Reliastar Life Insurance Company v. KMG America Corporation, CV 05-002563.

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RELIASTAR LIFE INSURANCE COMPANY, a Minnesota Corporation and RELIASTAR LIFE INSURANCE COMPANY OF NEW YORK, a New York Corporation, Plaintiffs, v. KMG AMERICA CORPORATION, A Virginia Company, KANAWHA INSURANCE COMPANY, a South Carolina Company, KENNETH KUK, TOM SASS, SCOTT DELONG, T.J. GIBB, PAUL KRAEMER, and PAUL MOORE, Defendants.

No. CV 05-002563.

District Court of Minnesota, Fourth Judicial District.

January 19, 2007.

This matter came on for a hearing on Defendants' various Motions for Summary Judgment on January 19, 2007 before the undersigned Judge of District Court, Hennepin County, State of Minnesota.

Based upon all the files, briefs, record and arguments of counsel, the Court issues the Ordered outlined below:

Ann Huntrods, Esq., 80 South Eighth Street, Suite 2200, Minneapolis, MN 55402, appeared on behalf of the Plaintiffs.

Roy A. Ginsburg, Esq., 50 South Sixth Street, Suite 1500, Minneapolis, MN 55402, appeared on behalf of the Defendants.

The Court wishes to express its gratitude to all counsel for the excellent briefs and arguments that were presented. All parties are ably represented.

ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS' MOTION FOR SUMMARY JUDGMENT AND MEMORANDUM OF LAW

IT IS HEREBY ORDERED

:

1. The Motion for Summary Judgment is GRANTED as to Count I, Breach of Contract.

2. The Motion for Summary Judgment is GRANTED as to Count II, Misappropriation of Trade Secrets.

3. The Motion for Summary Judgment is GRANTED as to Count III, Unfair Competition.

4. The Motion for Summary Judgment is GRANTED as to Count IV, Tortious Interference with Prospective Business Relations.

5. The Motion for Summary Judgment is GRANTED as to Count V, Tortious Interference with Contractual Relationships.

6. The Motion for Summary Judgment is GRANTED as to Count VI, Tortious Interference with Employment Relationships.

7. The Motion for Summary Judgment is GRANTED as to Count VII, Civil Conspiracy.

8. The Motion for Summary Judgment is DENIED as to Count VIII, Breach of Duty of Loyalty and Count IX, Breach of Fiduciary Duty as to Defendants Kraemer, Moore and Gibb.

9. The Motion for Summary Judgment is DENIED as to Count X, Civil Theft, only as it relates to the PDA's of Moore and Kraemer, but is GRANTED as to the information on those PDA's. The Motion for Summary Judgment is GRANTED on this Count as it relates to all other Defendants.

10. The Motion for Summary Judgment is DENIED as to Count XI, Unjust Enrichment as it relates to Kraemer, Moore and Gibb, solely as it relates to their activities, which violate the Code of Conduct that are not related to the information allegedly taken. The Motion for Summary Judgment on this claim is GRANTED as to all other Defendants.

11. The Motion for Summary Judgment is GRANTED as to Count XII, Fraudulent Misrepresentation. All claims upon which the Court is granting Summary Judgment are DISMISSED with prejudice on the merits.

12. The attached Memorandum of Law is incorporated herein by reference.

MEMORANDUM OF LAW

FRANCIS J. CONNOLLY, District Court Judge.

I. PROCEDURAL POSTURE OF CASE

Plaintiff brought a motion for a temporary injunction on August 9, 2005 based on a Complaint that included multiple counts as follows:

SUMMARY OF CLAIMS

CLAIM

DEFENDANTS

                             SUMMARY OF CLAIMS
                   CLAIM                                 DEFENDANTS
       Count I: Breach of Contract               Against Defendants Kraemer
                                                 Moore, and Gibb
       Count II: Misappropriation of             Against all Defendants
       Trade Secrets in Violation of
       Minn. Stat. §325C.01 et seq
       Count III: Unfair Competition             Against all Defendants
       Count IV: Tortious                        Against all Defendants
       Interference with Prospective
       Business Relations
       Count V:   Tortious Interference          Against all TrialDefendants
       with Contractual Relationships
       Count VI: Tortious                        Against 3all Defendants
       Interference with Employment
       Relationships
                                                        
       Count VII: Civil Conspiracy               Against Defendants KMG
                                                 Kuk, Sass, DeLong, Kraemer
                                                 Moore, and Gibb
       Count VIII: Breach of the   Duty          Against Defendants Kraemer
       of Loyalty                                 Moore, and Gibb
       Count IX: Breach Create! of Fiduciary     Against Defendants Kraemer,
       Duty                  www                 Moore, and Gibb
       Count X:  Civil Theft                     Against all Defendants
      
       Count XI:   Unjust Enrichment                Against all Defendants
        Count XII: Fraudulent                     Against Defendants Kraemer,
       Misrepresentation                         Moore, and Gibb

In an Order dated August 26, 2005, the Court denied the Motion for a Temporary Injunction. This Order was affirmed by the Court of Appeals on September 9, 2006. ReliaStar Life Insurance Company, et al. v. KMG America Corp, et al., 2006 WL 2529760 (Minn. Ct. App. 2006). Defendants (Gibb, Kraemer and Moore) now move the Court for summary judgment on a variety of claims. Other Defendants join in those motions as it relates to certain of the claims.

II. FACTS THAT DO NOT APPEAR TO BE IN DISPUTE FOR THE PURPOSES OF THIS MOTION

1. ReliaStar, a wholly owned subsidiary of ING America Insurance Holdings ("ING AIH"), sells individual and corporate clients insurance, including employee benefits products. (Ex. 573, ¶¶ 2, 3.).

2. In 2004, ReliaStar's EB Group conducted business in all 50 states, with nine regional "hubs." Each hub had a Regional Vice President/General manager, sales representatives, and service and support personnel. The EB Group has two product lines: (1) group products, which generally cover all employees and are typically paid for by employers; and (2) voluntary products, which employees purchase. Group products include life, accidental death and dismemberment, short and long-term disability, dental, and stop loss. Voluntary products include short and long-term disability, critical illness, dental, and life. (Ex. 573, ¶ 4.) Defendants KMG and Kanawha sell the same products. (Id., ¶ 13.)

3. Kenneth Kuk ("Kuk") worked for ReliaStar from 1985 to 2001 as a senior executive in the EB Group. (Ex. 573, ¶ 11.) He was a shareholder of ReliaStar when ING AIH acquired it in 2000, but he voluntarily resigned from ReliaStar shortly after the acquisition. (Kuk Dep.. 7:24-8:6.). In 2001 and 2002, Kuk received severance payments and restricted stock payments in excess of $ 7 million. (Third Olson Affidavit at ¶ 11.) Scott DeLong ("DeLong") and Tom Sass ("Sass"), also are former ReliaStar senior executives. (Ex. 18.)

4. Kraemer worked for ReliaStar for 23 years, and in 2004, held the position of Regional Vice President/General Manager for the New England hub located in Boston, Massachusetts. (Ex. 573, ¶ 15.) Moore had worked for ReliaStar for 16 years and was Regional Vice President/General Manager in ReliaStar's Southwest hub located in Irvine, California. (Ex. 573 ¶ 16.) Gibb had worked for ReliaStar for 13 years and he in 2004 was Vice President — Association and Payroll Deduction Sales. (Ex. 573, ¶ 18.) Gibb was involved in developing and implementing ReliaStar's business and growth strategies, product pricing, product development, sales goals, sales compensation structure, and budgets. (Ex. 573, ¶ 20.)

5. Kraemer, Moore, and Gibb all had access to certain internal information. Kraemer and Moore signed a Bonus Agreement outlined below.

6. The Employee Benefits Bonus Agreement for Sales Representatives ("Bonus Agreement") signed by Kraemer and Moore states:

The Sales Representative agrees that during the course of employment and at all times thereafter, the Sales Representative will not directly or indirectly disclose, copy, or make use of confidential and proprietary methods and information of the Company ("Information") for purposes other than providing services for the Company, without the prior written consent of the Company, except as may be required by judicial process. Information includes, but is not limited to, client and prospect lists, renewal lists, broker lists and arrangements, client information regarding policy expiration dates, policy terms and rates, Company sales figures, pricing information, business plans, as well as the compensation structure under this Agreement. The Sales Representative may not copy or retain any written Information to which the Sales Representative has had access in the course of employment with the Company, except with the express written consent and permission of the Company. This paragraph shall survive the termination of the Agreement.

(Ex. 5, 129.)

7. Paul Kraemer received a total of $197,334.44 (bonus and profit sharing/holdback) in 2003 pursuant to his bonus agreement, and a total of $247,494.50 (bonus and profit sharing/holdback) in 2004 pursuant to his bonus agreement. (Schmid Aff. at ¶8)

8. Paul Moore received a total of $272,571.16 (bonus and profit sharing/holdback) in 2003 pursuant to his bonus agreement, and a total of $194,067.29 (bonus and profit sharing/holdback) in 2004 pursuant to his bonus agreement. (Schmid Aff. at ¶9)

9. Gibb also signed a Long Term Equity Ownership Plan ("LEO"). It contains a provision similar to the Bonus Agreement, and a non-solicitation clause prohibiting the direct or indirect solicitation of employees and customers for twelve months following termination of his employment with ReliaStar. (Ex. 77)

10. Kraemer, Moore, and Gibb also were aware of the General Code of Conduct ("Code"), which applies to all its subsidiaries' employees, including ReliaStar. (Ex. 573, ¶¶ 33-35; Ex. 2 at R000128-129, R000133, R000134.) All...