 1, Bye Dep. 103.) Plaintiff understood that the objective of the CA was that he have a profitable agency but also that Nationwide run a profitable business. ( Id. at 91.)

Soon after becoming an ICA, Plaintiff began to expand and grow his business either by acquiring existing agencies or opening new satellite offices. Plaintiff set his sights on an existing Nationwide agency in Okemos, Michigan and was given a six-month "free look" period (as he was with all of his acquisitions) where he could work the book of business and decide whether he wanted to proceed with a formal acquisition. ( Id. at 113-114, 119-120.) In December, 2002, Plaintiff took out a loan from Nationwide in the amount of $27,526.39 to purchase the Okemos agency.¹ ( Id. at 58-59, 116-117; Def.'s Mot. Ex. 6.) Plaintiff testified that he decided to acquire the Okemos agency in spite of the fact that two agents had failed there before him and despite Nationwide's expressed fear about another agent failing there as well. (Def.'s Mot. Ex. 1, Bye Dep. 59.)

In spite of the fact that two other agents in Okemos had "failed miserably" and "couldn't write enough business to survive," Plaintiff felt he could succeed because he was "not like those other guys" and had a "better work ethic." ( Id. at 113.) Plaintiff felt that he could succeed where the other agents had failed "because some people just weren't cut out to do it," and so he proceeded with the loan and purchase of the Okemos agency. ( Id.)Plaintiff believed at the time that this was a good business decision and does not believe that Nationwide had "an undisclosed plan to push [him] out of the business" when he acquired the Okemos agency. ( Id. at 60-61.)

In late 2003 or early 2004, Plaintiff decided to further expand and decided to participate in Nationwide's Capital Access Program ("CAP Loan Program") to fund a new satellite office in DeWitt, Michigan and hire new staff. ( Id. at 130-131.) Under the CAP Program, Plaintiff had an opportunity to secure a loan through Nationwide's financing arm and to have repayment of the loan waived if Plaintiff grew his agency by one-and-a-half times the "state DWP [direct written premium] growth objective," a goal that Plaintiff believed he could achieve in this instance because he was going to "double [his] number of producers." ( Id. at 127-128, 148-149; 173.) The CAP Program, with the potential for loan forgiveness and interest on the loan at prime plus one, was an option for financing and was a benefit of being a Nationwide exclusive agent. (Pl.s's Resp. Ex. A-2, Deposition of Michael Whitehead, March 13, 2009, 65-66, 83.) An agent who chose not to participate in the CAP Loan program and who needed to finance to expand his or her business would have to seek financing from a traditional bank, at a higher interest rate, and with no potential for ultimate loan forgiveness. ( Id.)

Nationwide provided the state growth target for the pro forma. ² (Pls.'s Resp. Ex. D-1, Deposition of Ranelle Smith, June 29, 2009, 12.) From approximately 2004 to 2009, state target goals were higher on average than actual state growth. ( Id. at 15; Pls.'s Resp. Ex. M.) This historical data is available to agents online. (Pls.'s Resp. Ex. D-1, 26.) Plaintiff testified that at the time he opted to participate in the CAP Loan program, he thought that the figure in the pro forma representing the "state growth objective" was an "actual" number and not a "target." (Def.'s Mot. Ex. 1, Bye Dep. 173-174.) Plaintiff admitted that the word "actual" never appeared in the formula and testified that he had seen the term "state growth objectives" for the company in the past, and understood it to represent a "goal" or a "corporate objective." ( Id. at 174-176.)

Plaintiff worked with Joe Sheffieck, a Nationwide business consultant, to complete a CAP Loan application and pro forma for the planned expansion. Nationwide business consultants can be called in to assist with preparation of a pro forma but there is no requirement that an agent utilize a Nationwide business consultant.(Pls.'s Resp. Ex. D-1, Smith Dep. 19.) According to Ms. Smith, up until 2005 the business consultants fulfilled the obligations set forth by the company but in 2005, when the business consultants began reporting to the regions, in her opinion the business consultants became too closely aligned with the sales department. ( Id. at 21-22.) Ms. Smith opined that this never resulted in a lack of service to the agents but that in her opinion the consultants were perhaps not as objective as a third-party consultant would be. ( Id. at 23.)

The pro forma was a collaborative effort between the agent and the business consultant. (Def.'s Mot. Ex. 1, Bye Dep. 126-141, 143; Def.'s Mot. Ex. 7, pp. 10-40.) The business consultant prepared the pro forma with input from the agent, asking the agent to provide expected...