Allstate Insurance Co. v. Posnien, Inc.

Allstate Insurance Co. v. Posnien, Inc., 2015 MT 162 (June 16, 2015) (Rice, J.) (7-0, rev’d)

Issue: Whether the district court erred in determining that Posnien retained no security interest in the Allstate book of business sold to Baird 7 pursuant to the terms of Allstate’s contract documents.

Short Answer: Yes.

Reversed and remanded

Facts: Fay Posnien was an exclusive agent for Allstate. In 2006, Fay decided to sell the agency and retire. Allstate placed an ad on its website listing the agency for sale, and Mary Baird, incorporated at Baird 7, offered to buy the agency from Posnien for $450,000.

Posnien was required to obtain Allstate’s approval of Baird 7 as the buyer. Allstate’s Montana field manager met with Baird, shared the agency’s revenue and expense history, reviewed her business plan, tax returns and other financial documents, and conducted personal interviews with her. He wrote a letter to Allstate recommending approval of the transaction, and Allstate approved the transfer.

Baird 7 made a $150,000 down payment, which she obtained through a loan from Kenneth and Gretch Gose, and Posnien financed the remainder. The book of business was valued at $435,000 by the buy-sell.

The sale closed on March 1, 2007, and Baird became an exclusive agent for Allstate. She executed an exclusive agency agreement. Under the agreement an agent owns an economic interest in the book of business, which may be used a collateral for business loan although ownership is retained by Allstate. Part of the agent’s economic interest is the option to receive termination payments upon termination of her relationship with Allstate. Baird collateralized her right to receive termination payments to secure a loan from the Goses. Baird also granted Posnien a security interest in the book of business. Baird executed a UCC financing statement at closing, stating Posnien had a security interest in the book of business along with all assets owned by the Baird 7 agency. Posnien recorded the UCC statement on March 2, 2007.

Baird was terminated as an agent in April 2011 after Allstate learned she had falsified the date of loss on a claim for damage to her boat. Allstate immediately closed the Baird 7 agency and “parked” the book of business – about 1,400 policies — at the Pete Russell Agency. Allstate made no more commission payments to Baird 7. Baird 7 made its final payment to Posnien in April 2011, still owing more than $280,000 to Posnien.

Under the agency agreement, Baird opted for a termination payment of $148,174.69. Because Posnien and the Goses disputed whose lien had priority, Allstate withheld the funds and filed this interpleader action. Posnien counterclaimed against Allstate, alleging conversion and interference with contractual relations. Posnien also counterclaimed against Baird 7, asserting breach of contract, forgery, and breach of good faith and fair dealing. Baird 7 counterclaimed against Allstate, alleging conversion, intentional interference with prospective advantage, invasion of privacy, and other claims.

The Goses and Posnien eventually settled, splitting the termination payment 2/3 to Goses and 1/3 to Posnien, with Baird 7 assigning all of its claims against Allstate to Posnien, and Posnien agreeing to dismiss all claims against Baird 7.

Procedural Posture & Holding: Posnien moved for partial summary judgment on the conversion claim, and Allstate moved for summary judgment on Posnien’s claim. Following a hearing, the district court denied Posnien’s motion and granted Allstate’s. Posnien appeals, and the Supreme Court reverses. 

Reasoning: The central issue is the scope of the security interest Posnien was granted, and what secured interest, if any, survived the termination of Baird 7’s economic interest in the agency. The district court concluded that Baird 7’s interest was limited to a termination payment, and Posnien retained no further rights in the collateral beyond the termination payment, and was therefore not entitled to future commission payments.

Posnien conceded at oral argument that the right to a security interest in renewal commission payments ended when Baird 7 lost the right to those payments upon termination of Baird’s agency. However, Posnien argues that its security interest included not just the collateral but any proceeds generated from the collateral, citing the UCC, and that its lien attached to the revenue Allstate is receiving from policies parked at a different agency.

This is more of a contract case than a secured transactions case. “Allstate created an alternate universe of finance to govern the relationships between itself and its agents, as well as between agents, with its own guarantees, terminology and restrictions.” ¶ 15. Posnien, Baird and Allstate were bound together through various contractual agreements, most importantly the Exclusive Agency Agreement, and the Exclusive Agency Independent Contractor Manual, which the Court examines holistically to determine the parties’ rights.

According to the Manual, an agent’s economic interest in the book of business does not include renewals or renewal commissions after termination. The agent’s right to receive commissions ends upon termination of the agency agreement. Under these clear terms, Posnien has no security interest in the commission stream.

However, the documents also show that an agent can collateralize her commissions or her termination payment, and still sell her economic interest in the book of business. This supports Posnien’s argument that the economic interest in the book of business is an asset that can provide value for an agent beyond sales commissions or termination payments, even though it is owned by Allstate.

Allstate relies on § 30-9A-203(2), MCA, to argue that Baird 7’s rights to the book of business were satisfied by the termination payment, leaving Posnien without recourse. Allstate’s argument might be persuasive if this were an arm’s-length transaction in a free market. But this transaction took place in Allstate’s “closed contract world” in which it placed limitations on and made promises to its agents.

Nothing in the contract documents suggests that a selling agent’s broader secured interest in a book of business could be subject to forfeiture upon a decision by Allstate to terminate the buying agent’s interest in the book of business. In fact, Posnien had every reason to believe just the opposite. The contract documents promised Posnien a defined economic interest and promised she would be able to “realize” this interest. As a general rule of law, Posnien’s secured interest follows the collateral. If Allstate intended Baird 7’s termination payment to extinguish Posnien’s security interest, it was obligated to either contractually provide for that, or obtain Posnien’s release of her interest under § 30–9A–315(1)(a), MCA. Moreover, the contract documents provided that security interests would be honored. “Clearly, Posnien’s interest was not exclusively hitched to Baird 7’s wagon.” ¶ 22.

Posnien satisfies the elements of conversion. The case is remanded for entry of partial summary judgment in favor of Posnien, and further proceedings to calculate damages.