AG Spectrum Co. v. Elder

• Citation: 191 F.Supp.3d 966
• Decision Date: 10 June 2016
• Docket Number: No. 3:15–cv–00007–JEG,3:15–cv–00007–JEG
• Parties: AG SPECTRUM COMPANY, Plaintiff, v. Vaughn ELDER, Defendant.
• Court: U.S. District Court — Southern District of Iowa

191 F.Supp.3d 966

AG SPECTRUM COMPANY, Plaintiff,
v.
Vaughn ELDER, Defendant.

No. 3:15–cv–00007–JEG

United States District Court, S.D. Iowa, Davenport Division.

Signed June 10, 2016

191 F.Supp.3d 968

Elliott R. McDonald, III, Ryan Frederick Gerdes, McDonald Woodward & Carlson PC, Davenport, IA, for Plaintiff.

Mark A. Tarnow, Bozeman Neighbour Patton & Noe, Moline, IL, for Defendant.

ORDER

JAMES E. GRITZNER, Senior Judge, U.S. DISTRICT COURT

This matter is before the Court on a Motion for Summary Judgment pursuant to Federal Rule of Civil Procedure 56 filed by Defendant Vaughn Elder (Elder), which Plaintiff Ag Spectrum Company (Ag Spectrum) resists, and a cross-Motion for Partial Summary Judgment as to breach of contract filed by Ag Spectrum, which Elder resists. A hearing on a discrete issue pertaining to the Motions was held on March 15, 2016, at which attorney Elliott McDonald III was present representing Plaintiff and attorney Mark Tarnow was present representing Defendant. The Motions are fully submitted and ready for consideration.

I. FACTUAL AND PROCEDURAL BACKGROUND

The following relevant facts are either undisputed or viewed in the light most favorable to the non-moving party.¹

Ag Spectrum sells agricultural products and crop management tools, including tools for advanced soil testing and analysis. Ag Spectrum has acquired and developed scientific knowledge that it uses to recommend agricultural products for its customers. On July 10, 2000, Elder submitted an application for employment as an Ag Spectrum sales representative, became a dealer the same day, and later became an area manager.

In the fall of 2005, Elder and Ag Spectrum entered into an agreement (the Agreement), under which Elder became Ag Spectrum's independent contractor. The Agreement contained a covenant not to compete (the Non-Compete Clause), which prohibited Elder, during the term of the Agreement and for three years after its termination, from engaging in Ag Spectrum's line of business with Ag Spectrum's "customers." The Agreement defines customers as

all prospective customers who have been previously contacted by [Ag Spectrum], those who have purchased from [Ag Spectrum], all present and past customers of [Ag Spectrum], all persons or

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entities to which [Ag Spectrum] is in the process of providing a quotation for services to be possibly rendered to the customer, and to include those persons or entities who have contacted [Ag Spectrum] concerning the possibility of [Ag Spectrum] providing certain services.

Pl. SAF ¶ 8; Def. App. 9. The Agreement contains a choice-of-law provision that states the Agreement is governed by Iowa law.

The Agreement states that Elder was engaged in his own business independent from Ag Spectrum. During his relationship with Ag Spectrum, virtually all of Elder's sales were made to people with whom Elder had developed relationships over the course of his life or through his dealers. It is undisputed that, with two exceptions, no customer to whom Elder sold was made known to him by Ag Spectrum, and Elder did not succeed to the customers of any Ag Spectrum salesperson. Elder conducted his business through a corporation, Elder Fertilizer, Inc., of which Elder was the sole shareholder. Elder owned all equipment needed to operate his business. Elder owned, operated, and managed his own warehouse in Kansas where he stored products for sale, and also operated a railroad tank facility. Ag Spectrum did not provide Elder any salary, employment benefits, health or retirement benefits, equipment, or insurance under the Agreement. Rather, Elder would purchase products from Ag Spectrum and sell them to customers at a mark-up. If Elder sold more than $1 million in Ag Spectrum products in a year, Ag Spectrum would pay Elder a $1500 bonus. Elder was required to pay Ag Spectrum for the product delivered to his customers regardless of whether Elder had received payment for the product.

In the course of their business relationship, Ag Spectrum gave Elder training and support including plant and soil science education, marketing materials, and support for accounting, marketing, inventory management, and distribution. Ag Spectrum also provided training to Elder's dealers, and gave Elder advice regarding the soils and climate in Elder's sales territory. In addition, Elder received training, assistance, and support for marketing Ag Spectrum products. Ag Spectrum also arranged for a 53,000-gallon tank located in Kansas to be available for Elder's use, and made leased rail cars available to Elder, although Elder was required to pay freight for product shipped on the rail cars and for cleaning and operating the 53,000-gallon tank. Elder acknowledges he received these services but contends they were not valuable to him.

Elder ended his relationship with Ag Spectrum effective September 30, 2012, and thereafter ceased selling Ag Spectrum products. Since late 2012 or early 2013, Elder has been selling an Ag Spectrum competitor's products to customers that had previously purchased Ag Spectrum products from him. Most customers in Elder's former territory no longer purchase Ag Spectrum products. Elder continues to compete with Ag Spectrum. At the time this action was filed, the term of the Non-Compete Clause had nearly expired, and it has now expired.

On January 12, 2015, Ag Spectrum filed a Complaint against Elder asserting a claim for breach of the Agreement and requesting permanent injunctive relief.² On July 28, 2015, Ag Spectrum filed an Amended Complaint, ECF No. 27, to add a request for an equitable extension of the term of the Non-Compete Clause. On October

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22, 2015, Elder filed the instant Motion for Summary Judgment, ECF No. 48. On March 23, 2016, Ag Spectrum filed the instant Motion for Partial Summary Judgment as to breach of the Agreement, ECF No. 76.

II. DISCUSSION

A. Jurisdiction

Ag Spectrum is an Iowa corporation with its principal place of business in Clinton County, Iowa. Elder is a resident of the State of Kansas. Ag Spectrum alleges damages in excess of $75,000. Therefore, the diversity of citizenship and amount in controversy requirements of diversity jurisdiction have been satisfied, and this Court has original jurisdiction over Ag Spectrum's claims under 28 U.S.C. § 1332. Elder does not contest personal jurisdiction.

B. Standard for a Motion for Summary Judgment

The Federal Rules of Civil Procedure authorize "motions for summary judgment upon proper showings of the lack of a genuine, triable issue of material fact." Celotex Corp. v. Catrett, 477 U.S. 317, 327, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). "[S]ummary judgment is appropriate where the pleadings, discovery materials, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Kountze ex rel. Hitchcock Found. v. Gaines, 536 F.3d 813, 817 (8th Cir.2008) (quoting Hohn v. Spurgeon, 513 F.3d 827, 829 (8th Cir.2008) ). "The Court does not weigh the evidence, nor does it make credibility determinations. The Court only determines whether there are any disputed issues and, if so, whether those issues are both genuine and material." Sam's Riverside, Inc. v. Intercon Sols., Inc., 790 F.Supp.2d 965, 974 (S.D.Iowa 2011) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986) ). An issue of fact is genuine if it has a real basis in the record. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586–87, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). "A genuine issue of fact is material if it ‘might affect the outcome of the suit under the governing law.’ " Hartnagel v. Norman, 953 F.2d 394, 395 (8th Cir.1992) (quoting Anderson, 477 U.S. at 248, 106 S.Ct. 2505 ). The Court examines this record within that legal structure.

C. The Parties' Cross Motions

Ag Spectrum contends it is entitled to summary judgment as to breach of the Agreement because Elder's conduct undisputedly contravened the language of the Non-Compete Clause. Elder does not argue that his conduct was contractually permitted. Instead, Elder argues the Non-Compete Clause is unenforceable under Iowa law.

Analysis of whether a contract has been breached begins by determining whether the contract is enforceable. See Schaller Tel. Co. v. Golden Sky Sys., Inc., 139 F.Supp.2d 1071, 1080 (N.D.Iowa 2001) (addressing enforceability of the contract under Iowa law before reaching the issue of breach), aff'd, 298 F.3d 736 (8th Cir.2002). If a contract is unenforceable, a plaintiff cannot maintain an action for breach. Restatement (Second) of Contracts § 8 (1981) ; see Mincks Agri Ctr., Inc. v. Bell Farms, Inc., 611 N.W.2d 270, 281 (Iowa 2000) (reversing the denial of the defendant's motion for summary judgment and for judgment notwithstanding the verdict holding the contract was unenforceable and the district court erred in ruling to the contrary); Fogel v. Trustees of Iowa Coll., 446 N.W.2d 451, 456 (Iowa 1989) (holding a contract to be unenforceable and...