Optimal Interiors Llc v. the Hon Co.

• Decision Date: 14 March 2011
• Docket Number: No. 3:09–cv–00177–JEG.,3:09–cv–00177–JEG.
• Parties: OPTIMAL INTERIORS, LLC, Plaintiff,v.The HON COMPANY, Defendant.
• Court: U.S. District Court — Southern District of Iowa

774 F.Supp.2d 993

OPTIMAL INTERIORS, LLC, Plaintiff,

v.The HON COMPANY, Defendant.

No. 3:09–cv–00177–JEG.

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

March 14, 2011.

David T. Bower, Michael W. Thrall, Nyemaster Goode West Hansell & O'Brien P.C., Des Moines, IA, for Defendant.Robert W. Hayes, Rachel H. Robbins, Cozen O'Connor, Philadelphia, PA, Christopher P. Jannes, Davis Brown Koehn Shors & Roberts P.C., Des Moines, IA, for Plaintiff.

ORDER

JAMES E. GRITZNER, District Judge.

This matter comes before the Court on Motion for Partial Summary Judgment brought by Defendant The HON Company (HON). Plaintiff Optimal Interiors, LLC (Optimal) resisted and filed a Cross–Motion for Partial Summary Judgment. The Court held a hearing on the motions on January 13, 2011. Attorneys Michael W. Thrall and David T. Bower represented HON. Attorneys Robert W. Hayes and Christopher P. Jannes represented Optimal. The matter is fully submitted and ready for disposition.

I. BACKGROUND ¹

HON ² sells furniture to private businesses, educational institutions, and government entities largely through a national network of dealers and retailers. Optimal is a software development company that licensed IOPro software (IOPro) to customers. Although IOPro has various capabilities, relevant to this case, IOPro “provides users with the ability to plan and manage the Furniture, Fixture and Equipment (FF & E) element for an Education facility in all phases of construction and after, continuing through ongoing facility management.” Pl.'s Resistance App. 57, ECF No. 65–4.

In late 2007, HON and Optimal began discussions regarding the formation of an agreement that would make IOPro available to HON's educational furniture dealers. HON viewed IOPro as a potentially useful tool for its educational dealers. Bruce Reinhart (Reinhart), National Education Sales Manager for HON, remarked that he “saw it as a strong tool to help dealers want to work more closely with HON.” Reinhart Dep., Def.'s App. 24, ECF No. 60–3. Reinhart believed that IOPro “was something that would help the market better see HON in an education perspective,” and that it would help HON dealers save time and money. Id. at 23–24.

On August 18, 2008, HON and Optimal executed a written agreement entitled “Optimal Interiors, LLC HON Distribution Partner Agreement” (the Agreement). Def.'s App. 1, ECF No. 60–3. Jeffrey Lorenger (Lorenger), HON Vice President of Sales, signed the Agreement on behalf of HON, and IOPro developer John Harvey (Harvey) signed the Agreement on behalf of Optimal. The Agreement recited that “the parties desire that HON distribute [IOPro] and certain other programs and services to its dealer network, end users and other potential subscribers that would benefit from utilizing [IOPro] to assist in planning, marketing and distributing of HON products.” Agt. Sect. A, Def.'s App. 1, ECF No. 60–3. The Agreement provided that HON would be the distributor for “(a) Single Project Application Licenses to Subscribers for their use of one or more [IOPro] modules, (b) subscriptions to the HON–OI Dealer Program, and (c) [Optimal]'s consulting and other services described herein....” Agt. Sect. 21, Def.'s App. 3, ECF No. 60–3. Under the Agreement, a HON–OI Dealer Program “means that subscription-based program to be made available to Dealers and pursuant to which each subscribing Dealer will be provided those certain rights and benefits with respect to [IOPro] that are set forth [in the Agreement].” Agt. Sect. 1. 11, Def.'s App. 2, ECF No. 60–3. The Agreement provided that “[s]ubscription to the HON–OI Dealer Program will initially be made available to any Dealers, up to the point where there are 50 Subscribers, unless HON and [Optimal] mutually agree to extend the number of Dealer participants in the program.” ³ Agt. Ex. B, Def.'s App. 18, ECF No. 60–3. Under the terms of the Agreement, dealers that subscribed to the HON–OI Dealer Program would enter into a separate agreement with HON to which Optimal would not be a party and pay HON directly for the use of IOPro.

The term of the Agreement commenced on the effective date and was to continue for a period of five years, with an option for the parties to renew upon mutual agreement. Id. at 10. While the Agreement was in effect, Optimal agreed that “it [would] not license [IOPro] to any HON Competitor for purposes of selling Furniture to Educational Institutions within the Territory.” Agt. Sect. 2.5, Def.'s App. 4, ECF No. 60–3. In order to maintain this exclusivity, HON was required to make minimum payments of “at least $300,000 during each six (6) month period commencing on January 1st and July 1st of each calendar year.” See Agt. Sect. 1. 12, Def,'s App. 2, ECF No. 60–3.

The Agreement further provided that HON would pay Optimal an implementation fee of $20,000 for each dealer that subscribed to the HON–OI Dealer Program and that HON would pay an annual renewal membership fee of $10,000 per dealer that remained subscribed. HON also agreed to purchase a minimum of twenty-four memberships to the HON–OI Dealer Program for a total cost of $480,000; twelve of those memberships were to be prepaid on the effective date of the Agreement. ⁴

HON was required to pay Optimal a single-project application licensing fee when a dealer utilized one of the three modules that comprised IOPro: “Plan & Buy,” “Draw & Spec,” and “Spec & Manage.” Agt. Ex. A, Def.'s App. 15, ECF No. 60–3. The single-project application licensing fee was $5,000 per module. The Agreement provided for the payment of royalties from HON to Optimal “in an amount equal to three percent (3%) of the net price of any and all HON Products that were modeled through the use of the Application and ordered by the customer.” Agt. Ex. A, Def.'s App. 16, ECF No. 60–3.

HON and Optimal also included requirements in the Agreement to ensure that IOPro was promoted and marketed to dealers. The Agreement mandated that HON and Optimal develop a Dealer Marketing Plan within sixty days of the Agreement's execution and that the Dealer Marketing Plan would be funded with monies generated by the annual dealer membership renewal fees.⁵ However, there was no requirement that the Dealer Marketing Plan be memorialized in writing. Further, the parties agreed to meet once per year in order to agree on a marketing budget and to decide how to implement the Dealer Marketing Plan. HON also agreed that it would “use good faith efforts to implement the Dealer Marketing Plan and to ensure that HON's resources are allocated in such a manner to maximize the revenue potential of the [IOPro] and Furniture sold therewith.” Agt. Sect. 4.2, Def.'s App. 6, ECF No. 60–3.

Reinhart had no prior experience introducing a software product into the marketplace. Although the Agreement did specifically require that a consultant assist in the development of a marketing plan, approximately one week after the Agreement was executed, Reinhart proposed to Harvey that the parties seek the assistance of a consultant to help develop a Dealer Marketing Plan. In October 2008, Reinhart attempted to schedule meetings with three different consultants. However, Harvey felt that it was not important to meet with consultants at the time and commented that “[i]t seemed to me not a good use of our time to be meeting with consultants until we got through our dealers and got them signed.” Harvey Dep., Pl.'s Reply App. 22, ECF No. 73–2. Reinhart was Optimal's sole point of contact at HON with regard to the development of a Dealer Marketing Plan.⁶

Although a formal Dealer Marketing Plan was never developed, marketing efforts began on October 1, 2008, as representatives from HON and Optimal traveled throughout the country and pitched IOPro to dealers. The parties dispute the effectiveness of these marketing efforts. HON notes that after six months of marketing efforts, only one dealer, Synergy Business Environments (Synergy), signed up for a subscription to the HON–OI Dealer Program.⁷ However, Reinhart admitted that as of January 2009, he believed that seventeen dealers would sign up for a subscription. Optimal maintains that by February 2009, four dealers, including Synergy, had executed subscriptions agreements to the HON–OI Dealer Program, and that many other dealers were also interested in subscriptions.

HON and Optimal came to other agreements that were not included in the Agreement. In a July 28, 2008, email to Lorenger and Paar, Harvey wrote that “within the first 60 days of the contract, I will complete a formal business plan and a major component of that plan will be to-complete financials for the ‘HON—powered by oi’ program.” Def.'s Resistance App. 92, ECF No. 66–4. Harvey continued that “[t]his plan will include not only the sales and marketing side of [Optimal], but will cover elements such as hardware/equipment requirements, software platform support and improvements, technical and customer service support, and perhaps most importantly operational and [Optimal] corporate management requirements.” Id. Finally, Harvey remarked that he identified and planned to retain an outside consultant to help him with the development of a formal business plan. However, Optimal did not create a formal business plan within 60 days of executing the Agreement, or at any time, before the termination of the Agreement.

The Agreement provided for termination in a number of ways. First, the Agreement was set to expire automatically five years after the Agreement's effective date if the parties failed to renew. The parties could terminate “at any time upon the written mutual agreement of both parties.” Agt. Sect. 8.2, Def.'s App. 10, ECF No. 60–3. In the event of a material breach, the non-breaching party could terminate the Agreement by providing the breaching party with thirty-days written notice and an opportunity to cure. Thirty days after the non-breaching party provided the breaching party with notice and an opportunity to...