Speed RMG Partners, LLC v. Arctic Cat Sales, Inc.

Decision Date11 April 2022
Docket Number20-CV-609 (NEB/LIB)
PartiesSPEED RMG PARTNERS, LLC, ROBBY GORDON, and TODD ROMANO, Plaintiffs, v. ARCTIC CAT SALES INC., ARCTIC CAT INC., TEXTRON SPECIALIZED VEHICLES INC., and TEXTRON INC., Defendants.
CourtU.S. District Court — District of Minnesota

AMENDED ORDER ON MOTIONS FOR SUMMARY JUDGMENT

Nancy E. Brasel United States District Judge

Speed RMG Partners, LLC, Robby Gordon, and Todd Romano (collectively, Speed) sued Arctic Cat[1] for, among other claims, breach of contract and fraud. (ECF No. 376.) Arctic Cat filed a separate suit against Speed. (ECF No. 414.) The Court now considers Arctic Cat's motion for summary judgment on Speed's claims, (ECF Nos 332, 384), and Speed's motion for partial summary judgment on some of Arctic Cat's claims. (ECF No. 339.) For the reasons below, the Court grants in part Arctic Cat's motion and denies the contested parts of Speed's motion.[2]

BACKGROUND
I. Factual Background

Arctic Cat produces powersports vehicles including snowmobiles ATVs, and side-by-side vehicles. (ECF No. 335-1, Ex. 1 ¶ 13.) These products include a line of “Wildcat” off-road motorsports vehicles. (Id.) Todd Romano and Robby Gordon are well- known racers of off-road motorsports vehicles. (ECF No. 343 ¶¶ 1-2; ECF No. 342 ¶¶ 1- 3.) Romano and Gordon co-founded Speed Partners. (ECF No. 343 ¶ 1; ECF No. 342 ¶ 1.)

A. Agreement Negotiations

In spring 2015, Arctic Cat and Speed began negotiating a marketing agreement, which was finalized that summer. (ECF No. 1-1 (“Agreement”).) During the negotiations, Romano sent Arctic Cat CEO Christopher Metz an email summarizing proposed royalties. (ECF No. 364-1 at 3-4.) The email calculates total royalties for each model by multiplying the royalties “per car” by a goal for “Vehicles sold.” (Id. at 4.) In response, Metz agreed to the proposed royalties on limited-edition vehicles and accessories but thought the proposal was “too rich” in some ways. (Id. at 3.) He added that we will need to develop a fair way to ‘claw back' royalties if the limited addition [sic] vehicles need to be rebated to move them”; in other words, the parties needed a way to reduce royalty payments if they did not sell as many as they hoped. (Id.)

A week later, Romano emailed Metz with a chart attached and stated, “I think these No. are realistic.” (Id. at 8.) The left column of the chart lists vehicles by model year for 2016-2020 and for each vehicle states the annual sales, royalty, and “annual comp.” (Id. at 9.) Total royalties under the forecast exceed $30 million. (Id.) Metz agreed that the No. were “realistic.” (Id. at 11.) He noted that the No. “aren't big in 2016 because Arctic Cat wanted to clear existing dealer inventory before selling new products. (Id.) Romano responded, “this would be my min expectation.” (Id.) These negotiations suggest that both parties expected royalties to be based on sales: Metz and Romano each agreed that a chart that calculated royalties by multiplying annual sales by a per-vehicle royalty was “realistic.” (Id. at 8-9, 11.)

According to Romano, Metz represented that Arctic Cat “had the funding and was prepared to invest in the necessary product development, production and distribution to meet these goals.” (ECF No. 364 ¶ 5.) Romano asserts that Arctic Cat's representations about its engineering capacity and financial condition induced Speed to form the Agreement. (Id.) Yet before the Agreement was executed, there were signs of trouble. Craig Kennedy, a product manager for Arctic Cat, wrote to Tracy Crocker, Senior Vice President of Arctic Cat's Offroad Business, to say that Arctic Cat lacked the engineering staff to achieve the Agreement's goals. (ECF No. 363-1 at 2; ECF No. 363-2 at 120.)

B. The Agreement and Alleged Breach

The Agreement was executed on July 31, 2015. (Agreement at 1, 11.) Speed alleges two primary theories of breach: first, that Arctic Cat failed to pay minimum royalties for vehicles not manufactured or sold; second, that Arctic Cat failed to manufacture vehicles that Speed designed.

Royalties. Speed's obligation under the Agreement was to design vehicles, which the Agreement calls “Special Royalty Vehicles.” (Agreement ¶ 2.) Arctic Cat's obligation under the Agreement was to pay royalties, as described in a chart attached to the Agreement, marked as Exhibit D. (Id. ¶¶ 1, 3(a)(i).) Exhibit D is entitled “Vehicle Royalty Schedule/Vehicle Royalty.” (Id., Ex. D.) Much like the chart Romano attached to his pre- agreement email to Metz, the left-most column lists vehicle models for model years 2016- 2020. (Id.) Another column lists “Target Royalty” amounts for each model; rows provide different royalties “for sales above Baseline” for each vehicle year. (Id.) Below the chart are a few notations, including that “there will be a 250 USD per vehicle royalty paid on the Wildcat XX unit regardless of any name change for the vehicles.” (Id.) The second notation relevant here is that the “Limited Edition (LE) Royalty is based upon a 2/3 (Arctic Cat) and 1/3 (Speed RMG) split of price increase over base Wildcat X and Wildcat XX units.” (Id.)

Along with these baseline royalties, the Agreement calls for “halo” and “pivot” royalties for sales of the Robby Gordon Limited Edition Vehicle. The Agreement specifies that “if Robby Gordon Limited Edition vehicles collectively meet the aggregate minimum unit sales, ” halo royalties will increase based on the No. of sales over the “aggregate minimum unit sales.” (Id. ¶ 3(a)(ii)(1).) [I]f Robby Gordon Limited Edition vehicles do not collectively meet the aggregate minimum unit sales, ” a “pivot royalty” may be based on the No. of sales over a baseline. (Id. ¶ 3(a)(ii)(2).) The Agreement does not define “aggregate minimum unit sales, ” and the term appears nowhere in Exhibit D.

Production and Development of Vehicles. Speed agreed to provide vehicle and product designs for some Special Royalty Vehicles. (Agreement ¶ 2(a).) Though Speed was to provide initial designs, Arctic Cat had final decision-making authority over designs. Paragraph 2 of the Agreement explains:

The foregoing designs and annual updates will be provided by Speed RMG to Arctic Cat in writing, will specify the novel features of the applicable vehicle and, with respect to the Special Royalty Vehicles, must be accepted by Arctic Cat in its discretion prior to incorporation in a vehicle and eligibility for royalty payments. Arctic Cat shall have, in its sole discretion, final approval over all branding and product design decisions.

(Id. (emphasis added).)

Right of First Refusal. The Agreement gave Arctic Cat a right of first refusal over vehicle designs within 90 days “after presentation of a final Powersports vehicle design or prototype.” (Agreement ¶ 4.) If Arctic Cat elected not to exercise its right of first refusal, the parties could identify a third-party manufacturer. (Id.) If the parties did not agree on a third-party manufacturer, Speed would be “free to manufacture, market and sell” the vehicle on its own. (Id.) The Agreement does not define “final, ” nor does it specify how Arctic Cat should exercise this right of first refusal. And unlike paragraph two, which gives Arctic Cat discretion over product and branding decisions, it does not state that Arctic Cat has discretion over manufacturing decisions after Arctic Cat exercises its right of first refusal.

Integration.

The Agreement contains an integration clause, which states, “This Agreement contains the entire agreement and understanding between the parties with respect to the subject matter hereof and supersedes all prior written or oral agreements and communications between them with respect to the subject matter hereof.” (Id. ¶ 15.)

C. Partnership Announced and Orders Come In

Though both parties began the relationship excited about its potential, it quickly soured. At a dealer show in August 2015, Arctic Cat announced its partnership with Speed, specifying that the vehicles would be available beginning in September. (ECF No. 363-1 at 5; ECF No. 342 ¶¶ 11-12.) Arctic Cat calls this a “marketing launch.” (ECF No. 363-2 at 152.) Speed calls this a “product launch.” (See ECF No. 342 ¶ 11.) Though Arctic Cat presented a Wildcat XX vehicle at the show, the model vehicle did not have all the features that the parties intended for the final Wildcat XX. (ECF No. 363-2 at 140; ECF No. 343 ¶ 8.) A few days after the show, Kennedy emailed other Arctic Cat employees stating that “orders are coming in from the dealer show.” (ECF No. 363-1 at 12.)

The evidence suggests that Arctic Cat intended for production of at least some vehicles to begin in January 2016. In October 2015, an Arctic Cat engineering group leader emailed a shocks producer stating Arctic Cat planned a January 11 “SOP”-start of production date. (Id. at 15.) That December, Arctic Cat's certification engineer sent an internal email commenting that he expected a January 2016 “build date” for one of the Wildcat models. (Id. at 21.)

But by February 2016, Arctic Cat delayed the launch of the partnership Wildcat models. (Id. at 43.) An internal Arctic Cat document states it planned to “shut down the project with Robby and Todd” that month. (Id. at 59.)

Despite this stumble, the parties seemed to recover. In May 2016, Arctic Cat sent Speed a vehicle-development timeline that included a production date. (ECF No. 362-1 at 36-48.) A month later, Crocker stated that Arctic Cat “finalized all the build dates” for two models. (ECF No. 367 at 2.) He also noted that Arctic Cat had “a final design.” (Id.) Though Crocker called the design final, other evidence suggests that the design lacked key parts. (ECF No. 363-1 at 59.)

In September 2016, Arctic Cat publicly launched vehicles for the 2017 model year,...

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