Background
Eric Kaufman and Sallie Giblin were producer members of Missouri limited liability companies affiliated with Lockton, a commercial-insurance brokerage and consulting organization. Their membership agreements selected Missouri law and Missouri courts, incorporated operating agreements providing for termination of membership on 30 days’ written notice, restricted solicitation of Lockton customers, and permitted the prevailing party in covered disputes to recover reasonable attorneys’ fees and costs.
Kaufman and Giblin resigned effective immediately and joined Lockton competitor Alliant. They sued Lockton in California state court to challenge their contractual restrictions, while Lockton sued them in federal court in Missouri. The Missouri district court enforced the choice-of-law and forum-selection clauses, found that the California suits breached the forum-selection clauses, and upheld customer-nonsolicitation covenants as narrowed to the customers Lockton identified. It nevertheless ruled for the former members on the 30-day-notice and related fiduciary-duty claims, awarded only nominal damages for the forum breaches, and awarded Lockton approximately $9.2 million in fees incurred in the federal actions.
The Court’s Holding
The Eighth Circuit affirmed the rulings enforcing the Missouri choice-of-law provisions, the Missouri forum-selection clauses, and the customer-nonsolicitation covenants to the limited extent Lockton sought enforcement. It also affirmed the determination that Kaufman and Giblin breached the forum-selection clauses by pursuing their California actions.
The court reversed the judgments for Kaufman and Giblin on Lockton’s claims that they breached the operating agreements’ 30-day-notice provision and their fiduciary duties, directing entry of judgment for Lockton on those claims. It vacated the nominal-damages awards and instructed the district court to determine Lockton’s actual damages attributable to the forum-selection breaches. The court also affirmed Lockton’s awards of fees and costs incurred in the federal litigation.
The majority held that federal jurisdiction existed because Lockton pleaded a colorable claim under the Defend Trade Secrets Act and the state-law claims arose from the same nucleus of operative facts. Judge Erickson dissented, concluding that the federal claim did not present a substantial federal question and that the judgments should be vacated for lack of subject-matter jurisdiction; the dissent also argued that abstention would otherwise have been appropriate.
Key Takeaways
- The court enforced the parties’ Missouri forum-selection and choice-of-law provisions despite the former members’ California lawsuits and California-based work.
- Resigning “effective immediately” breached the incorporated operating agreements’ requirement of 30 days’ written notice and supported Lockton’s fiduciary-duty claims.
- Lockton may pursue actual damages caused by the forum-selection breaches, rather than being limited to nominal damages, and its federal-action fee awards remain intact.
Why It Matters
The decision strengthens the ability of Missouri businesses to enforce negotiated forum, governing-law, and customer-nonsolicitation provisions against members who live and work elsewhere. It also confirms that violating a forum-selection clause may expose a contracting party to actual damages tied to litigation in the prohibited forum.
The ruling is also significant for federal jurisdiction and fee exposure. The majority treated Lockton’s pleaded federal trade-secrets claim as a sufficient jurisdictional foundation even though Lockton later dismissed it, while the dissent characterized that claim as an improper jurisdictional device. Meanwhile, the affirmance of multimillion-dollar fee awards illustrates the substantial financial consequences of membership disputes governed by broad prevailing-party provisions.