The dangers of only arguing one half of 43(a)

Diodato v. Wells Fargo Ins. Servs., USA, Inc., 44 F. Supp. 3d 541 (M.D. Pa. 2014)

Darrell Diodato was employed by Wells Fargo Insurance for thirty-six years as an insurance producer, servicing existing insurance business and originating new insurance business. He specialized in brokering insurance for bowling alleys and family entertainment centers, developing “numerous personal and business relationships with owners” and considering himself to be “the godfather” of the bowling alley insurance industry. Approximately 70% of the revenue he generated was derived from bowling center owners and operators. He signed a trade secret/nondisclosure/nonsolicitation agreement in 2009, allegedly at threat of losing his job.

Wells Fargo fired him in 2011; the parties’ accounts of why diverged drastically, with Wells Fargo claiming job-related misbehavior and Diodato claiming they wanted to get his book of business without having to pay him.After the termination, Wells Fargo distributed about 53 insurance-related documents which identified Diodato as the producer on their respective accounts. (Advertising or promotion?) Wells Fargo continued to run advertisements in Roller Skating Business using Diodato’s name until at least February of 2012 and continued to identify him as a producer on the Wells Fargo website months after his termination.

Diodato subsequently began working with Wells Fargo competitors. He denied that he solicited business from former Wells Fargo clients, but admitted that he maintained relationships with them and told them how to switch to his new business if they asked. Many of the clients he serviced at Wells Fargo indeed “left or removed their accounts from [Wells Fargo] in the period following [his] termination.” Wells Fargo sent cease and desist letters to the competitors, alleging Diodato’s breach of the nonsolicitation agreement and demanding that each ensure Diodato’s compliance with the agreement’s terms.

The court granted summary judgment on Diodato’s fraudulent inducement, breach of contract, and breach of the duty of good faith & fair dealing claims. The unjust enrichment claim also failed because Diodato failed to show that Wells Fargo received an uncompensated benefit from him.

Defamation/commercial disparagement: Diodato alleged three different types of defamation: that his superior informed a Wells Fargo business manager, that Diodato’s actions were “not in Wells Fargo’s best interests”; that the superior “painted a picture” to the head underwriter for an insurer that Diodato’s “business practices were suspect and that he was insubordinate”; and that Wells Fargo’s counsel advised the competitors that Diodato was in violation of the nonsolicitation agreement. The first statement was merely opinion: it was “ambiguous, obscure, and does not imply the existence of specific defamatory facts.” The “best interests” statement didn’t imply a violation of any particular duty or other responsibility as a Wells Fargo employee. However, Wells Fargo didn’t get rid of the “suspect/insubordinate” claim because its only argument was that Diodato failed to sufficiently identify an actual statement. The record showed that the challenged meeting occurred and that Diodato was explicitly described as “insubordinate” and his business practices as “suspect.” As for the C&Ds, Wells Fargo successfully asserted a “competitors privilege.” See Gresh v. Potter McCune Co., 235 Pa.Super. 537, 344 A.2d 540 (1975). In such circumstances, a conditional privilege applied, and Diodato failed to show abuse of the privilege, given Wells Fargo’s argument that it reasonably believed that its efforts were necessary to protect its legitimate and protectable interests as identified in the nonsolicitation agreement.

However, the agreement’s post-employment prohibition on “accepting the unsolicited business of former clients” was broader than necessary to protect against Wells Fargo’s legitimate concerns, and struck it as unenforceable as a matter of law.

Diodato’s claim for violation of §43(a)(1)(B) survived because Wells Fargo only made arguments about §43(a)(1)(A); his claims were based on Wells Fargo’s continued use of his name on its website for nearly seven months after Diodato’s termination and its continued use of his name as its representative in Roller Skating Business after his termination. The complaint clearly alleged a “false or misleading description of representation or fact,” and expressly stated the statutory requirements of both a false designation claim and a false advertising claim. While Diodato abandoned his §43(a)(1)(A) claim, Wells Fargo had notice of the false advertising claim and it therefore survived summary judgment. (It seems extremely unlikely that someone who can’t win a §43(a)(1)(A) claim could show the extra elements of commercial advertising or promotion plus materiality.) The Pennsylvania common law of unfair competition tracks the Lanham Act, so that survived too.

Diodato’s statutory claim for unauthorized use of his name, in violation of Pennsylvania’s Unauthorized Use of Name or Likeness statute survived. That law creates a cause of action for any “person whose name or likeness has commercial value and is used for any commercial or advertising purpose without written consent….” Diodato sufficiently established commercial value in his name. “The record reveals that Diodato has developed long-standing personal relationships with many of the clients he serviced while working for Wells Fargo, and he argues that, in the context of the roller skating and bowling alley insurance businesses, his name ‘has significant commercial value.’” He averred that, over the course of more than 30 years, (1) he spent his own money supporting various fundraising activities; (2) he entertained contacts at annual industry meetings; and (3) he paid $12,000 annually from his own commission revenue to account for costs relating to Wells Fargo’s endorsement of a bowling industry organization. This would allow a trier of fact to find that he expended time, effort, and money “in excess of what any salesperson does to generate customers.”

The court denied summary judgment on Wells Fargo’s breach of contract counterclaim; a jury had to decide exactly what role Diodato played in the transition of his former clients’ business. Wells Fargo lost its trade secret claim because it didn’t provide evidence showing exactly what information it believed Diodato misappropriated or the manner in which he did so. Finally, the gist of the action doctrine barred Wells Fargo’s remaining tort claims for unfair competition, conversion, and tortious interference with existing and prospective contractual relations, because these claims were derivative of its breach of contract claim.

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