992 F.2d 864 (8th Cir. 1993), 92-2198, James E. Brady & Co., Inc. v. Eno
|Docket Nº:||92-2198, 92-2354.|
|Citation:||992 F.2d 864|
|Party Name:||JAMES E. BRADY & COMPANY, INCORPORATED, a Missouri corporation, Appellant, v. Rex ENO, an individual and resident of Iowa; Aegon U.S.A. (Life Investors, Inc.), an Iowa corporation, Defendants, Pacific Fidelity Life Insurance Company, a California corporation, Appellee, Donald J. Shepard, an individual and a resident of Iowa; David Soelter, an indiv|
|Case Date:||May 12, 1993|
|Court:||United States Courts of Appeals, Court of Appeals for the Eighth Circuit|
Submitted Feb. 15, 1993.
Dennis J.C. Owens, Kansas City, MO, for appellant.
James Borthwick, Kansas City, MO, argued (Toni H. Blackwood, on the brief), for appellee.
Before McMILLIAN, MAGILL and LOKEN, Circuit Judges.
MAGILL, Circuit Judge.
This diversity case involves an unsuccessful business relationship which has resulted in claims and counterclaims, appeals and cross-appeals. James E. Brady & Company, Inc., (JEBCO) and Pacific Fidelity Life Insurance Company (PFL) entered into a cooperative business arrangement to market life
insurance products. Both contend that the other violated the agreement. A jury found that JEBCO had breached the contract and awarded PFL $1.9 million. 1 The jury also found that a PFL employee had breached his fiduciary duty to JEBCO while he was temporarily serving as JEBCO's chief executive officer. We affirm on all issues. 2
JEBCO, led by its founder James E. Brady, Jr. (Brady), was in the business of developing innovative new insurance products. JEBCO's principle product combined universal life policies with group insurance and came to be known as "GULP," an acronym for group universal life plan. By 1987, JEBCO had developed computer software, in cooperation with an actuary firm called Tillinghast, Nelson (Tillinghast), to be used in connection with marketing GULP. JEBCO held the rights to use the software in connection with its marketing efforts. JEBCO was not an insurance carrier, however, and could not issue policies. Therefore, in 1988, JEBCO entered into an agreement with PFL whereby PFL agreed to underwrite the GULP products for JEBCO.
Brady, on behalf of JEBCO, and PFL vice president David Soelter signed a letter of understanding on March 17, 1988, memorializing the deal. The agreement stated that PFL and JEBCO would act together as the carrier and exclusive agent for the purpose of underwriting, marketing, and administering the GULP products. JEBCO's principal duty was to sell GULP products through a variety of different marketing approaches. The agreement stated that the primary sales effort, direct sales, "should result in 500 applications per month by the end of the first twelve months of operation." JEBCO also agreed to utilize its computer programs in its marketing efforts and to "devote its best efforts in good faith" to marketing the GULP products as its primary initial business. JEBCO further promised to devote all its sales efforts and related marketing expenses solely to PFL once the agreement became effective. PFL agreed to provide JEBCO with a "line of credit" of up to $350,000 to be drawn monthly over a six-month period, or "if earlier, until JEBCO's financing need ceases." The agreement states: "JEBCO's debt to PFL shall be repaid by the amount by which gross income from whatever source exceeds all of JEBCO's expenses in any month." PFL agreed to draft a contract outlining the terms of the letter of understanding, but the letter stated that acceptance of the letter by both parties meant that JEBCO could proceed with the arrangement. 3
By the summer of 1988, JEBCO had been unable to sell any GULP policies and nearly all of the initial $350,000 was exhausted. In July 1988, PFL agreed to advance JEBCO an additional $100,000. In August of that year, PFL agreed to continue advancing JEBCO further funds. Moreover, in September of 1988, PFL agreed to pay JEBCO's preexisting debt to Tillinghast at the rate of $10,000 per month. There was no agreement as to how long PFL would continue servicing JEBCO's debt to Tillinghast. During late 1988 and early 1989, JEBCO's sales efforts continued to produce disappointing results, and the company was losing money at the rate of approximately $60,000 to $80,000 per month.
By March 1989, PFL had advanced over $1.2 million to JEBCO and had incurred over $200,000 in additional direct expenses by virtue of the relationship. In its first year, JEBCO had sold fewer than 100 individual certificates, generating only $40,000 in annualized premiums. In light of this situation, PFL proposed a change in its arrangement with JEBCO. Brady and Soelter met and executed an addition to their original letter of understanding. Pursuant to this supplemental agreement, Soelter was appointed executive
vice president and chief executive officer of JEBCO for a period of ninety days. PFL agreed to advance JEBCO funds to meet its April 1989 payroll and the agreement set monthly revenue production goals and contemplated monthly review of the arrangement. The...
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