Filed 6/29/06 by Clerk of Supreme Court
IN THE SUPREME COURT
STATE OF NORTH DAKOTA
2006 ND 141
Farmers Insurance Exchange,
Truck Insurance Exchange,
Fire Insurance Exchange,
Mid-Century Insurance Company,
and Farmers New World Life
Insurance Company, Plaintiffs and Appellants
v.
Allen Schirado, Defendant and Appellee
No. 20050221
Appeal from the District Court of Burleigh County, South Central Judicial
District, the Honorable Bruce A. Romanick, Judge.
REVERSED AND REMANDED.
Opinion of the Court by Crothers, Justice.
Jerry W. Evenson, Zuger Kirmis & Smith, P.O. Box 1695, Bismarck, N.D.
58502-1695, for plaintiffs and appellants.
Charles “Casey” L. Chapman, Chapman and Chapman, P.C., P.O. Box 1258,
Bismarck, N.D. 58502-1258, for defendant and appellee.
1
Farmers Insurance Exchange v. Schirado
No. 20050221
Crothers, Justice.
[¶1] Farmers Insurance Exchange, Truck Insurance Exchange, Fire Insurance
Exchange, Mid-Century Insurance Company, and Farmers New World Life Insurance
Company (collectively “Farmers”) appealed from a summary judgment dismissing
their action against Allen Schirado for breach of contract, misappropriation of trade
secrets, tortious interference with contract, conversion, unjust enrichment, and breach
of fiduciary duty and awarding Schirado damages on his counterclaim. We reverse
and remand, concluding there are genuine issues of material fact which preclude entry
of summary judgment.
I
[¶2] In 1988, Farmers and Schirado entered into an “Agent Appointment
Agreement.” Under terms of the agreement, Schirado, as an independent contractor,
agreed to act as an agent for Farmers to sell the various lines of insurance provided
by Farmers. The agreement required Schirado to submit to Farmers all requests or
applications for insurance for the classes underwritten by Farmers and eligible in
accordance with Farmers’ rules and manuals. The agreement further provided that all
manuals, lists, and records, including information pertaining to policyholders, were
the confidential property of Farmers and were to be returned to Farmers upon
termination of the agreement. The agreement also contained provisions governing
termination of the agreement by Farmers or Schirado.
[¶3] Schirado claims that on December 18, 2001, in compliance with a three-month
notice provision in the agreement, he faxed a letter indicating his intent to resign
effective March 31, 2002, to Betsy Nealon, Farmers’ Executive Director for North
Dakota and South Dakota. Nealon testified she never received the letter.
[¶4] In late March 2002, Schirado sent a letter to his clients notifying them he had
terminated his contract with Farmers, stating:
This was not an easy decision to make after representing the company
for over 14 years. The reasons for this decision are varied, but deal
with ethics and the treatment of my clients.
2
Schirado then explained he would be continuing as an independent insurance agent
with a new agency, and stated:
As you may have noted on the letter-head, my agency address and
phone number are different. There is a clause in the Farmers contract
which may allow them to take over my office and old phone number.
I do not intend to allow that to happen without a fight but, like the man
said, pray for the best but prepare for the worst.
Schirado concluded the letter by noting he would not be able to solicit the client on
insurance matters for a period of one year, but “you on the other hand are free to
contact whomever you desire.” Farmers learned of Schirado’s letter to his clients and,
believing that the letter violated the terms of the parties’ agreement, Nealon on March
28, 2002, faxed a letter to Schirado notifying him that Farmers was terminating the
parties’ agreement immediately.
[¶5] Under terms of the parties’ agreement, Schirado was to be paid “Contract
Value” payments upon termination of the agreement. Farmers was allowed to make
Contract Value payments in installments. Schirado requested his Contract Value
payments and Farmers sought return of all policyholder information and documents.
There were disputes between the parties in attempting to resolve these matters.
Schirado eventually received two Contract Value installment payments and he
eventually transferred documents and records to Farmers. Farmers claims the
documents were not in usable form and were returned too late to use in servicing
existing policies.
[¶6] In August 2002, Farmers sued Schirado, alleging breach of contract,
misappropriation of trade secrets, tortious interference with contract, conversion,
unjust enrichment, and breach of fiduciary duty. Farmers claimed that, prior to
termination of the parties’ agreement, Schirado had sold policies to clients through
other insurance companies which could have been provided by Farmers. Farmers also
claimed that Schirado improperly attempted to induce clients to leave Farmers and
take policies through Schirado with new companies, and that Schirado’s retention of
policyholder records and documents hampered Farmers servicing of existing policies
and resulted in monetary damages to Farmers. Schirado answered, denying all of
Farmers’ claims, and filed a counterclaim seeking payment of the balance of his
Contract Value payments.
[¶7] Schirado moved for summary judgment dismissing Farmers’ complaint and
awarding him judgment on his counterclaim. The district court determined there were
3
no genuine issues of material fact on any of Farmers’ claims and ordered summary
judgment dismissing the complaint. The court also determined there were no genuine
issues of material fact on Schirado’s counterclaim and ordered judgment in favor of
Schirado for $6,690 plus interest. Farmers appealed, contending the district court
erred in determining there were no genuine issues of material fact on any of the claims
raised in Farmers’ complaint and in awarding the Contract Value payments to
Schirado on his counterclaim.
II
[¶8] “Summary judgment is a procedural device for the prompt resolution of a
controversy on the merits without a trial if there are no genuine issues of material fact
or inferences that can reasonably be drawn from undisputed facts, or if the only issues
to be resolved are questions of law.” MBNA America Bank, N.A. v. Hart, 2006 ND
33, ¶ 6, 710 N.W.2d 125. A party moving for summary judgment has the burden of
showing there are no genuine issues of material fact and the moving party is entitled
to judgment as a matter of law. Ballensky v. Flattum-Riemers, 2006 ND 127, ¶ 7;
Anderson v. Selby, 2005 ND 126, ¶ 7, 700 N.W.2d 696. In considering a motion for
summary judgment, the court may examine the pleadings, depositions, admissions,
affidavits, interrogatories, and inferences to be drawn therefrom to determine whether
summary judgment is appropriate. Anderson, at ¶ 7.
[¶9] Whether the district court properly granted summary judgment is a question
of law that we review de novo on the entire record. MBNA, 2006 ND 33, ¶ 6, 710
N.W.2d 125. On appeal, this Court decides whether the information available to the
district court precluded the existence of a genuine issue of material fact and entitled
the moving party to judgment as a matter of law. Miller v. Diamond Res., Inc., 2005
ND 150, ¶ 8, 703 N.W.2d 316. “In determining whether summary judgment was
appropriately granted, we view the evidence in the light most favorable to the party
opposing the motion, and that party will be given the benefit of all favorable
inferences that can reasonably be drawn from the evidence.” Id.
III
[¶10] The gravamen of Farmers’ claims against Schirado is its allegation that
Schirado’s actions, both before and after termination, caused potential clients to
purchase insurance with other companies and caused Farmers’ existing clients to
4
discontinue their coverage with Farmers. Farmers claims Schirado’s wrongful
conduct caused significant damages to Farmers in the form of lost premiums.
[¶11] In granting Schirado’s motion for summary judgment, the district court focused
exclusively upon the issue of causation. The court concluded that all of Farmers’
claims were precluded because Farmers had failed to present direct evidence through
testimony of individual policyholders explicitly stating that they left Farmers due to
Schirado’s conduct. The court stated its rationale in its order granting the motion for
summary judgment:
To show Schirado is the cause of Farmers damages in the amount of
lost business would require the actual policyholders to state they left
Farmers due to Schirado. Through discovery, Farmers has not been
able to show this type of loss due to Schirado’s actions. In this regard
there are no questions of material fact and the Court grants Schirado’s
motion for summary judgment . . . .
[¶12] The district court’s decision held Farmers to too high of an evidentiary
standard. The trial court cited no cases or other supporting authority for its
conclusion that causation could only be proven by direct testimony of actual
policyholders stating that they left Farmers because of Schirado’s actions. The
determination whether certain conduct caused injury depends on the facts and
circumstances of each case and generally is a question of fact for the trier of fact. See
Miller, 2005 ND 150, ¶ 10, 703 N.W.2d 316; Rued Ins., Inc. v. Blackburn, Nickels
& Smith, Inc., 543 N.W.2d 770, 773 (N.D. 1996). Any issue may be proven by
circumstantial evidence or by a combination of direct and circumstantial evidence.
Lovas v. St. Paul Ins. Cos., 240 N.W.2d 53, 61 (N.D. 1976). Accordingly, a plaintiff
may establish the elements of its claim by circumstantial evidence. See Forster v.
West Dakota Veterinary Clinic, Inc., 2004 ND 207, ¶ 20, 689 N.W.2d 366; Heng v.
Rotech Med. Corp., 2004 ND 204, ¶ 28, 688 N.W.2d 389. This Court expressly noted
in Heng, at ¶ 28, that “circumstantial evidence may provide an inference of
causation.”
[¶13] This Court’s holding in Forster in an analogous situation is particularly
instructive. Forster was a veterinarian who claimed she was defamed when her prior
employer, Brummond, told law enforcement officials and other veterinarians that
Forster had poisoned Brummond’s horse, had mistreated another horse, and had
broken into Brummond’s clinic and stolen drugs. Forster claimed Brummond’s
actions had affected her ability to secure other employment. On appeal, Brummond
5
claimed she was entitled to judgment as a matter of law because “Forster failed to
produce any witnesses who testified they heard the statements and believed those
statements to be defamatory.” Forster, 2004 ND 207, ¶ 19, 689 N.W.2d 366.
Concluding that direct evidence was not necessary, this Court held:
A jury has the right to consider circumstantial evidence as well
as direct evidence. Leake v. Hagert, 175 N.W.2d 675, 687 (N.D. 1970);
see also NDJI Civil C-80.50 (1998) (stating “[a] fact can be proved by
either direct evidence or circumstantial evidence, or by both”). Direct
testimony of the recipient’s understanding of the defamatory nature of
a libel is not required if other evidence is sufficient to permit an
inference of that understanding. Wheeler v. Green, 286 Or. 99, 593
P.2d 777, 782 (1979); see also 53 C.J.S. Libel and Slander § 165(b)
(1987). Brummond did not dispute that she told various individuals
Forster was involved in the break-ins, the horse poisoning, and the
alleged abuse of Forster’s horse. Forster presented evidence that some
veterinarians expressed an interest in employing her before they
communicated with Brummond. After communicating with Brummond,
the veterinarian offices no longer had positions available for Forster.
The jury was not required to believe testimony that the veterinarians did
not hire Forster for reasons other than the concerns communicated to
them by Brummond. We conclude the evidence in this case was
sufficient for the jury to find that the “publication” element of
defamation has been satisfied.
Forster, at ¶ 20.
[¶14] Similarly, there was circumstantial evidence presented in this case from which
a trier of fact could infer Schirado’s conduct caused economic damages to Farmers
in the form of lost business. Viewed in the light most favorable to Farmers, and
giving Farmers the benefit of all favorable inferences reasonably drawn from the
evidence, the evidence would allow a factfinder to draw the following inferences:
1) In the ten months prior to his attempt to terminate the
agreement, Schirado increased the number of other companies
for which he was authorized to write insurance from 11 to 20
and withheld that information from Farmers during discovery.
2) Shortly before terminating the agreement, Schirado wrote 19
separate policies with other companies which Farmers would
have accepted if Schirado had first submitted the applications to
Farmers as required by the parties’ agreement.
3) Before leaving Farmers, Schirado sent a letter to existing clients
stating he was leaving Farmers because of a dispute over ethical
violations and mistreatment of clients by Farmers, suggesting
Farmers was wrongfully taking over his old office and telephone
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number, and soliciting the Farmers’ policyholders to follow him
to his new agency.
4) Schirado refused to return up to 95% of the policyholder files
and documentation which were necessary for Farmers to service
policyholders. When Schirado finally turned over the materials
at a much later date, the documents were randomly dumped in
boxes and garbage bags, and were unusable.
5) A normal attrition rate of policyholders discontinuing their
coverage when an agent leaves the insurer is 10%-15%; an
“ugly termination” might result in a 25%-30% loss; it was
estimated 50%-75% of Schirado’s customers left Farmers after
Schirado left.
6) Some policyholders told Farmers’ employees that they were
dropping their coverage with Farmers because of problems
which had been caused by Schirado’s failure to return
policyholder files in a timely manner.
[¶15] Schirado challenges the basis and reliability of much of Farmers’ evidence.
Those are matters pertaining to credibility of witnesses and weight to be accorded the
evidence, which are to be determined by the trier of fact. See Akerlind v. Buck, 2003
ND 169, ¶ 15, 671 N.W.2d 256. At the summary judgment stage, the evidence and
inferences to be drawn therefrom must be viewed in the light most favorable to the
party opposing summary judgment. Viewing the evidence in this case in that manner,
a factfinder could infer that Schirado wrongfully diverted policyholders to companies
other than Farmers, wrote a letter to all of his clients suggesting he was leaving
because of unethical conduct by Farmers and inviting those clients to transfer their
business to him at his new agency, and wrongfully withheld client files and
documentation from Farmers, resulting in an inordinately high number of Schirado’s
clients leaving Farmers. This interpretation of the evidence would be sufficient to
support an inference that Schirado’s conduct caused potential clients to acquire
policies with other companies and caused a significant number of Farmers’
policyholders to leave Farmers. Direct evidence of causation is not required if other
evidence is sufficient to permit an inference that the defendant’s conduct caused the
plaintiff’s damages. See Forster, 2004 ND 207, ¶ 20, 689 N.W.2d 366. We therefore
conclude genuine issues of material fact on the issue of causation preclude summary
judgment.
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IV
[¶16] Schirado suggests that, even if there is a genuine issue of material fact on
causation, summary judgment is still appropriate because Farmers failed to present
direct evidence that it suffered damages. Again, Schirado’s argument is premised on
his contention that Farmers was required to present direct testimony from individual
policyholders stating that they left Farmers, or took out policies with other companies,
because of Schirado’s wrongful conduct. If, as we have previously concluded, there
was sufficient evidence to support an inference that Schirado’s conduct caused
potential clients to take out policies with other companies which would have been
accepted by Farmers and caused some existing Farmers’ policyholders to drop their
coverage with Farmers, the trier of fact could further conclude that those results
caused economic damages to Farmers. If Farmers lost policyholders because of
wrongful conduct by Schirado, it naturally follows that there would be a concurrent
loss of premiums for those lost policies.
[¶17] Schirado argues that evidence of damages is too speculative and the trier of
fact would be left to merely guess at an appropriate award of damages. This Court
has addressed the standard used when a party claims evidence of damages is too
speculative:
Evidentiary imprecision on the amount of damages does not preclude
recovery. As this Court said in the syllabus in North Am. Pump Corp.
v. Clay Equip. Corp., 199 N.W.2d 888, 891 (N.D. 1972):
6. Where damages obviously have been suffered
and there is no definite evidence available for an exact
determination of the amount of damages resulting from
a breach of contract, the best evidence which the
circumstances will permit is all the law requires.
7. The uncertainty which prevents recovery of
damages is the uncertainty of the fact of damages, not the
uncertainty of the amount. Where it is reasonably certain
that substantial damages have resulted, mere uncertainty
as to the exact amount will not preclude recovery.
“In a case where the amount of damages may be hard to prove, the
amount of damages is to be left to the sound discretion of the finder of
facts.” B.W.S. Investments v. Mid-Am Restaurants, Inc., 459 N.W.2d
759, 764 (N.D. 1990).
Keller v. Bolding, 2004 ND 80, ¶ 21, 678 N.W.2d 578. If the trier of fact in this case
determines Farmers lost existing and potential clients because of Schirado’s wrongful
8
conduct, damages “obviously have been suffered” and any uncertainty goes to the
amount, not the fact, of damages. The determination of damages, if any, is therefore
left to the sound discretion of the trier of fact at trial.
V
[¶18] The district court also granted summary judgment to Schirado on his
counterclaim for the balance of his Contract Value payments. Schirado’s entitlement
to those payments under the contract is intertwined with Farmers’ claims of breach
of contract and tort, and may be affected by the resolution of those issues at trial.
Accordingly, we reverse the summary judgment granting Schirado the remainder of
his Contract Value payments.
VI
[¶19] We have considered the remaining issues and arguments raised by the parties
and they are either unnecessary to our decision or are without merit. The district court
erred in determining that there were no genuine issues of material fact and that
Schirado was entitled to judgment as a matter of law. We reverse the summary
judgment and remand for further proceedings in accordance with this opinion.
[¶20] Daniel J. Crothers
Mary Muehlen Maring
Carol Ronning Kapsner
Dale V. Sandstrom
Gerald W. VandeWalle, C.J. |
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