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The Bad Neighbor

Rich Pyorre is hardly the picture of toughness. He's 61, with a round, gently lined face and pale blue eyes the exact shade of his pale blue dress shirt. His Main Street, Fort Bragg, office is decorated with photos of his wife, two sons, and five grandchildren, a few plants and a figurine from the wetlands conservation group, Ducks Unlimited. The large, opal ring he wears on his right hand is the only flair in this otherwise muted scene. But Rich Pyorre, born and raised in Fort Bragg, just like his father before him, has spent the last several years taking on the country's largest insurance company, State Farm, in a case that is now set to go before the California Supreme Court.

Pyorre had been a State Farm agent for 27 years when, in 1999, his contract was abruptly terminated and the business that he had spent the better part of his adult life building was, effectively, trashed. Within a year, Pyorre went back into the insurance business, selling for another company. State Farm promptly sued him, alleging theft of trade secrets. Pyorre countersued, arguing that he had been illegally fired and that his contract had been breached. (For now, Pyorre's still selling insurance.)

Suddenly, David v. Goliath sprung up in Mendocino County's Ukiah Courthouse. A local man was suing the largest insurance company in the country, arguing not only that they had wronged him, but that the entire way they do business is fundamentally unfair and unethical. And he won.

At least at first.

There are three main issues in his case, according to Pyorre. First, State Farm seduces people to the insurance business (hardly a seductive trade) by promoting the great American entrepreneurial fantasy, the dream of being their own boss. State Farm's agents are independent contractors, not employees. State Farm has no authority to make demands on their time or the day-to-day operation of their businesses. Yet, increasingly, they do. Where it used to be up to the agent to determine what type of services they offered their clients, State Farm is increasingly pushy in getting agents to sell State Farm's newly-offered financial services and to attend mandatory meetings, which were once optional.

The second issue, in Pyorre's view, is that State Farm is using the threat of termination to control its de facto employees. State Farm, for their part, argues that their agents have an "at will" contract, meaning that they can be fired at any time, with or without cause.

State Farm assures the Internal Revenue Service that its agents are not employees (which allows them to avoid paying the start-up costs of establishing each new agency — the agent builds his or her own business — as well as a slew of state and federal taxes). Yet its agents are required to do things that, according to IRS guidelines for independent contractors, they cannot be required to do. And if they don't do what State Farm (their non-employer) demands, they get the ax.

Pyorre has evidence — stacks and stacks of papers showing that, on tax form after tax form, State Farm asserted that its agents met the Internal Revenue Service's definition of an independent contractor. On one IRS form, State Farm wrote that the "worker" is not "subject to any kind of penalty for failure to attend" training sessions. But Rich Pyorre was fired — quite a harsh penalty, by most standards — for not attending. State Farm does not deny that is why his contract was terminated (they even sent a letter to all California agents announcing the canning of four rebellious agents, one of whom was Pyorre).

Issue Number Three: After State Farm terminates a contract, they claim sole ownership of their former-agent's "trade secrets" (the client list the agent developed during their years with the company). For Pyorre, this was especially irksome. As a lifelong Fort Bragger, his clients were his friends and family, the people he went to high school with. Pyorre's business was insurance, and if he couldn't sell for State Farm and couldn't sell for anyone else, what was he supposed to do?

The whole thing would have been different, he acknowledges, if he had done something really wrong, something worthy of the sacking he received. But Pyorre missed one meeting, after 27 years with State Farm. State Farm had no other complaints against him.

And, though increasingly unhappy with State Farm's direction at that point, Pyorre wasn't making a point by not attending. He'd been in a bad car accident earlier that year and he believed he could do the training as a "self-study," as he had in the past. "I was going to physical therapy three times a week, and I explained that to them," said Pyorre. By the time he received a response from State Farm management, saying the training could not be done from home, the session was only being offered in Bakersfield, California, Tempe, Arizona or Portland, Oregon — all three a long haul from Fort Bragg. So he missed the session.

All of this is part of a cultural rift in the judiciary, argues Rich Pyorre's lawyer, Bill Tedards. It's an ideological divide between those judges enamored with big business and those that are skeptical of corporate power and practices, between anti- and pro-regulation judges, between the Scalias and the Lyndon Johnson appointees.

In cases across the country juries and judges have decided these issues differently in different places. In Ukiah, six weeks after the opening arguments were heard, the jury found in favor of Pyorre. They awarded him $12.6 million, the largest award ever given in Mendocino County. But the jury's conclusion was questioned by the judge in the case, Richard Henderson, and was "set aside" (a kinder, gentler way of saying that he tossed it) because the jury "may have been confused." The case went to the Court of Appeals, where the jury's verdict was reversed entirely. Now on the docket of the California Supreme Court, State Farm v. Pyorre should be heard sometime in the next year.

The attorney representing State Farm in the case, George Yuhas of Orrick, Herrington & Sutcliffe LLP, is confident that, although the California Supreme Court has agreed to hear the case, it won't end up doing so. George Hanson, a lawyer in Kansas City, is watching the case closely and hopes that Yuhas is wrong. Hanson represented five State Farm agents in Missouri who "were summarily terminated for objecting to State Farm policy," in a case similar to that of Rich Pyorre. He and his partner won a $26 million verdict in the case, which is now being appealed. For Tedards's part, he acknowledges that this is murky legal territory; he just hopes that the courts side with the little guy, and what he calls the "fundamental fairness" of the Mendocino County jury's verdict.

And so the ideological battle rages on.

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