PIC USA v. North Carolina Farm Partnership, 02-0855.

• Decision Date: 17 December 2003
• Docket Number: No. 02-0855.,02-0855.
• Citation: 672 N.W.2d 718
• Parties: PIC USA f/k/a Pig Improvement Company, Inc., Appellee, v. NORTH CAROLINA FARM PARTNERSHIP, Deitrich Klages, Individually, Joachim Engel, Individually, North Carolina Farm of Wise, L.L.C., and NCF Investments, L.L.C., Appellants.
• Court: Iowa Supreme Court

672 N.W.2d 718

PIC USA f/k/a Pig Improvement Company, Inc., Appellee, v. NORTH CAROLINA FARM PARTNERSHIP, Deitrich Klages, Individually, Joachim Engel, Individually, North Carolina Farm of Wise, L.L.C., and NCF Investments, L.L.C., Appellants.

No. 02-0855.

Supreme Court of Iowa.

December 17, 2003.

John D. Mayne and Missy J. Denton of Mayne, Marks & Madsen, L.L.P., for appellants.

Charles T. Patterson, Margaret M. Prahl and Patrick L. Sealey of Heidman, Redmond, Fredregill, Patterson, Plaza, Dykstra & Prahl, L.L.P., Sioux City, for appellee.

LAVORATO, Chief Justice.

The defendants appeal from a district court ruling that in effect converted a temporary injunction into a permanent injunction and from a ruling releasing the temporary injunction bond. We reverse in both instances and remand the case for further proceedings consistent with this opinion.

I. Background Facts and Proceedings.

This injunction proceeding arose out of an alleged breach of a lease agreement between PIC USA, f/k/a Pig Improvement Company, Inc. (PIC) and North Carolina Farm Partnership (NCF), located in North Carolina. The subject of the lease agreement involved land and buildings that NCF owned on which PIC raised and bred genetically superior pigs for use in breeding pigs to be sold for slaughter.

PIC and NCF had a long relationship dating back to the 1980s based on prior lease agreements. The lease in question was dated April 1, 1994 but was not signed until 1996. Because PIC and NCF were unable to reach a new agreement for a new lease, the lease expired by its terms on March 31, 2000.

On June 27, 2000, NCF sued PIC in North Carolina, alleging that PIC removed some of the pigs from the leased facilities, did not return the leased facilities to their original condition, and did not yield possession of the facility and pigs, all in breach of the lease. On January 31, 2001, PIC answered and filed a counterclaim, alleging breach of contract, unjust enrichment, negligent misrepresentation, and unfair and deceptive trade practices. The counterclaim also sought injunctive relief based on NCF's alleged unauthorized use of PIC's intellectual property and trade secrets in the genetically superior pigs.

Although PIC had a claim for injunctive relief, it did not pursue it despite North Carolina's rules that provide for temporary restraining orders. In subsequent discovery, PIC learned through the deposition of Martin Engel, a partner in NCF, that NCF had moved pigs to Iowa and intended to sell them as breeding stock. One of the major issues in this litigation was whether under the terms of the lease NCF could sell the pigs as breeding stock rather than for slaughter.

On November 26, 2001, PIC sought an injunction in the Iowa district court to prevent the sale of the pigs as breeding stock. Besides naming NCF as defendant, the suit also named as defendants, Dietrick Klages, Joachim Engel, and Martin Engel, all partners in NCF. Additionally, the suit named as defendants North Carolina Farm of Wise, L.L.C., a limited liability company located in North Carolina, and NCF Investments, a limited liability company located in North Carolina. The petition alleged that the two limited liability companies are successors in interest to the rights and liabilities of NCF and the individually named partners. (For convenience we shall hereinafter refer to all of the defendants as NCF.)

The prayer of the Iowa petition asked the court to temporarily, without hearing, and to permanently after hearing, enjoin NCF from selling 450 breeding females located in Iowa to any third person other than for slaughter.

On November 26 District Judge John D. Ackerman entered an ex-parte temporary restraining order (TRO) prohibiting NCF from "removing, transferring, or otherwise disposing or selling any of the 450 breeding females containing genetic material from the State of Iowa." The order also prohibited "the removal and/or transfer of any breeding females within the State of Iowa from their current location until further order of this Court or the North Carolina Court in case # O1CVS15 in Warren County Superior Court."

In the order the court set a hearing for November 30 to determine whether the TRO should continue. The court also required that a copy of the order be presented to the North Carolina judge handling the North Carolina litigation.

On November 30 District Judge Michael S. Walsh continued the hearing to December 7. On December 7 PIC filed a notification of bond, stating that a bond in the amount of $10,000 would be filed as soon as it was received. On December 18 Judge Walsh entered an order approving the bond that PIC intended to file. The order directed the clerk of court to approve the bond which the court believed to be an amount equal to or exceeding the 125% of the liability that PIC would probably incur because of the TRO.

Following the December 7 hearing, Judge Walsh on December 17 modified the TRO to allow NCF to sell for slaughter any animals owned by them currently located in Iowa. The judge also ordered NCF to report to the court the identification of the animals sold and the proceeds from such sale.

On January 4, 2002, Judge Walsh ruled that the TRO and the $10,000 bond would remain in effect. In his ruling, the judge found:

The defendants have placed pigs in Iowa for purposes of sale as breeding stock. These pigs are the progeny of animals that were born of parents having PIC genetics and originating from the breeding herd and location which are the subject of the parties' agreement. The credible evidence demonstrates that these animals have been and will be sold as breeding stock contrary to the terms of the parties' agreement [the lease]. The defendants intend to continue selling these animals as breeding stock if not enjoined. If the defendants are allowed to continue this action, the plaintiff will be irreparably harmed by misappropriation of the genetic markers that are unique to the PIC animals without compensation to the plaintiff. Unauthorized dissemination of genetic material to the plaintiff's competitors through the sale of these animals for breeding would adversely affect the plaintiff's ability to protect its trade secrets and products. PIC has developed the genetic improvements in its animals for more that 40 years and would be subject to irreparable harm if the defendant was permitted to sell animals for breeding when those animals were the product of the plaintiff's long-term genetic improvement efforts.

On April 17 PIC filed a motion for an order requiring NCF to file proof of compliance with the December 17 order. The motion sought proof that the pigs in Iowa had been sold for slaughter. In addition, PIC alleged in the motion that good cause existed for the court to release the bond. Specifically, the motion stated: "Defendants have not appealed from any of the orders, including the order granting and providing for permanent injunctive relief; i.e. the Court's ruling of January 4, 2002." In its request for relief, PIC asked the court to (1) set a hearing on the motion, (2) order a deadline for NCF to comply with the December 17 order, and (3) release the bond.

On May 6 NCF reported that on December 15, 17, and 18 it had sold 367 pigs for slaughter for a total of $32,258.44. On the same day NCF filed a resistance to PIC's April 17 request to release the bond and in its resistance moved to increase the bond.

On May 22 Judge Walsh ruled on PIC's April 17 motion:

The defendants remain enjoined under the terms of the January 4, 2002, ruling, which has not been vacated or modified and was never appealed. The purpose of a bond is to protect against potential damages that may result from a temporary injunction that was improvidently or erroneously issued and which may be vacated rather than continued. While the defendants remain opposed to the injunction, there is no pending litigation that includes the prospect of overturning the injunction granted in this case or establishing damages. In spite of what label one might put on it, a temporary injunction which, after hearing, was continued indefinitely and which has never been vacated or modified and has never been appealed becomes, for all practical purposes, permanent in nature.

IT IS THEREFORE THE RULING OF THE COURT that there is no need to maintain a bond to protect against potential damages from an injunction which is permanent in nature. The plaintiff's request that the bond posted by the plaintiff be released is sustained.

(Emphasis added).

On the same day, by separate order, Judge Walsh overruled NCF's motion to increase bond, citing reasoning he applied in his ruling releasing PIC's bond.

NCF appealed.

II. Standard of Review.

We recently stated our standard of review governing the issuance of an injunction:

Generally, our standard of review for the issuance of injunctions is de novo. This de novo review is based upon the equitable jurisdiction of the court to issue injunctions. Yet, the decision to issue or refuse "a temporary injunction rests largely [within] the sound discretion of the [district] court." We recognize a temporary injunction is a delicate matter, and the exercise of judicial power to issue or refuse a temporary injunction "requires great caution, deliberation, and sound discretion." Thus, we will not generally interfere with the district court decision unless the discretion has been abused or the decision violates some principle of equity.

Max 100 L.C. v. Iowa Realty Co., 621 N.W.2d 178, 180-81 (Iowa 2001) (citations omitted). "[T]his discretion is a legal one, and, if not based upon sufficient grounds, will be reversed upon appeal." Swan v. City of Indianola, 142 Iowa 731, 734, 121 N.W. 547, 549 (1909).

III. Issues.

Although NCF raises numerous issues, we consider only three because the others either lack merit or were not properly preserved for our review. See Meier v. Senecaut, 641 N.W.2d 532, 537 (Iowa 2002) (holding that issues...