Kendall/Hunt Pub. Co. v. Rowe

Decision Date11 May 1988
Docket NumberNo. 86-1763,86-1763
PartiesKENDALL/HUNT PUBLISHING COMPANY, Appellant, v. Neil ROWE, an Individual, and Waveland Press, Inc., a Corporation, Appellees.
CourtIowa Supreme Court

David C. Bauer and James M. Heckman of Bauer & Heckman, P.C., Dubuque, for appellant.

Douglas M. Henry of Fuerste, Carew, Coyle, Juergens & Sudmeier, P.C., Dubuque, and Daniel P. Ernst, Dubuque, for appellees.

Considered by McGIVERIN, C.J., and HARRIS, CARTER, LAVORATO, and ANDREASEN, J.

LAVORATO, Justice.

In this case the Kendall/Hunt Publishing Company sued Neil Rowe, a former employee, and Waveland Press, Inc., a competitor in academic publishing, for wrongful disclosure and use of trade secrets; unfair competition and conspiracy to unfairly compete; interference with business contracts; conversion of Kendall's property interest in one of its publications; and breach of Rowe's fiduciary duty and oral employment contract. The dispute arose out of Rowe's activities on behalf of Waveland during and after his employment with Kendall. Rowe allegedly used the knowledge and contacts he gained working for Kendall to recruit authors for Waveland, including ones who had previously published with Kendall.

After a bench trial the district court entered judgment in favor of Rowe and Waveland. Kendall now maintains the court erred by: (1) setting aside Waveland's default for failure to comply with a discovery order; (2) awarding Kendall a smaller amount for fees and expenses than that requested after the default was set aside; (3) dismissing its claim for breach of Rowe's fiduciary duty and employment contract on the ground that it was barred by the statute of limitations; and (4) finding that Rowe and Waveland did not interfere with Kendall's publishing contracts, did not use Kendall's trade secrets, and did not convert Kendall's property interest in a book it had published.

We think, however, that the district court acted properly. Accordingly, we affirm its judgment.

Rowe was employed by Kendall as an associate editor from July 1974 until February 1977, when he resigned. His main duty was to "prospect" among college professors for authors who wanted to publish their materials with Kendall for use primarily in their own classes. Rowe would examine or help to develop manuscripts, analyze the production costs of potential publications, and estimate the demand for these works. Finally, he would submit proposed works to the Kendall home office, where their suitability for publication would be determined; Kendall would generally not publish a work unless the sale of at least 400 copies per year was likely.

In addition, associate editors such as Rowe would compile lists of potential or established authors who might wish to publish with Kendall in the future. Kendall considered these lists to be confidential.

In January 1975 Rowe, his wife, and a Kendall author set up Waveland without informing Kendall. Rowe then began prospecting for both publishers at the same time. He solicited authors for Waveland rather than Kendall when he thought their works would not meet Kendall's suitability standards. Rowe made this determination without checking with the Kendall home office. Kendall representatives first saw a Rowe-edited Waveland book thirty days after Rowe resigned from Kendall in 1977.

A portion of the dispute here resulted from Rowe's dealings with two teams of authors who had published with Kendall before switching to Waveland. Kendall, under its contracts with these teams, had the right of first refusal for printing subsequent editions of the original text.

Nonetheless, one team, Professors Gorden and Miller, contracted with Waveland in 1982 to publish a new edition of their book Speak Up for Business. Kendall was notified about this arrangement but did not decide whether to meet Waveland's offer until after Waveland had printed the revised edition.

The other team, Professors Moskowitz and Wright, contracted with Waveland in 1981 for publication of a second edition of their book Management Science: An Experiential Approach. When Kendall informed the authors of its intention to exercise its right of first refusal, the authors sent Kendall a Waveland contract to examine. Kendall chose not to meet the contract's terms, and the book was then reprinted by Waveland, though under different terms than those in the contract shown to Kendall. This edition of the book was a photo-reproduction of the Kendall text, with only minor changes.

We describe additional facts of the case as they become relevant to our discussion of the issues Kendall raises.

I. Standard of Review.

We have recently summarized our standard of review in appeals after the bench trial of a law action:

[T]he trial court's findings of fact have the effect of a special verdict. [These] findings ... are broadly and liberally construed, rather than narrowly or technically. In case of doubt or ambiguity, findings will be construed to uphold, rather than defeat, the judgment. When the trial court ... denies recovery because a party failed to carry the burden of proof on [an] issue, we will not interfere on appeal unless we find the party carried its burden of proof as a matter of law.

Byers v. Contemporary Indus. Midwest, Inc., 419 N.W.2d 396, 397 (Iowa 1988) (citations omitted); see also Iowa R.App.P. 14(f)(1) (findings of fact in law action are binding on appellate court if supported by substantial evidence).

II. Motion to Set Aside Default.

Kendall contends that the district court erred in setting aside Waveland's default for its failure to comply with the court's discovery order. The court's ruling was entered following a pretrial hearing on the day scheduled for trial at which Rowe, for the first time, testified as to the bizarre circumstances leading to the default. In its ruling, the court made extensive findings of fact and conclusions of law supporting its decision and with which we agree. We think some discussion of those facts, together with others gleaned from the record, is necessary to explain the court's ruling.

On June 13, 1984, Kendall filed a motion to compel Rowe and Waveland to answer its interrogatories and requests for production of documents filed the previous February and addressed to each of them separately. On June 20 the court ordered Rowe and Waveland to respond within fifteen days of its order or be subject to sanction.

On June 29 Mark A. Cody, attorney for Rowe and Waveland, wrote his clients advising them of the court's ruling on their special appearance that had been entered more than a year earlier. Accompanying the letter were the interrogatories and request for production addressed to Rowe. Not included were the same documents addressed to Waveland. Six days remained to comply within the June 20 order, but Cody's cover letter made no mention of the deadline. The letter simply admonished Rowe to "respond to [the discovery matters] promptly."

On July 3 Kendall's attorney, at Cody's request, extended the time for responding to its discovery to July 10. Rowe's answers to the interrogatories and his response to the production request were filed July 11. From those documents it appears Rowe swore to them four days earlier, indicating that he had completed his answers within a week of the time he had received them.

Discovering that he had neglected to send Waveland the interrogatories and production request addressed to it, Cody, on July 11, wrote Kendall's attorney about the oversight and assured the attorney he was taking care of it. A week later Cody wrote to his clients, noting the oversight and indicating he had enclosed the documents. Cody wrote further:

However, I do realize that this is the busy season for you. I believe we have things placated to the point where there is no particular time rush. Therefore, I would request that you look [the interrogatories and production request] over and return them to me at your convenience.

Unfortunately, Cody again neglected to enclose the discovery documents in this last letter, prompting a telephone call from Rowe. On July 25, unbeknownst to Rowe, Kendall's attorney wrote Cody asking for a response to its discovery requests no later than July 31.

On July 27 Cody finally forwarded Rowe the discovery documents but neglected to tell him about the court's original deadline or Kendall's extension to July 31, leaving Rowe with the impression that he could respond to the discovery documents at his convenience. On the same date Cody responded to Kendall's attorney, advised him of the latest oversight, and assured him that the discovery documents had indeed been forwarded to Waveland. Cody further advised the attorney that the July 31 deadline would not be met because of Rowe's out-of-town commitment.

Receiving no response to its discovery requests, Kendall filed a motion for sanctions on August 14, seeking default judgment and reasonable attorney fees because of Waveland's failure to comply with the June 20 order. The motion was set for hearing on August 28. That hearing was continued to October 5.

On September 5 the Honorable Thomas H. Nelson entered Waveland's default of record for failing to comply with his June 20 order. Apparently the judge was not aware the motion for default had been set for October 5 by another judge.

Cody failed to advise his client of the default motion, the hearing setting, or the entry of default.

Finally, on October 4, Cody wrote Rowe a letter simply advising that "[w]e are getting quite a bit of heat to get the answers to interrogatories back from Waveland, and I would appreciate your prompt attention to that matter." Cody also informed Rowe that he was leaving the practice of law in Dubuque and that another attorney would be handling the file. Up to this point Rowe and Waveland had no inkling of any urgency regarding the discovery matters or the default.

The following day, Cody filed a motion to set aside the default. Cody placed the blame...

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