Alliant Insurance Services, Inc. v. Gaddy
Filed February 7, 2008, Third District,
Cite as 2008 SOS 987

Injunction Filed Against Dismissed Shareholder Sustained

The issue arose from the injunction filed by an insurance brokerage against a shareholder who violated a non-solicitation agreement.

Alliant Insurance Services, Inc., an insurance brokerage for construction companies, acquired a competing insurance brokerage, Gaddy Ward & Company Insurance Brokers (GWC).

G. Scott Gaddy, a majority shareholder in GWC, agreed in writing “to refrain from carrying on a business, directly or indirectly, which provides any of Alliant’s business” within the 58 counties of the State of California.

Following the sale, Gaddy worked for Alliant for two years until he was terminated.

When it learned that Gaddy was contacting its clients, Alliant filed a preliminary injunction which prohibited Gaddy from carrying on business, directly or indirectly, which “provides any company business” within the 58 counties of California.

Gaddy sought an appeal, contending that the ‘geographic scope’ of the injunction was unlawful and should have been limited to only the four counties where, according to him, Alliant had construction clients.

In ruling, the Third District court of appeal affirmed the judgment. The court held that trial court did not abuse its discretion when it found that the Alliant would prevail on the merits which justified issuing a preliminary injunction.

Further, the court found that the non-competition covenant was not invalid and may not be considered an illegal restraint on trade as the agreement expressly defined the restricted territory as ‘the 58 counties in the State of California’. ( under Business and Professions Code Sec. 16601)

Further, the appeals court explained that the agreement is valid and applicable throughout the entire state and the whole nation, not only in the four counties where GWC’s insurance sale was primarily done.

Further, the appellate court also dismissed Gaddy’s argument that the non-solicitation covenant was illegal, in that it prohibited solicitation not only of GWC’s clients, but of Alliant’s other customers as well.

In contrast, the court averred, Gaddy not only sold GWC to Alliant and became an employee of Alliant, but he would not have known the clients had he not had access to Alliant’s confidential information.

Likewise, the court found that Gaddy failed to support his claim that his loss of $1.5 million arising from his inability to work in California until March 2009, if he were restricted by the covenants, outweighed the potential harm to Alliant from the loss of a few clients.

In ruling the Third Appellate District therefore affirmed an order. The court held that a preliminary injunction, prohibiting a party from carrying on business within the state with clients that provided any business to the competing insurance brokerage to which the party had sold his insurance brokerage, was not unlawfully overbroad where the party had expressly agreed to the geographic restriction at the time of the sale.