Medtronic, Inc. v. ConvaCare, Inc.
| Decision Date | 22 February 1994 |
| Docket Number | Nos. 93-1476,93-1517,s. 93-1476 |
| Citation | 17 F.3d 252 |
| Parties | MEDTRONIC, INC., Appellant/Cross-Appellee, v. CONVACARE, INC.; SCOOP, (Special Care of Our Patients) Inc.; Robert G. Johnson, Appellees/Cross-Appellants. |
| Court | U.S. Court of Appeals — Eighth Circuit |
Before BEAM, Circuit Judge, LAY, Senior Circuit Judge and BOGUE, * Senior District Judge.
This diversity case requires us to interpret the terms of a multidocument contract between Medtronic, Inc., a manufacturer of medical products, ConvaCare, Inc., one of Medtronic's distributors, and Robert Johnson, ConvaCare's president and majority stockholder. A jury determined that the parties on both sides of this dispute breached the agreement. Medtronic appeals the manner in which the district court 1 structured its judgment to limit Johnson's personal liability. ConvaCare and Johnson cross-appeal the dismissal of their counterclaims for breach of fiduciary duty and breach of the covenant of good faith and fair dealing. We affirm.
Medtronic is a Minnesota corporation that manufactures and distributes, among other things, pain relief products known as transcutaneous electrical nerve stimulation devices ("TENS"). In 1978, Medtronic began distributing TENS units in North Carolina through ConvaCare, a North Carolina medical supplies distributor owned and operated by Johnson. Over time, ConvaCare's sales area grew to include Virginia, Tennessee, and Maryland. As ConvaCare's sales grew, Medtronic extended a line of credit to ConvaCare, evidenced by periodic security and sales agreements. By 1986, however, ConvaCare's debt had grown to an uncomfortable level and Medtronic refused to extend further credit.
After a year of negotiations, Medtronic agreed to reduce ConvaCare's debt by $250,000 and to grant ConvaCare exclusive distribution rights for its TENS units within a specified territory. In return, Johnson gave Medtronic 33% of ConvaCare's voting stock, the right to appoint two of ConvaCare's five directors, a security interest in ConvaCare's remaining stock, and his personal guaranty of $40,000 of ConvaCare's debt. In addition, Convacare executed a promissory note and agreed to purchase stated minimum amounts of Medtronic products each quarter. The parties memorialized this agreement in four documents which became effective on October 30, 1987: (1) agreement for repayment of indebtedness (repayment agreement); (2) promissory note; (3) security agreement; and (4) Johnson's personal guaranty.
Medtronic brought this action alleging that ConvaCare and Johnson breached the agreement by failing to make the required purchases and by defaulting on the promissory note. 2 Medtronic sought to recover the balance due on the note and to terminate its relationship with ConvaCare and Johnson. ConvaCare and Johnson counterclaimed for breach of contract, fraud, breach of fiduciary duty, and breach of the covenant of good faith and fair dealing. The district court granted Medtronic's motion for summary judgment on the breach of the covenant of good faith and fair dealing claim and, after hearing all of the evidence, granted Medtronic's motion for judgment as a matter of law on the breach of fiduciary duty claim. The rest of the claims were decided by a jury.
Before trial, the parties agreed that the district court would determine Medtronic's damages if the jury found ConvaCare and Johnson liable. The jury found that both parties breached the contract and awarded ConvaCare and Johnson $40,000 in damages on their counterclaim. The court then calculated Medtronic's damages and entered judgment against ConvaCare for $905,143.80 3 and made Johnson jointly and severally liable for $40,000 of this amount. Medtronic appeals arguing that although Johnson's personal guaranty was limited to $40,000, he is jointly and severally liable for the entire judgment under the terms of the repayment agreement. ConvaCare and Johnson cross-appeal the dismissal of their claims for breach of fiduciary duty and breach of the covenant of good faith and fair dealing.
The repayment agreement, which Johnson signed in his capacity as president of ConvaCare and also in his individual capacity, provides in relevant part:
6.1) Indemnification by ConvaCare and Johnson. ConvaCare and Johnson, jointly and severally, agree to indemnify and hold Medtronic harmless from any and all losses or damages (including reasonable attorneys' fees) suffered by Medtronic which arise out of, relate to, pertain to or concern any breach by ConvaCare or Johnson of their agreements herein, including the nondisclosure provisions of Section 4 and the representations and warranties of Section 5.
Appellant's App. at 21. Medtronic argues that this section of the repayment agreement obligates Johnson, jointly and severally with ConvaCare, to pay the entire judgment on ConvaCare's promissory note. 4 Johnson argues that his liability on the note is limited by section 2.2(b) of the same agreement.
The repayment agreement provides that it is to be interpreted under the law of Minnesota. Appellant's App. at 24. We review the district court's determination of Minnesota law de novo. See Salve Regina College v. Russell, 499 U.S. 225, 231, 111 S.Ct. 1217, 1221, 113 L.Ed.2d 190 (1991). Under Minnesota law, we construe the parties' agreement as a whole and attempt to harmonize all clauses of the contract in order to give effect to the parties' intention. Metropolitan Sports Facilities Comm'n v. General Mills, Inc., 470 N.W.2d 118, 122-23 (Minn.1991); Chergosky v. Crosstown Bell, Inc., 463 N.W.2d 522, 525 (Minn.1990). The specific terms of a contract govern over the general in the event of conflict. Burgi v. Eckes, 354 N.W.2d 514, 519 (Minn.Ct.App.1984).
Medtronic argued at trial that ConvaCare and Johnson were liable for ConvaCare's default on the promissory note or, in the alternative, that Convacare and Johnson were liable under a theory of unjust enrichment. Appellant's App. at 71. The jury found ConvaCare and Johnson liable for default on the note only. Id. at 72. Section 2.2(b) of the repayment agreement clearly limits Johnson's liability for default on the promissory note to $40,000 pursuant to the terms of his personal guaranty. 5 Although section 6.1 may have extended Johnson's liability on other obligations under the agreement, we hold that the specific and unambiguous terms of section 2.2 govern his liability for default on the promissory note. If we were to hold otherwise, the terms of the contract would be irreconcilable. Accordingly, the district court properly limited the judgment against Johnson to the amount that he personally guaranteed.
ConvaCare and Johnson argue on cross-appeal that the district court erred by entering judgment as a matter of law against their breach of fiduciary duty claim. They contend that Medtronic breached the fiduciary duty it owed ConvaCare as a one-third shareholder of a closely held corporation with the power to appoint two of five directors to the board. 6 The district court found that ConvaCare and Johnson presented insufficient evidence from which a jury could find a breach of a fiduciary duty. Appellees' Joint App. at 45. We review this ruling de novo, "affirming if the 'evidence is such that, without weighing the credibility of the witnesses, there can be but one reasonable conclusion as to the verdict.' " Johnson v. Cowell Steel Structures, Inc., 991 F.2d 474, 478 (8th Cir.1993) (quotation omitted). Like the district court, we must view the evidence in favor of the party that opposed entry of judgment and give that party the benefit of all reasonable inferences from the evidence. Id.
ConvaCare and Johnson's argument is based on the competition between Medtronic and ConvaCare. Approximately one year before Medtronic entered negotiations to restructure ConvaCare's debt, Medtronic began to distribute TENS units directly. ConvaCare and Johnson presented evidence at trial that Medtronic increased staffing at a direct distribution center that competed for business with ConvaCare after it had acquired ConvaCare stock and appointed members to the board, and that Medtronic knew the increased competition was harmful to ConvaCare. Appellees' Joint App. at 17-19 and 26. ConvaCare and Johnson also argue that both directors Medtronic appointed to ConvaCare's board were involved in a plot to take business away from ConvaCare. Appellees' Opening Brief at 23.
The parties dispute whether Minnesota or North Carolina law applies to the breach of fiduciary duty claim. 7 We need not address this choice of law issue because we would come to the same resolution of the merits under either state's law. Assuming that...
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