Appeal Denied: Allstate Agents’ Wrongful Termination Claim Falls Flat

The First Circuit Court of Appeals in Boston recently decided a case involving two former Allstate agents allegedly misusing confidential customer data after their termination and the agents’ claims of wrongful termination based on the lack of the statutory notice required by Massachusetts law. Allstate Insurance Company v. James Fougere, Sarah Brody-Isbill, and A BETTER INSURANCE AGENCY, INC. d/b/a ABIA

At issue were customer spreadsheets retained by two former Allstate exclusive agents, which Allstate alleged contained protected trade secrets. Allstate claimed the agents unlawfully used these confidential spreadsheets after Allstate had terminated their contracts. The agents defended, claiming the spreadsheet data was not secret and that Allstate had failed to take proper steps to protect the data as trade secrets. Finally, the agents claimed Allstate had engaged in unfair trade practices and had violated Massachusetts in terminating their insurance agency agreement without providing a six-month statutory notice.

The First Circuit detailed the facts, the Allstate contract language, and the pertinent Massachusetts statutes in a 52-page decision. The Court affirmed the breach of contract and misappropriation of trade secrets findings of the Federal District Court against the agents. The Court’s decision also rejected the agents’ counterclaims against Allstate based on Allstate canceling their agency agreements without giving statutory notices and unfair trade practices under M.G.L. c. 93A.

The Court’s detailed analysis of Allstate’s claims of trade secrets can give all agencies guidance on protecting insurance customer lists as trade secrets. Also, the Court’s decision circumscribes the possible limitations of some independent contractors employed as insurance producers seeking relief for allegedly unfair trade practices under M.G.L. c. 93A.

Background on the Dispute

James Fougere signed an exclusive agency agreement with Allstate Insurance Company in February 2013 to sell Allstate’s auto and casualty insurance products in Massachusetts. He previously had managed his own agency, A BETTER INSURANCE AGENCY, INC. d/b/a ABIA (ABIA).

Under the Allstate agreement, Fougere committed to working as a “scratch” agent, meaning he would solicit new customers and build a new book of business from scratch rather than taking on existing Allstate customers. In exchange, he would earn commissions on the policies he sold on Allstate’s behalf.

The agreement contained several key provisions relevant to this dispute. Fougere agreed to represent Allstate exclusively, meaning he could not sell insurance for other companies without approval. He also agreed to maintain the confidentiality of information Allstate deemed confidential, such as customer names, addresses, and policy details. Fougere further agreed to return any confidential information to Allstate upon termination of the agreement and not to use the information for any improper purpose.

After starting his Allstate agency, Fougere hired Sarah Brody-Isbill to work for him. In April 2014, Brody-Isbill signed her own exclusive agency agreement with Allstate and opened an Allstate agency in Auburn, MA. Her agreement contained the same key provisions regarding exclusivity, confidentiality, and return of customer information as Fougere’s.

According to Allstate, Fougere’s agency quickly raised compliance issues, commingling business with Brody-Isbill’s agency and sharing confidential customer information, all prohibited by their agreements. Allstate also claimed Fougere shared confidential information with his prior company, ABIA, and another entity he formed called Thumbs Up Marketing.

In September 2014, an Allstate employee emailed management describing troubling practices by Fougere and Brody-Isbill, including sharing confidential customer information between their agencies and with outside entities. Fougere and Brody-Isbill dispute these allegations.

In November 2014, Allstate terminated its agreement with Fougere. In October 2015, Allstate terminated Brody-Isbill. Allstate revoked their access to company records and collected customer files from their offices.

Allstate claimed Fougere and Brody-Isbill breached their agreements by retaining and misusing confidential customer information after termination. In November 2015, Allstate sent Fougere a letter accusing him of misusing confidential information to solicit Allstate customers for ABIA. Fougere’s attorney denied the allegations in writing.

In July 2016, former ABIA employees contradicted this denial, emailing Allstate that Fougere had access to thousands of Allstate customer records and was directing ABIA agents to contact those customers. The employees forwarded spreadsheet portions entitled “Framingham Allstate Book of Business” and “Allstate Auburn Book of Business” containing customer details.

Allstate’s suit recovers an award of $216,000 in attorney fees and costs against agents

In August 2016, Allstate sued Fougere, Brody-Isbill, and ABIA for breaches of contract, misappropriation of trade secrets, unfair competition, and other claims. Defendants denied wrongdoing and countersued for breach of contract, improper termination, and unfair practices.

During discovery, Allstate obtained screenshots of Fougere spreadsheets entitled “TU Framingham” and “TU Auburn,” matching thousands of Allstate customer records. Though Fougere said he compiled the sheets from public sources, he conceded the sheets contained Allstate customer details designated confidential under the agreements.

After the allowed discovery period ended, both sides moved for partial summary judgment. The court granted Allstate’s motions, finding the spreadsheets contained trade secrets misappropriated by all three defendants. The court also dismissed Fougere, Brody-Isbill’s counterclaims.

In the lower court proceedings, Allstate eventually decided on only seeking nominal contract damages against Fougere and Brody-Isbill of $1.00, its attorney fees under the agency contract, and a permanent injunction. The district court awarded Allstate attorney fees and expenses of $234,247.28 out of the $617,626.66 Allstate had sought and a permanent injunction against its former agents using Allstate’s confidential information.

Fougere, Brody-Isbill, and ABIA timely appealed the federal district court’s judgment to the First Circuit Court of Appeals.

Misappropriation of Trade Secrets Allegations and the Court’s Analysis

On appeal, the heart of Allstate’s lawsuit were allegations that Fougere and Brody-Isbill misappropriated trade secrets by retaining and abusing confidential customer information after termination. Allstate claimed the spreadsheets contained compilations of customer details like names, addresses, policy numbers, and premium amounts that constituted trade secrets under the federal Defend Trade Secrets Act (DTSA) and Massachusetts law. (See Agency Checklists’ article of  May 17, 2016, “The Most Important Point You Need To Know About The New Federal Trade Secrets Act”).

Allstate argued Fougere and Brody-Isbill had breached DTSA by violating their respective agreements not to retain or misuse its confidential data constituting trade secrets.

In response, the defendants argued the spreadsheets’ contents did not qualify as protectable trade secrets. They claimed all the individual customer details were publicly available from sources like the RMV. They also asserted Allstate failed to take reasonable measures to protect the information’s secrecy. Further, they denied any actual misuse of the data, claiming the spreadsheets were not commonly used at ABIA.

The First Circuit methodically considered these arguments under the DTSA and Massachusetts definitions of a trade secret. The Court summarized the DTSA definition of trade secrets as “financial or business information with economic value derived from not being known that the owner reasonably protects.” It noted that Massachusetts uses similar factors, asking if the information is known outside the business, protected by the employer, and valuable to the employer versus competitors.

The First Circuit found the compilations had tremendous economic value to Allstate, noting the agreements labeled misuse of such data as causing “irreparable damage.” It also found Allstate had sufficiently protected the secrecy of the information.

While acknowledging parts of the sheets contained public data, the court ruled the compilations were not readily ascertainable outside Allstate and would be difficult for competitors to replicate. It held customer lists can constitute trade secrets under longstanding precedent. Thus, it affirmed the lower court’s conclusion that the spreadsheets contained Allstate trade secrets.

The court also examined the ownership question despite the defendants stressing Fougere compiled the sheets. Because the agreements expressly stated Allstate owned all confidential customer information, the court found this issue undisputed. It upheld summary judgment against all defendants for misappropriation, citing substantial unrebutted evidence like the spreadsheet matches Allstate’s records.

In denying the defendants’ reconsideration motion that relied on a recent First Circuit trade secret decision, the court found significant distinctions from the instant case. It emphasized Allstate specifically defined its claimed trade secrets as the confidential customer details in the spreadsheets, while the First Circuit plaintiff failed to identify its trade secrets adequately.

Thus, through a rigorous analysis applying the statutory and common law definitions, the First Circuit affirmed findings that the defendants misappropriated Allstate trade secrets. It rejected the defendants’ challenges to the customer information’s protectability and Allstate’s ownership. The court sided with Allstate across the board in the trade secrets dispute.

Breach of Contract Claims

Separate from its trade secret claims, Allstate alleged Fougere and Brody-Isbill breached their agency agreements by retaining and misusing confidential customer information. Their contracts prohibited sharing such information, required returning it upon termination and restricted using it improperly.

The defendants argued summary judgment for Allstate was inappropriate because there was no evidence they actually misused the data. However, the First Circuit affirmed breach of contract liability against both former agents along with the trade secret violations.

The court pointed to substantial evidence in the record showing they retained spreadsheets matching Allstate’s confidential customer details after termination. Their agreements unambiguously established this information as property belonging to Allstate. Thus, possessing the spreadsheets containing this data constituted a breach of contract, regardless of any disputed facts about how they subsequently used the information.

Further, the court found evidence like the spreadsheet comparisons to Allstate’s records and testimony about Brody-Isbill’s presence during pertinent discussions adequately demonstrated misuse for summary judgment purposes. It noted Allstate only had to prove breach of contract liability, not damages, at the summary judgment phase.

Because the defendants’ duty to return and not retain the customer information was clear, the court affirmed breach of contract in addition to misappropriation of trade secrets. It relied on the same evidence underpinning the trade secret findings. The court saw no reason to disturb the lower court’s breach of contract ruling against Fougere and Brody-Isbill.

Notice of agency agreement termination under M.G.L. c. 175, § 163 Counterclaim

The key counterclaim brought by Fougere and Brody-Isbill alleged Allstate violated Massachusetts law by failing to provide them adequate notice before termination. Fougere and Brody-Isbill claimed under M.G.L. c. 175, § 163, Allstate was required to give 180 days’ notice before canceling an independent insurance agent’s contract. Fougere and Brody-Isbill argued they qualified as independent agents entitled to this statutory notice’s protection.

In response, Allstate contended the statute did not cover Fougere and Brody-Isbill because they were exclusive, not independent, Allstate agents. Allstate noted their agreements prohibited them from selling other companies’ products without approval.

In response, Fougere and Brody-Isbill stressed their agreements and labeled them “non-exclusive,” The court examined the contracts’ substance over form and concluded they clearly established exclusive relationships with Allstate. It held the agreements’ confidentiality provisions also demonstrated Allstate’s ownership of the customer data.

Though Fougere and Brody-Isbill insisted the statute covered all non-employee agents, the court rejected this broad reading. Looking at § 163’s language, purpose, and context, it ruled the provision applied only to independent American Agency System agents who own their books of business, not exclusive Allstate agents.

In contrast, the court explained exclusive agents like Fougere and Brody-Isbill solely sell products of one insurer. Their agreements designated Allstate as the exclusive owner of confidential customer information. Thus, the court found § 163’s notice protections irrelevant since Allstate already owned the renewal rights after termination.

Unfair Trade Practices Counterclaim and Court’s Analysis

Another counterclaim brought by the defendants alleged Allstate engaged in unfair business practices prohibited under Massachusetts’ Chapter 93A consumer protection law. However, the First Circuit affirmed the dismissal of this claim after determining Chapter 93A did not apply, given the exclusive nature of Fougere’s and Brody-Isbill’s agency relationships with Allstate.

The court explained that Chapter 93A requires the parties’ transactions to be commercial in nature and involve “trade or commerce.” Under precedent, it does not cover purely private relationships like an employer-employee. The court found Fougere’s and Brody-Isbill’s relationships analogous, given their agreements barred them from selling other insurers’ products without Allstate’s approval.

Because they worked exclusively for Allstate, the court reasoned they were not offering services to the general public, a prerequisite for Chapter 93A’s applicability. Their business was devoted entirely to Allstate rather than the marketplace.

The defendants argued they should be considered independent contractors akin to franchises, which can invoke Chapter 93A. However, the court found no contractual basis to characterize their relationships as franchises. It held the exclusivity provisions controlled over their contrary arguments.

In conclusion, the First Circuit affirmed the dismissal of the Chapter 93A counterclaim. It found Fougere and Brody-Isbill lacked the required public, commercial transaction given the exclusivity restrictions in their Allstate agreements. The court ruled the exclusive agent relationships placed their dealings outside the scope of the consumer protection law.

The First Circuit Court of Appeals’ final order

After 52 pages, the appellate court’s final order states:

For the reasons stated above, we affirm the district court’s rulings. Costs to Appellee [Allstate].

Owen Gallagher

Insurance Coverage Legal Expert/Co-Founder & Publisher of Agency Checklists

Over the course of my legal career, I have argued a number of cases in the Massachusetts Supreme Judicial Court as well as helped agents, insurance companies, and lawmakers alike with the complexities and idiosyncrasies of insurance law in the Commonwealth.

Connect with me directly, by calling me at 617-598-3801.