County Materilas Corp. v. Allan Block Corp.
| Citation | 431 F.Supp.2d 937 |
| Decision Date | 12 May 2006 |
| Docket Number | No. 05-C-675-S.,05-C-675-S. |
| Parties | COUNTY MATERIALS CORPORATION, Plaintiff, v. ALLAN BLOCK CORPORATION, Defendant. |
| Court | U.S. District Court — Western District of Wisconsin |
Gary Ahrens, Michael Best & Friedrich LLP, Milwaukee, WI, for Plaintiff.
Plaintiff County Materials Corporation commenced this declaratory judgment action against defendant Allan Block Corporation seeking a declaration that the covenant not to compete clause contained in its production agreement is unenforceable. Jurisdiction is based on 28 U.S.C. § 1332(a)(1). The matter is presently before the Court on cross-motions for summary judgment. Also before the Court is defendant's motion to dismiss for lack of subject matter jurisdiction. The following facts are either undisputed or those most favorable to the non-moving party.
Plaintiff County Materials Corporation is a Wisconsin corporation with its principal place of business in Marathon, Wisconsin. Plaintiff is engaged in the business of manufacturing concrete block. Defendant Allan Block Corporation is a Minnesota corporation with its principal place of business in Edina, Minnesota. Defendant is engaged in the business of developing, marketing and licensing technology for the manufacture of concrete block. Defendant does not manufacture concrete block itself rather its strategy is to direct customers to local producers who serve as "point" people for its products.
On or about April 28, 1993 plaintiff's predecessor in interest County Concrete Corporation (hereinafter County) entered into a production agreement (hereinafter agreement) with defendant wherein defendant granted County the exclusive right to manufacture its block products at County's facilities throughout northwest Wisconsin. Additionally, County was granted the right to sell said block products under the ALAN BLOCK trademark. County subsequently assigned its interest in the agreement to plaintiff. Said agreement stated in relevant part as follows:
... BACKGROUND:
3.1 Licensor [defendant] has developed certain technology for the construction of retaining walls based on the use of a proprietary design cement block (the "Block"). Licensor has applied for and been granted patents relating to such technology. Licensor has also developed the technology for certain proprietary molds (the "Molds") to be used in the production of the Block. The Molds, the granted patent, the foregoing technology, and all other unpatented related know-how, trade secrets, processes, designs; technical data and inventions, whether patentable or not, owned or used by Licensor in connection with the Block are referred to as the "Technology."
3.2 Licensor also owns the following trademarks and service marks (the "Marks") used or to be used in connection with the Technology:
... 4.2 This agreement constitutes a license and not an assignment of any rights in the Molds, the Marks, or any of the Technology relating to the Block, all of which remain the property of Licensor.
4.3 So long as Producer is not in default on any of the provisions of this Agreement, Licensor will not give any other person or entity the right to manufacture the Block within the Territory. Nothing contained herein, however, shall be deemed to prohibit any other person or entity from selling the Block within the Territory.
4.4 Licensor shall provide access to and use of marketing literature, engineering data and other information relating to the distribution and sale of the Block as such information becomes available.
10.1 In the event of any termination of this Agreement ... Producer shall: (i) immediately cease to use the Technology, including the Molds;
(ii) immediately return all Technology, including specifically the Molds, to Licensor ... and (iii) immediately cease manufacture of the Block.
... GENERAL TERMS:
... 16.11 This Agreement shall be interpreted under and governed by the laws of the State of Minnesota.
In addition to the relevant provisions outlined above the agreement contained a covenant not to compete which stated in relevant part as follows:
... NONCOMPETITION
13.1 The parties agree that during the term of this agreement, and for a period of eighteen months Following the termination of this agreement, Producer will not directly or indirectly engage in the manufacture and/or sale of any other mortarless, stackable, concrete block retaining wall product, with the following exceptions: 1) The Versa-lok product line for resale, 2) Manufacture, market and promote the "Wall Block" product currently in production at their facility.
13.2 The parties intend that this covenant not to compete shall be construed as a series of separate covenants, one for each county, state and/or geographical area where the Block is being sold.
Evidence contained within the record demonstrates that the parties negotiated the terms of the covenant not to compete. As originally written, said covenant included the language "[t]he Versa-lok product line for resale, but shall not engage in marketing, promotion or general sales of the same[.]" However, the final agreement failed to contain language concerning plaintiffs ability to market, promote or sell its Versa-lok product. Additionally, Mr. Robert Gravier who serves as defendant's president declared that the parties negotiated the covenant not to compete to render it reasonable and acceptable to both parties. Accordingly, the final covenant not to compete which became part of the agreement was the result of negotiations between the parties.
Plaintiff served as defendant's exclusive producer in northwest Wisconsin for a period of twelve years. This twelve year relationship proved lucrative for plaintiff as evidenced by the fact that its sales of ALLAN BLOCK products totaled nearly $1,000,000 in 2005.
Additionally, throughout said twelve year period defendant provided plaintiff with technical and engineering assistance which included sending defendant's vicepresident and director of engineering Mr. Timothy Bott to plaintiffs Eau Claire, Wisconsin facility when it initially began production of the block. Mr. Bott assisted with the molds and trained plaintiffs staff about differences between the products and configurations of the molds. Further, throughout the course of the parties' twelve year relationship Mr. Bott made several subsequent visits as well as numerous telephone calls to both plaintiffs Eau Claire and Milwaukee area facility. During said visits and telephone conversations Mr. Bott and plaintiff discussed mix design and issues concerning product manufacturing. Finally, Mr. Gravier testified at his deposition that defendant provided plaintiff with confidential information. Specifically, Mr. Gayer testified defendant provided plaintiff with a "stream of information relating to the technology" which encompassed aspects of manufacturing, molds, and engineering.
Marketing support was an additional aspect of the parties' agreement. First, defendant provided plaintiff with virtually all of its marketing materials. Additionally, defendant maintained a team specifically dedicated to creating and advancing its branded marketing initiatives through its producers including plaintiff. Finally, defendant maintained a website which directed interested potential customers to the recognized producer within their territory. The record demonstrates that plaintiff benefitted from defendant's marketing initiatives because there is no evidence that any other entity sold block products under the ALLAN BLOCK mark within plaintiffs territory while it remained defendant's exclusive producer for northwest Wisconsin. Accordingly, it follows that for twelve years plaintiff was the only entity associated with the ALLAN BLOCK mark in northwest Wisconsin.
On April 27, 2005 defendant notified plaintiff by letter of its intent to terminate the agreement. At the time of termination, plaintiff was aware that a considerable market for landscape block existed. Accordingly, plaintiffs sales manager of landscape operations Mr. Dale Laurin and plaintiffs production manager Mr. Michael Zuehlke began designing a new standard block which would serve as a comparable landscape product to defendant's ALLAN BLOCK. Plaintiffs intent was to introduce its new block into the market that it previously served with defendant's ALAN BLOCK products.
In or about May of 2005 plaintiff completed its design work for a new mortarless stackable concrete block retaining wall product (hereinafter new block) which was neither a Versa-lok nor a Wall Block product. Plaintiffs design was subsequently refined. However, once plaintiff completed its initial design work it undertook additional steps to prepare for mass manufacture of its new block. Such steps included:
(1) researching whether the new block could be efficiently manufactured for sale,
(2) soliciting bids from contractors to manufacture the tooling necessary to complete molds which would be used to mass produce the block, (3) constructing the standard mold for the new block; and (4) producing a prototype of the new block.
On November 9, 2005 defendant sent plaintiff a letter which stated in relevant part as follows:
... On May 10th we sent a letter to you with a recommendation that we conclude our business partnership in an amicable and cooperative fashion. Part of our list of action items asked for a full accounting of the molds and mold parts and other "Technology" specifically related to Allan Block ... To date we have not received any indication that you intend to comply or cooperate.
To reiterate, Section 10.1 clearly states that "In the event of any termination of this Agreement, ... Producer shall: (i) immediately cease to use the Technology, including the molds; (ii) immediately return all Technology, including specifically the...
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