Titan Pro SCI, Inc. v. Muff
| Decision Date | 05 October 2022 |
| Docket Number | 21-1622 |
| Parties | TITAN PRO SCI, INC., Plaintiff-Appellee, v. ERIC MUFF, DAN FULTON and NEW AG BASICS, LLC, Defendants-Appellants. |
| Court | Iowa Court of Appeals |
Appeal from the Iowa District Court for Hancock County, DeDra Schroeder, Judge.
The appellant-defendants challenge the district court's denial of their motion to compel arbitration. AFFIRMED.
Joseph G. Gamble of Duncan Green, P.C., Des Moines, for appellants.
Stephanie A. Koltookian and Martin J. Demoret of Faegre Drinker, Des Moines, for appellee.
Heard by Vaitheswaran, P.J., and Greer and Schumacher, JJ.
In this multi-party litigation, we are asked if the substantive claims raised in the underlying proceedings fall outside the scope of arbitration clauses found in other agreements between some of the parties or whether the dispute touches a matter within the scope so that arbitration must be ordered. Starting with the dispute, Titan Pro SCI, Inc. (Titan) brought a lawsuit against former employees Dan Fulton and Eric Muff, who created New Ag Basics, LLC (collectively, the appellants).[1] Titan claimed the defendants breached confidentiality agreements they signed as part of their employment with Titan, misappropriated its confidential information, and engaged in tortious conduct. The appellants moved to compel arbitration, relying on arbitration provisions in both a purchase agreement and mutual general release between just Fulton and Titan. The district court denied the motion.
The appellants challenge the district court's denial of the motion to compel arbitration, arguing the court wrongly concluded Titan's claims against them do not fall within the scope of the two arbitration clauses. More specifically they argue the district court improperly placed the burden on them to prove that the claims were suitable for arbitration-rather than placing the burden on Titan to prove the claims were not suitable; Titan's legal claims "touch on" matters covered by the broad arbitration provisions, which is enough to compel arbitration; and Muff and New Ag have a sufficiently close relationship to Fulton to enforce the arbitration provisions in agreements Fulton entered into with Titan. The appellants ask us to dismiss Titan's lawsuit with prejudice or, in the alternative, stay it pending arbitration. We affirm the district court's denial of the motion to compel arbitration and, with this decision, the lawsuit travels forward in the district court.
I. Background Facts and Proceedings.[2]
Titan is a farm marketing organization that sells seed, chemicals fertilizer, and insurance products to agricultural producers. Titan sells its products through a network of independent-contractor dealers, who participate in the promotion, marketing, and sale of the products in return for sales commissions. The network of dealers, which Titan maintains as a confidential list, consists of approximately 150 individuals across seven states.
Titan owns the products its customers buy; any sale occurs between Titan and the customer. The dealer facilitates the sale by communicating directly with the customers; entering orders for products into Titan's system; and receiving, storing, and sometimes delivering the product from Titan to the customers. According to Titan, it "makes a significant investment in its [d]ealerships, including through training, infrastructure, access to [Titan] services, access to [Titan's] [c]ustomer base, and resources that help the [d]ealers grow" the customer base. Titan gives dealers access to confidential and proprietary business information, including confidential price lists and customer lists, along with other sales information and data. The dealers enter into an "Independent Dealer Contract" with Titan, which includes pre- and post-termination restrictions on competition.
As part of the pre-termination restrictions, dealers are required to sell products exclusively on behalf of Titan unless another agreement explicitly allows otherwise. Additionally, dealers are prohibited from selling competing products to Titan's customers for a certain period of time after termination of the dealer's employment with Titan. To protect its confidential information, Titan applies a unique watermark for each dealer it sends confidential information-allowing it to determine the cause of a breach.
Titan also has a number of employees that assist with its business operations. At one point, Muff, Fulton, Samuel Bunk, and Richard Welsh were employees of Titan. As part of their employment, each signed a confidentiality agreement with Titan, promising to "not, during (except to perform my job duties for [Titan]) or at any time after my employment with [Titan], disclose or use [c]onfidential [i]nformation for [their] own or another's benefit." The agreement defined "confidential information" to include "information about [Titan's] customers, customer lists, pricing, costing, purchasing, profits, markets, products capabilities, business ventures, sales, sales histories, data processing, compensation, finances," and more. The agreement also contained a provision that the employees would-upon the termination of their employment-"immediately deliver to [Titan]" all of Titan's property, "including but not limited to all materials in my possession or control that contain [c]onfidential [i]nformation." The restrictions in the agreement "survive[d] the termination of [the employee's] employment," and the agreement could only "be cancelled, modified, or otherwise changed . . . by another written agreement signed by [the employee] and [Titan's] President/CEO."
In May 2016, Fulton purchased Midwest Agronomy, LLC (MWA) from Titan with a confidential purchase agreement. The agreement provided that Fulton was purchasing a corporate form and certain assets, liabilities, and property. This included a customer list, which was attached to the purchase agreement as "Exhibit E." The agreement provided that Fulton's, Muff's, and Bunk's employment with Titan would terminate with the sale of MWA, and those employees would be offered employment by MWA.
In October 2019, Titan brought suit against Welsh, who worked as an employee of Titan from 2009 to 2017 selling agriculture insurance. Titan alleged that immediately before Welsh's employment was terminated in September 2017, Welsh "improperly extracted significant amounts of [c]onfidential [i]nformation from" Titan, including attempting to download a file with nearly a decade of information about Titan's customers and sales and a 2017 spreadsheet listing all of Titan's 2017 crop insurance customers, which he then sent to his personal email. Titan claimed Welsh organized CAVER Corporation, which does business as Premier Crop Services, Inc. (Premier), to sell competing agricultural input products to both Titan's dealers and customers and that Welsh used the confidential information he took from Titan "to intentionally target [Titan's] [d]ealers" and "solicit [them] to breach their contracts with" Titan to provide Welsh and Premier access to those customers. Titan brought claims that Welsh breached his confidentiality agreement; Welsh and Premier tortiously interfered with Titan's independent dealer contract with at least one specific dealer; Welsh and Premier tortiously interfered with Titan's prospective business relationships with customers; and Welsh and Premier were unjustly enriched through improper use of confidential information.
Welsh and Premier answered, and the two sides agreed to a trial scheduling and discovery plan. Based on information learned while conducting discovery, in April 2021 Titan moved to amend its petition at law. Titan wished to add new parties-Bunk, Muff, Fulton, and New Ag-and claims, including a claim of civil conspiracy.
In the amended petition, Titan alleged that Fulton, Muff, and Bunk were former employees of Titan's who (like Welsh) regularly communicated with Titan's dealers as part of their employment. As laid out in the purchase agreement, the trio left Titan to operate the competing business MWA on May 18, 2016. But, Titan alleged, since August or September 2017 Fulton, Muff, and Bunk "worked in concert [with Welsh] to develop a system to target" Titan's dealers and customers "and misappropriate [c]onfidential [i]nformation of [Titan's] to provide [d]efendants an improper competitive advantage." Titan claimed the individual defendants and Premier organized a system to sell competing agricultural input products to Titan's dealers and customers, of which Welsh's 2017 extraction of confidential information from Titan was "part of [the] concerted plan." According to Titan, each of the individual defendants aided, assisted, and were directly involved in Welsh and Premier's actions of soliciting, selling, and distributing agricultural products to Titan's dealers and customers. In doing so, the defendants targeted Titan's dealers to breach their pre- and post-termination contracts with Titan. The individual defendants requested and obtained confidential information from dealers, such as Titan's price list, which the defendants then used to undercut Titan's pricing. Titan asserted that Muff and Fulton created New Ag to sell competing agricultural input products, which it continued to do through Welsh and Premier. In the amended petition, Titan claimed that each individual defendant breached their confidentiality agreement with Titan and all defendants tortiously interfered with Titan's contracts with dealers, including but not limited to a dealer who, in a separate proceeding in federal court, admitted he violated his noncompete and so agreed to stop his business and to pay Titan damages for the violations. Additionally, all defendants tortiously interfered with Titan's prospective...
To continue reading
Request your trial