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IN THE COURT OF APPEALS OF IOWA No. 0-640 / 10-0136 Filed November 24, 2010

MONONA COUNTY MUTUAL INSURANCE ASSOCIATION, Plaintiff-Appellee, vs. THE HOFFMAN AGENCY, INC., Defendant-Appellant. ________________________________________________________________

Appeal from the Iowa District Court for Monona County, Steven J. Andreasen, Judge.

Defendant The Hoffman Agency, Inc. appeals the district courts denial of its motions for directed verdict. AFFIRMED.

Paul D. Lundberg of Lundberg Law Firm, P.L.C., Sioux City, for appellant. Jeff W. Wright and Rosalynd J. Koob of Heidman Law Firm, L.L.P., Sioux City, for appellee.

Heard by Eisenhauer, P.J., and Potterfield and Doyle, JJ.

2 DOYLE, J. Defendant The Hoffman Agency, Inc. appeals the district courts denial of its motions for directed verdict. The Hoffman Agency, Inc. contends the district court erred in failing to direct a verdict against Monona County Mutual Insurance Association, arguing the evidence was insufficient to find: (1) the expirations list was a trade secret; (2) it misappropriated the alleged secret; (3) there was evidence from which Monona County Mutual Insurance Association could approximate damages; and (4) it misappropriated the trade secret willfully and maliciously. Upon our review, we affirm. I. Background Facts and Proceedings. From the evidence presented at trial, a reasonable jury could have found the following facts: Plaintiff Monona County Mutual Insurance Association (MCM) is a mutual insurance association licensed in Iowa to write insurance policies covering property located in Monona, Crawford, Harrison, and Ida counties. Its license only allows it to insure property; the license does not allow MCM to sell other types of insurance policies, including policies covering automobiles and commercial properties. MCMs office is located in Onawa, Iowa. MCM has an agent within its company that sells its policies. Additionally, MCM contracts out with other businesses and individuals to sell its policies. One such company was Valley Insurance Agency (Valley). Valley, an independent insurance agency, was part of Valley Bank and Trust located in Mapleton, Iowa. As an independent agency, Valley contracted with many insurance companies, including Progressive, Grinnell Mutual, United

3 Fire and Casualty, as well as MCM, to sell those companies insurance policies. As part of its regular business, Valley sought out customers to purchase insurance policies, though many of its customers were persons who were also customers of Valley Bank. Based upon the needs of the customer, Valley would submit a customer application to an insurance company with whom it had contracted, and that insurance company would underwrite a policy based upon information provided on the application. As part of the arrangement between Valley and the insurance policy providers, the customer paid his or her premium to the insurance company underwriting the policy, and that company would in turn pay Valley a commission based upon the premium. In the insurance industry, it is understood that persons with insurance policies generally continue their policies until the date of the policys expiration, which is typically one year from the date of the application. At that time, the customer is more likely to update their policy due to needed changes in coverage, or to shop around to compare premiums. Insurance agents generally have an "expirations list" created from information contained in the customers insurance policy, including the insureds name, type of coverage, policy premium, and the expiration date of the policy. Agents reference their expirations list to tell when to contact their customers. Before the expiration date of the policy, the insurance agent contacts the customer to see if the customers needs have changed and to ensure the customers continued business. Expirations lists are shared within a company, but not shared with competitors. MCM kept its

expirations list in a vault that was only accessible to two secretaries, its agent, and its manager; MCMs expirations list was not shared with the public.

4 Valley utilized its own computers to keep track of its customers and their insurance business. Valley, by its employees, inputted customer insurance

policy information into Valleys computers, and, from that information, generated its own expirations list for its agents, including information from MCM policies. Valley did not share its list with competitors. On January 1, 2004, Valley renewed its agency contract with MCM. That contract provided, in relevant part: Ownership of Expirations. This contract shall not be assignable, and upon its termination, . . . this agency contract shall have no redeemable value and all records, use and control of expirations shall be the property of [MCM]. Three years later, Valley received notice that United Fire and Casualty planned to terminate its contract with Valley. Valley Bank and Trust made the decision to sell its insurance agency business. In March 2007, Steve Hamers, then president and CEO of Valley Bank and Trust and agency manager of Valley, contacted Tim Huepke, a partner and secretary of defendant The Hoffman Agency, Inc. (Hoffman). Hoffman, also an independent insurance agency, has offices in twelve locations in Iowa, including its home office in Mapleton. Like Valley, Hoffman contracted with numerous insurance companies to sell those companies insurance policies. Hoffman was also paid a commission based upon the insurance premium paid to the insurance policy provider. Hoffman kept records of its business and also generated its own expirations list based upon its customers policy information. Though Hoffman contracted with many of the same insurance companies as Valley, including United Fire and Casualty, Hoffman did not have an agency contract with MCM.

5 Hamers and Huepke began negotiations for the sale of Valley. Hamers communicated to Huepke that MCM would not be extending an agency agreement to Hoffman, and Huepke understood that the book of business written by Valley with MCM would not be part of the sale. Nevertheless, Hamers

believed Valleys MCM business was still of some value to Hoffman and wanted to include it in the sale. On behalf of Hoffman, Huepke had agreed to pay 1.5 times Valleys annual commissions for the other parts of Valleys business, an amount typical for such a sale. However, Huepke did not want to pay that

amount for Valleys MCM book of business it would not receive. Huepke asked if Hoffman could receive Valleys expirations list concerning MCMs policies. Hamers advised Huepke he would have to check with Valleys attorney and let him read the MCM contract to see if that would be a problem. A finalized letter of intent was signed by Valley and Hoffman on April 3, 2007. The letter of intent stated, in relevant part: It is acknowledged by [Valley] and [Hoffman] that the property and casualty book of business written by [Valley] with [MCM] is not marketable and all records, use and control of expirations of business written by [Valley] with [MCM] remain the property of [MCM]. The total purchase price was agreed to be $109,329, which included $15,896 for MCMs expirations list, though no language about the expirations list was expressly contained in the letter. Additionally, Valley agreed it would contact all of its insurance customers explaining that its book of business had been sold and recommending that the customers contact their new agent to schedule an insurance review.

6 After the letter of intent was signed by Valley and Hoffman, Hamers took to Valleys attorney the question whether Valley could provide the MCM expirations list to Hoffman. As a result of miscommunication between Hamers and the attorney, the attorney believed the list contained only the names, addresses, and telephone numbers of the insureds. Hamers that Valley could provide the list to Hoffman. Pursuant to the agreement, Valley sent a letter out to all of its customers, including those with MCM policies, advising Valley was being sold to Hoffman. The letter further stated: "W e have provided many of you with insurance through [MCM] for your home or farm. Please contact Chris Blake of [Hoffman] for your option on renewal of these policies." On April 10, 2007, the sale of Valley to Hoffman was finalized, and a "book of business purchase agreement" was executed by Valley and Hoffman. The purchase agreement contained language similar to the letter of intent, stating: "It is expressly acknowledged that [Valleys] book of business written with [MCM] is not marketable and all records, use and control of expirations of said business remains the property of [MCM]." After the sale, Valley provided Hoffman with all of its expirations lists for its customers policies, including the policies written by MCM. On April 20, 2007, Hoffman sent a letter out to all of Valleys customers, including those insured by MCM. The letter stated, in relevant part: We will provide you with the same excellent service as you have been accustomed to. Anyone that has a [MCM] policy will be contacted 45 days prior to your renewal date. Renewals with all of the other companies will continue as usual. The attorney advised

7 Hoffmans president, Clarence Hoffman, felt uncomfortable with the language of that letter, and another letter, removing the language about contacting those with MCM policies, was sent out to all of Valleys customers. Chris Blake, an agent employed by Hoffman, began calling MCM customers using the expirations list provided by Valley to solicit business for Hoffman. Blake spoke with one former Valley customer who, after speaking with Blake, switched his business from MCM to one of Hoffmans insurance providers. Thereafter, MCM filed its petition at law, later amended, against Valley and Hoffman, asserting, among other things, claims of misappropriation of MCMs trade secrets against both Valley and Hoffman. Specifically, MCM

asserted that its expirations list was a trade secret that Valley and Hoffman misappropriated by use of the list, causing MCM damages. Hoffman answered and filed cross-claims against Valley. Valley ultimately settled with both MCM and Hoffman and was dismissed from the case. Pursuant to an agreement

between MCM and Hoffman, Hoffman returned the expirations list to MCM on June 28, 2007. The matter proceeded to trial in 2009. There, MCM introduced a list of thirty-four policies it claimed it lost to Hoffman between April 30, 2007, and September 30, 2007. The list showed the customers original policy date s; one customer had been an MCM policy holder since 1972. The list stated those policies total premiums, ranging from $72.75 to $7481.45, equaling a total of $30,623.05. MCMs secretary testified that the loss of thirty-four policies was numerous compared to past years losses.

8 Former Iowa Insurance Commissioner, Bruce Foudree, an attorney who practices in insurance law, testified as an expert witness on behalf of MCM. He testified that the definition of "expirations" included the names of the insured, their addresses, phone numbers, policy information and premium, type of insurance, and policy expiration dates. He explained the use of the words

"expirations" referred generally to the information and "expirations list" pertained to the information in list form. He testified the value of an expirations list went to the heart of a business, and if a competitor received a companys expirations list, business would essentially be handed to the competitor on a plate. He testified that an expirations list is very valuable, so valuable that Hoffman paid for it. He testified that based upon the language in Valley and Hoffmans purchase agreement, Hoffman should have known Valley could not give Hoffman MCMs expirations list and that it was receiving the information improperly. Additionally, Foudree testified that in his opinion "a larger number than normal, far larger than you would expect, left and went over to [Hoffman]." He also testified that once an insurance company loses business, it is difficult to get that business back. Hoffmans agent, Blake, testified that only one customer changed to Hoffman as a result of his calling MCM customers, and that no business came as a result of the letter he sent out. He testified that many of the other customers walked into Hoffmans office or contacted him to switch to Hoffmans insurance providers on their own initiative. He testified that Hoffmans expirations list was not shared with competitors and was considered confidential. One customer who switched from MCM to Hoffman testified that he was a Valley Bank employee and planned to switch anyway. A member of the family

9 that switched their eight policies from MCM to Hoffman testified that the family planned to switch from MCM anyway because the family had been upset by a claim handled by MCM. Another customer testified he initially purchased

insurance with Valley due to his relationship with Valley Bank, and, when he learned Valley was going to be sold, he contacted two other insurance offices for quotes on premiums. He testified he ultimately switched to Hoffman because its premium was lower. The manager of MCM testified and admitted there was no evidence that Valley and Hoffman wanted or conspired to do harm to MCM. He also admitted that there was no evidence, other than one customer, that customers switched from MCM to Hoffman because of Hoffmans use of the expirations list. At the end of MCMs case-in-chief and again at the end of Hoffmans case, Hoffman moved for a directed verdict, which the court denied. Thereafter, the court provided the parties with a final set of jury instructions and verdict forms, and asked for objections. Although Hoffman objected that there was insufficient evidence to submit the questions of whether the expirations list was a trade secret and whether Hoffman misappropriated the alleged secret, it did not object to the substance of the instructions. The case was then submitted to the jury. The jury returned a verdict in MCMs favor. The jury specifically found the expirations list was a trade secret of MCM and Hoffman misappropriated that secret. Additionally, the jury found Hoffmans misappropriation was "willful and malicious." The jury awarded MCM $69,465.61 in "actual damage[s] and unjust enrichment."

10 After trial, MCM requested the court award attorney fees and exemplary damages, which Hoffman resisted. Hoffman also filed a motion for judgment notwithstanding the verdict and a motion for a new trial. The court, in ruling on the post-trial motions, denied Hoffmans motion and granted MCMs motions. As to exemplary damages, the courts ruling stated: [T]he court would note again that the jury awarded damages in the amount of $69,465.61. The court would further note that although the jury found the conduct of Hoffman to be willful and malicious, there was little or no evidence suggesting Hoffmans conduct was specifically intended to harm [MCM] or was otherwise committed with ill will, as opposed to reckless disregard. Finally, the court would note that Hoffman returned the expirations list to [MCM] after the present lawsuit was filed and had use of the expirations for only a short time. Considering these circumstances, the court believes a reasonable and appropriate amount of exemplary damages under [Iowa Code] section 550.4(2) [2007] is $60,000. Hoffman appeals, contending the district court erred in failing to direct a verdict against MCM, arguing the evidence was insufficient to find: (1) the expirations list was a trade secret; (2) it misappropriated the alleged secret; (3) there was evidence from which MCM could approximate damages; and (4) it misappropriated the trade secret willfully and maliciously. II. Scope and Standards of Review. The standard of review from a denial of a motion for a directed verdict is for errors at law. Jackson v. State Bank of Wapello, 488 N.W.2d 151,155 (Iowa 1992). In reviewing rulings on a motion for a directed verdict, we simply need ask whether there was sufficient evidence to generate a jury question. Id. We, like the district court, view the evidence in the light most favorable to the party against whom the motion for a directed verdict is directed. Id. The evidence is

11 considered in the light most favorable to the nonmoving party. Heinz v. Heinz, 653 N.W.2d 334, 338 (Iowa 2002). III. Misappropriation of Trade Secrets. MCMs trade secrets claim is based on the Iowa Uniform Trade Secrets Act, Iowa Code chapter 550. Under chapter 550, "an owner of a trade secret is entitled to recover damages for the misappropriation." Iowa Code

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