Thurston Enters., Inc. v. Safeguard Bus. Sys., Inc.
| Citation | 435 P.3d 489,164 Idaho 709 |
| Decision Date | 19 February 2019 |
| Docket Number | Docket No. 45092 |
| Court | United States State Supreme Court of Idaho |
| Parties | THURSTON ENTERPRISES, INC., an Idaho Corporation, Plaintiff-Respondent, and T3 Enterprises, Inc., an Idaho Corporation, Plaintiff, v. SAFEGUARD BUSINESS SYSTEMS, INC., a Delaware Corporation, Defendant-Appellant, and Safeguard Acquisitions, Inc., et al., Defendants. |
Hawley Troxell Ennis & Hawley LLP, Boise and Weil, Gotshal & Manges LLP, Dallas, Texas, attorneys for appellant. Paul R. Genender argued.
Givens Pursley LLP, Boise and Mulcahy LLP, Irvine, California, attorneys for respondent. James M. Mulcahy argued.
This appeal arises from Safeguard Business Systems, Inc.’s ("SBS") alleged breach of its distributorship agreement with Thurston Enterprises, Inc. ("Thurston"). After a jury trial Thurston was awarded approximately $6.8 million in damages. SBS filed a motion for post-judgment relief, which the district court denied. We affirm.
On June 1, 1987, Thurston and SBS entered into a distributor agreement (the "Agreement"), which granted Thurston the right to solicit orders of Safeguard products designated as "Safeguard Systems" from customers. The Agreement granted Thurston the exclusive right to commissions on the sale of Safeguard products to customers located within the territory defined in the Agreement ("account protection rights"). The Agreement expressly prohibited Thurston from soliciting orders of Safeguard Systems from customers with whom other Safeguard distributors held account protection rights, but allowed SBS to sell Safeguard Systems within Thurston's territory through other "persons." If a distributor made a sale to another distributor's protected customer, it was SBS's practice to issue a rotation notice. The rotation notice informed both the infringing and the receiving party that commissions were being rotated, i.e., the commission would go to the distributor who had account protection over that customer rather than to the infringing party who actually made the sale.
Deluxe Corporation ("Deluxe") is one of the two largest check printers in the United States and it manufactures and/or provides various personalized products and services to small businesses, financial institutions, and consumers. Deluxe purchased SBS and discontinued all SBS manufacturing operations so that Safeguard Systems products could be manufactured by Deluxe. In 2008, Deluxe and SBS launched a Business Acquisitions and Merger ("BAM") program to acquire non-Safeguard affiliated distributorships. The BAM program had four objectives: (1) increase SBS's revenue and profits by acquiring distributors; (2) increase the sales of Deluxe manufactured products to SBS distributors, thereby increasing Deluxe's revenues and profits; (3) expand Deluxe's manufacturing capabilities and increase its manufacturing capacity utilization by acquiring new product lines that could be marketed across Deluxe and SBS's various sales channels; and (4) where Deluxe does not manufacture a product, maximize the amount of orders sent to preferred suppliers paying Deluxe rebates.
In 2013, Deluxe and SBS acquired Form Systems Inc., d/b/a/ DocuSource ("DocuSource") and Idaho Business Forms ("IBF"), two non-Safeguard distributors conducting business in the Pacific Northwest. DocuSource and IBF were in the same geographic market as Thurston and sold a full line of non-Safeguard products that directly competed with those offered by SBS, and by Thurston as SBS's distributor. As part of the BAM due diligence process, Deluxe and SBS reviewed all aspects of DocuSource and IBF's businesses, including their customer lists. This was done through a "customer scrub," intended to determine the extent of account overlap between DocuSource and IBF and any current Safeguard distributors. SBS's in-house counsel, Michael Dunlap, sought to resolve any potential account protection violations by getting the affected distributors to either share the account with the new distributor, or sell the commission rights to SBS, which would then sell the rights to the new distributor.
In February 2014, Mr. Dunlap, who also served as corporate secretary, negotiated with Mr. Roger Thurston1 ("Mr. Thurston"), Thurston's principal, to sell some of Thurston's account protection rights to SBS. In March 2014, Mr. Thurston sold SBS the commission rights to nine customers for $32,600. Mr. Thurston reached this valuation by looking at Thurston's own sales for the customers at issue. Mr. Dunlap did not disclose IBF's sales figures to the same customers, or what products were sold to them. After the sale occurred Mr. Thurston learned that IBF had significant sales to the customers, and claimed that had he known this information before the sale he would have increased the price "exponentially."
These proceedings were started when another distributor, T3 Enterprises, Inc., ("T3")2 , filed a complaint alleging various tort claims against SBS and several other defendants. On September 16, 2014, Thurston joined the suit by filing an amended complaint, alleging claims for: (1) breach of contract; (2) breach of the covenant of good faith and fair dealing; (3) tortious interference; (4) intentional interference with prospective economic advantage; (5) conversion; and (6) accounting.
On January 20, 2016, Thurston filed a discovery motion to challenge several of SBS's privilege designations and redactions, alleging SBS and Deluxe had engaged in the "rampant use of privilege claims" to cover up key evidence. Trial counsel for SBS conducted a new review and withdrew the claim of privilege for all but forty-one documents. The court reviewed the remaining documents in camera and rejected privilege for nearly all, finding that they concerned "factual matters and business advice about the cross-over customers made in Mr. Dunlap's capacity as corporate secretary rather than purely legal issues."
On June 21, 2016, Thurston filed a third amended complaint which: (1) dismissed all defendants except SBS and Deluxe3 with prejudice; and (2) included a new cause of action by Thurston against SBS for fraud in the inducement and breach of the parties’ March 2014, agreement. Thurston was subsequently granted leave to amend the complaint to also request punitive damages.
On August 26, 2016, Thurston and SBS filed cross-motions for partial summary judgment. On October 21, 2016, the district court entered its memorandum decision which denied SBS's motion, but granted Thurston's motion in part, holding that the Agreement was unambiguous and SBS breached it by failing to rotate commissions on sales IBF and DocuSource made to Thurston's protected customers. The district court determined that the resulting damage from such unpaid commissions was in dispute; as such, it was a matter for the jury to consider.
A jury trial was held between November 29 and December 21, 2016. On December 15, 2016, after Thurston finished with its case-in-chief, SBS and Deluxe moved for a directed verdict. The district court denied the motion. At the conclusion of trial the jury fully exonerated Deluxe and awarded Thurston $1,625,985 for its claims against SBS; the specific amounts awarded by the jury were broken down as follows: $494,526 for breach of the account protection clause; $156,628 for breach of the pricing schedule clause; $532,431 for breach of the implied covenant of good faith and fair dealing; and $442,400 for fraud in the inducement. The jury also awarded Thurston $4,750,000 in punitive damages, which the district court reduced to $4,408,071 to comply with Idaho Code section 6-1604. On January 13, 2017, the district court entered judgment in favor of Thurston against SBS for $6,034,056.
On January 27, 2017, SBS filed a motion for post-judgment relief requesting that the district court: (1) eliminate the $532,431 award for diminution in value because that theory of loss was unsupported by the evidence; (2) reduce the award for breach of account protection by $291,010 because the future losses were premised on impermissibly speculative expert testimony; (3) eliminate the pricing preference verdict as legally and factually unfounded as well as the damages of $156,628 as excessive and unsupported; (4) dismiss the fraudulent inducement claim due to a failure of proof that Thurston did not know he lacked sales information for IBF or DocuSource and eliminate the punitive damages because of the lack of malice; and (5) reject the jury's award of punitive damages for breach of contract because there was no evidence SBS had an "extremely harmful state of mind" towards Thurston. The district court denied SBS's motion for post-judgment relief on all grounds. On May 5, 2017, the district court awarded Thurston $758,593.74 in attorney fees and costs. SBS timely appealed to this Court.
1. Whether the district court erred in ruling as a matter of law that Thurston's account protection rights were breached under the Agreement.
2. Whether the district court's ruling on SBS's attorney-client privilege was an abuse of discretion.
3. Whether the district court erred in denying post-judgment relief regarding the jury's finding of fraud in the inducement of the March 2014 agreement.
4. Whether the district court erred in denying post-judgment relief regarding the jury's finding that SBS breached the "pricing guarantee" in the Agreement.
5. Whether the district court erred as to the good faith and fair dealing claim.
6. Whether the district court erred in denying post-judgment relief regarding the jury's award of punitive damages.
7. Whether the district court erred in denying post-judgment relief regarding the jury's award of future damages.
8. Whether either party is entitled to attorney fees on appeal.
This Court applies the same standard of review that was used by the trial court in ruling on a ...
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