Battle Rages On In Epic Restrictive Covenant Dispute

In the latest salvo in a long-running legal dispute stemming from a classic raid by a competitor upon a commercial insurance broker’s business and employees, a New York appellate court has refused to dismiss a New York lawsuit in favor of a prior-filed California lawsuit which has already addressed many of the same issues.

One year ago, we blogged about a preliminary injunction issued by the Supreme Court, New York County, in a lawsuit then pitting Aon Risk Services Northeast and Aon Corporation (collectively, “Aon”) v. Michael Cusack and Alliant Insurance Services, Inc. (“Alliant”).

The case arose from a raid upon Aon’s business by Mr. Cusack, a senior executive and Managing Director at Aon, who resigned on June 13, 2011 with several other senior executives (as part of a group of 38 total employees) to join Alliant. In the ensuing few months, 60 employees in total resigned from Aon to join Alliant, and Aon received more than 100 broker of record letters from clients transferring more than $20 million in revenue from Aon to Alliant.

When we last checked in on the lawsuit, the New York court had preliminarily enjoined Mr. Cusack, Alliant, and other former Aon employees who were subject to restrictive covenants from, during the pendency of the litigation, (1) soliciting business or entering into any business relationship with any Aon client on whose account they worked, or (2) soliciting any Aon Construction Services Group employees to work for Alliant. Much has happened since that December 21, 2011 injunction, and not only in the New York action.

On June 13, 2011, the day of first resignations, three Aon employees (including Aon Construction Services Group CEO Peter Arkley, a long-time California resident) and Alliant filed suit against Aon in California state court seeking a declaratory judgment that their restrictive covenants were unenforceable pursuant to California’s pro-employee Business and Professions Code §16600. After amendments to their complaint, the case was removed to the United States Central District of California, which on June 13, 2012 granted summary judgment to those plaintiffs, holding the covenants to be unenforceable under California law and public policy.

A lawsuit was also filed in Illinois. Aon sued Mr. Arkley and Alliant in Illinois Chancery Court and sought a TRO pending a preliminary injunction hearing. On June 17, 2011, the Illinois Chancery Court granted Aon's application, and issued a TRO prohibiting Alliant, Arkley, and all other former Aon CSG employees, including Cusack, from soliciting Aon's clients and employees, pending a preliminary injunction hearing. Subsequently, Alliant moved to dismiss the Illinois action on the ground of forum non conveniens, arguing that California was a more convenient forum than Illinois for Aon to litigate its claims against Arkley. The Illinois court granted the forum non conveniens motion.

In April 2012, Peter Arkley was added as a defendant to the New York action. The Supreme Court, New York County denied his motion to dismiss on July 2, 2012, and entered a preliminary injunction against him on September 21, 2012, along the same lines as the preliminary injunction it previously entered against Mr. Cusack in December 2011. Mr. Arkley appealed both of those orders.

In its January 10, 2013 order, New York’s Appellate Division, First Department, affirmed the two orders. The Appellate Division noted that the California action was commenced only a few days before the New York action, and on the very same day that the mass exodus of Aon employees began. It was evident to the New York court that, given California’s hostility to restrictive covenants, the California action was merely “a preemptive measure undertaken to gain a tactical advantage so as to negate the force and effect of the restrictive covenants, which the parties had freely agreed upon.” The New York court also noted that in their agreements, the parties had selected Illinois law, not California law, to govern.

Finally and interestingly, in rejecting Mr. Arkley’s forum non conveniens arguments, the Appellate Division stated that he was available to the New York forum not only because he had conducted business in New York in the past but also because he had participated in the New York litigation as a non-party by submitting affidavits in opposition to Aon’s application for a preliminary injunction against Mr. Cusack.

 So this transcontinental legal dispute continues, in New York (applying Illinois law) and California (where it has now been remanded to state court). Stay tuned for further developments…