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Schouweiler v. Cns Corporation

United States District Court, D. Minnesota

September 16, 2014

PHILIP SCHOUWEILER, Plaintiff,
v.
CNS CORPORATION and OZARK LIFE INSURANCE COMPANY, Defendants.

Ken D. Schueler, DUNLAP & SEEGER, for plaintiff.

Larry W. Joye, STINSON LEONARD STREET, for defendants.

MEMORANDUM OPINION AND ORDER DENYING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT

JOHN R. TUNHEIM, District Judge.

This dispute arises out of several noncompete agreements between Plaintiff Philip Schouweiler and his former employers, CNS Corporation ("CNS") and Ozark Life Insurance Company ("Ozark") (collectively, "Defendants"). Schouweiler brought this action after Defendants advised him that his entitlement to various post-employment sources of compensation was terminated, on the grounds that he breached the noncompete agreements. Schouweiler, in contrast, contends that Defendants were the first to breach the various agreements by prematurely withholding commission payments without sufficient proof that he had violated the noncompete agreements. Schouweiler now moves for summary judgment on his claims for breach of contract, unjust enrichment, and declaratory judgment. The Court will deny Schouweiler's motion because there are facts upon which a reasonable jury could conclude that Defendants did not breach the agreements by temporarily withholding commission payments, or that, even if they did, any such breach was not material.

BACKGROUND

CNS employs agents who sell life insurance policies and mutual funds. (Aff. of David Melton ¶ 7, May 7, 2014, Docket No. 36.) CNS has three subsidiaries: Ozark, N.I.S. Financial Services ("NIS"), and Sharpe Holdings. (Aff. of Ken D. Schueler, Ex. A (Dep. of David Melton ("Melton Dep.")) at 15, April 2, 2014, Docket No. 27.)

I. SCHOUWEILER'S HISTORY WITH CNS

Schouweiler began his employment with CNS as an agent in 1985 and continued for approximately 24 years until he was formally terminated by letter effective September 2009. (Schueler Aff., Ex. B (Dep. of Philip Schouweiler ("Schouweiler Dep.")) at 25, 67, Apr. 2, 2014, Docket No. 27.) During his time at CNS, Schouweiler was promoted several times to various managerial positions and eventually became a territory vice president. ( Id. at 26-28.) In 2003, due to a decline in production in Schouweiler's area at Ozark, he stepped down as territory vice president and became a regional manager. ( Id. at 30-31.) In 2005, Schouweiler was further demoted to an agent, along with the four other managers remaining in Minnesota. ( Id. at 32.)

A. Employment Contracts

Schouweiler signed a number of employment contracts during his employment with CNS. On July 1, 1987, he signed an Agent's Contract with NIS that governed his Ozark insurance sales commissions. ( Id. at 55; Schueler Aff., Ex. B (NIS Corp. Agent's Contract ("Agent's Contract")) at DEF_00022.)[1] On June 30, 1992, as a requirement for being promoted to manager, Schouweiler signed a manager's addendum to the Agent's Contract. (Schouweiler Dep. at 105; Schueler Aff., Ex. B (NIS Corp. Addendum to Agent's Contract for Managers ("Manager's Addendum")) at DEF_00059.) On Jan. 1, 1995, as a requirement for being promoted to zone manager, he signed another addendum for zone managers. (Schouweiler Dep. at 104-05; Schueler Aff., Ex. B (NIS Corp. Addendum to Agent's Contract for Managers ("Zone Manager's Addendum")) at DEF_00053.) He also signed a Sales Representative's Contract with NIS on July 1, 2004 related to his relationship with and compensation from NIS. (Schouweiler Dep. at 95; Schueler Aff., Ex. B (NIS Financial Services, Inc. Sales Representative's Contract ("Sales Rep. Contract")) at DEF_01162.) Pursuant to each of these employment contracts, Schouweiler was entitled to certain commissions from his insurance and investment sales, with his right to such commissions continuing upon termination of his employment as long as the revenue from the sales continued for the company. (Agent's Contract ¶ 9; Manager's Addendum ¶¶ 6-7; Zone Manager's Addendum ¶¶ 6-7; Sales Rep. Contract ¶ 8; see also, Schueler Aff., Ex. C (Dep. of Charles Sharpe ("Sharpe Dep.")) at 30.)

Each of these agreements contains essentially the same non-competition provision. ( See Agent's Contract ¶ 21; Manager's Addendum ¶ 9; Zone Manager's Addendum ¶ 9; Sales Rep. Contract ¶ 18.) The provision includes a three-year replacement of business provision, which prohibits Schouweiler from directly or indirectly, for himself or on behalf of any other person or entity: (1) inducing or attempting to induce any policyholder of Ozark or CNS or any owner of Fund Shares to cancel, surrender, apply for a policy loan under or discontinue the payments of premiums on any policy issued by Ozark or CNS or to sell any Fund Shares or transfer such person's account with NIS to another broker/dealer and (2) contacting, soliciting or selling a policy of insurance to any person who is or was a policyholder of Ozark or CNS or selling securities to any person who is or was an owner of Fund Shares within the three years following the termination of the contract. ( See Agent's Contract ¶ 21; Manager's Addendum ¶ 9; Zone Manager's Addendum ¶ 9; Sales Rep. Contract ¶ 18.) It also includes a non-solicitation provision, which prohibits Schouweiler from engaging in or becoming interested in, affiliated or connected with any activity or business that competes with the business of Ozark, CNS, or NIS for one year following the termination of his employment; this provision applies only to activities in the county or counties Schouweiler solicited insurance for Ozark or Fund Shares for NIS. ( See Agent's Contract ¶ 21; Manager's Addendum ¶ 9; Zone Manager's Addendum ¶ 9; Sales Rep. Contract ¶ 18.)

The agreements state that a violation of the noncompete provision results in the automatic termination of the employee's right to commissions from Ozark and NIS. (Agent's Contract ¶ 9(h); Manager's Addendum ¶ 8; Zone Manager's Addendum ¶ 8; Sales Rep. Contract ¶ 8(e).) "The contracts are designed in such a way that breach of one contract... creates a cascade failure breach of the other contract, and so they're deliberately designed to coordinate between the two clauses." (Melton Dep. 74-75.) Thus, if Schouweiler breaches one noncompete provision, he loses his right to commissions under all of the contracts.

B. The Equity Participation Plan

Another contract into which Schouweiler entered during his employment was the CNS Equity Participation Plan ("EPP"). (Schueler Aff., Ex. B (CNS Corporation Equity Participation Plan as Amended and Restated ("EPP")) at DEF_00001.) The EPP is a deferred compensation plan governed by ERISA and established in part to "create an incentive for the Participants to provide their best efforts on behalf of the Corporation." ( Id. ¶ 1.) Participants earn unit credits to their EPP accounts annually based on performance criteria established by CNS including, for example, sales levels, sales goals for a particular year, and performance standards. ( Id. ¶ 3(a).)

Under the terms of the EPP, payment of the Participant's earned units commences upon the Participant's "Retirement Date, " defined as the earlier of "(i) the Participant's 30th anniversary with the Corporation... (ii) the Participant's 25th anniversary with the Corporation... if such 25th anniversary is on or after the Participant's 55th birthday; or (iii) the Participant's 62nd birthday." ( Id. ¶ 6(d).) Schouweiler started his employment at CNS on May 20, 1985 and was formally terminated in September 2009, (Schouweiler Dep. 67), so he missed the twenty-five years with the company commencement date by just over a year. Thus, Schouweiler's 62nd birthday is the proper commencement date, which, according to CNS records, falls on September 19, 2022. (Melton Aff. ¶ 15.)

To obtain the benefits of the EPP, employees must first make a benefits claim. ( See id., Ex. 2 ("EPP Claims Review Procedure") at 1; see also id. ¶ 18.) If that claim is denied, the EPP contains a written procedure for review of a denied claim for benefits, the EPP Claims Review Procedure, which states:

If the Participant's claim is denied or deemed denied, and the Participant wants to submit the claim for review, the Participant... may file a claim for review, in writing, with the Administrator... in accordance with the following procedures.
(a) The claim for review must be filed with the Administrator no later than 60 days after the participant has received written notification of the denial of the participant's claim for benefits, or if no written denial was provided, no later than 60 days after the deemed denial of the claim.

(EPP Claims Review Procedure 2 (emphasis omitted).)

The EPP also contains a noncompete provision. Section 6(e) provides that a Participant automatically forfeits "all unpaid Initial and Aggregate Unit Value upon the occurrence of any of the following events:"

(i) if the Participant, either while associated with, or within three (3) years after the Participant's Termination of Association with, the Corporation or its Affiliates, without consent of two-thirds (2/3) of the entire Board of Directors of the Corporation, engages in the sale of life insurance on behalf of another insurer in that portion of the geographic market area for which the Participant was responsible while associated with the Corporation or its Affiliates.
(ii) if the Participant uses trade secrets (such as policyholder lists) or attempts to replace business for the benefit of another insurer or brokerage firm while associated with, or within three (3) years after the Participant's Termination of Association with, the Corporation or its Affiliates.

(EPP ¶ 6(e).)

As of December 31, 2008, Schouweiler's EPP account was valued at $1, 236, 499. (Sharpe Dep., Ex. 62 to the Dep.) There is no evidence of Schouweiler having made a claim for benefits for ...


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