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rejecting plaintiff's motion to join parties on basis that parties were as a matter of law not in a partnership with defendant
Summary of this case from Merritt v. Mountain Laurel Chalets, Inc.Opinion
Case No. 03-1391-WEB.
December 29, 2004
MEMORANDUM AND ORDER
Now before the Court is counter plaintiff's (hereinafter known as consultants) motion to add additional parties, counter defendant's (also to be known as manufacturers) motion to dismiss and defendant's motion for summary judgment.
Plaintiff is a manufacturer and has employed defendants, consultants, over a period of years to succor various aspects of their business from company acquisitions to establishing a database. Two contracts containing information about remuneration, work assignments, and other details were signed in 1994 and again in 1999. In 2001, plaintiff and defendants ended their business relationship. Plaintiff accuses defendants of breaching a covenant not to compete, violating the Uniform Trade Secrets Act, breach of fiduciary duty, and tortious interference with contract. Defendants filed counter claims for antitrust violations, breach of contract and tortious interference with business contractual relations.
The Court has jurisdiction over this case under 28 U.S.C. § 1332. Bradbury Company Inc., is a Kansas corporationwithits principalplace of business in Kansas. (Compl. at 1). Andre Teissier-duCros (ATC) and Georgia P. Bevis (GPB) are a Georgia residents. (Id.). Gean Overseas, Inc. (GOI) is a Georgia corporation. (Id.). Gean Overseas/Bossard, Inc. (GOB) is not a Kansas corporationnor does it have its principal place of business in Kansas. (Id. at 1, 2). Plaintiff alleges damages in excess of $75,000.
The parties have attached exhibits to their briefs on the motion to dismiss. The Court will not convert the motion to dismiss to a summary judgment as the parties have not requested this nor do their briefs conform to the local rules for summary judgment. D.Kan.R. 56.1. The Court will not use the attached exhibits when analyzing counter defendant's motionto dismiss; however, the Court will consider those relevant exhibits when deciding consultant's motion for joinder. Prager v. LaFaver, 180 F.3d 1185, 1189 (10th Cir. 1999) (The Courthasdiscretiontoconsidermaterials attached to a 12(b)(6) motion).
I. Joinder of additional parties under Rules 19 and 20
The Federal Rules of Civil Procedure provide that "[p]ersons other than those made parties to the original action may be made parties to a counterclaim or cross-claim in accordance with the provisions of Rules 19 and 20." Fed.R.Civ.P. 13 (h).Rule 20, permissive joinder of parties, provides:
All persons . . . may be joined in one action as defendants if there is asserted against them jointly, severally, or in the alternative, any right to relief in respect of or arising out of the same transaction, occurrence, or series of transactions or occurrences and if any question of law or fact common to all defendants will arise in the actions. Fed.R.Civ.P 20.
"Rule 20(a) is to be construed broadly and `joinder of claims, parties, and remedies is strongly encouraged.'" DIRECTV, Inc. v. Hosey, 289 F.Supp.2d 1259, 1262 (D.Kan. 2003) quoting Biglow v. Boeing Co., 201 F.R.D. 519, 520 (D.Kan. 2001) quoting UMW v. Gibbs, 383 U.S. 715, 724 (1966).
Consultants argue that the Bradbury Group, the individual companies that consist of the Bradbury Group(Strilich Technologies, Inc., American Machine Rollform Tech, Inc., Marion Die Fixture, Hayes International, and Beck Automation), Chad Bradbury and David Bradbury ought to be joined as counter defendants under either Rule 19 or 20.
Consultants have asserted claims against Chad Bradbury (Chad) and David Bradbury (David) and wish to join them as a counter defendants. Consultants allege that Chad and David, along with other counter defendants including Bradbury Company Inc., tortiously interfered with consultant's business and contractual relations by telling current and potential clients that consultants violated non competition agreements. (Countercl. ¶ 67). Chad and David are appropriate parties for joinder under Rule 20 because consultants have alleged a recognized right to relief, it involves the same transaction or occurrence as the plaintiff's complaint (no-compete agreement), and it also involves similar questions of law and fact.
Consultants also want to join the Bradbury Group and/or the individual companies that make up the Bradbury Group as additional parties. In a prior order, this Court ordered consultants to show the law under which the Bradbury Group is organized. (Doc. 48). Consultants correctly state that the law will find a partnership when two or more persons form an association for the purpose of carrying on as co-owners of a business for profit, a partnership is created whether or not the persons intend to form a partnership. K.S.A. § 56a-202(a).
Consultants fail to argue their facts using the applicable case law in Kansas. Kansas courts use a number of factors to determine the existence of a partnership. No one factor is conclusive. Factors include: the parties' intentions; sharing of profits, losses and expenses; joint control of management; joint ownership of assets; and active participation in management of the enterprise. Kindergartners Count, Inc. v. Demoulin, 249 F.Supp.2d 1233, 1246 (D.Kan. 2003) citing Grimm v. Pallesen, 215 Kan. 660 (1974) citing Potts v. Lux, 161 Kan. 217, 222 (1946).
Consultants have the burden to show that there is a partnership. Cf. Sunfresh, Inc. v. Bean Acres, Inc., 180 F.Supp.2d 1224, 1233 (D.Kan. 2001) (The party claiming the existence of a joint venture has the burden of proof); See also Modern Air Conditioning, Inc. v. Cinderella Homes, Inc., 226 Kan. 70, 75 (1979) (Joint ventures and partnerships are so similar in nature that they are governed by the same rules of law); Mid Kan. Fed. Sav. Loan Ass'n v. Orpheum Theater Co., Ltd., 810 F.Supp. 1184, 1193 (D.Kan. 1992).
Both parties submitted exhibits either showing or disputing the Bradbury Group as a partnership. The following allegations and evidence are relevant to this decision:
1. Consultants allege that the Bradbury Group is a partnership because it is a number of companies owned by the same stockholders, namely members of the Bradbury family.
2. Consultants were given business cards labeled as the Bradbury Group and five of the six individual companies that allegedly associate themselves with the Group. (Reply Mem. in Supp. of Mot. to Add Parties, Exhibit A).
3. The November 15, 1999 agreement was addressed to the Bradbury Group but signed by the Bradbury Company, Inc. (Mem Opp'n Mot. to Dismiss Countercl., Exhibit 1; Mem. in Reply to Mem. in Opp'n to Mot. to Dismiss Countercl., Exhibit A).
4. Three exhibits from consultants are documents with the words Bradbury Group on them. (Mem. Opp'n to Mot. to Dismiss Countercl., Exhibit 1, 2, 3).
5. Each of the individual businesses in the Group were acquired by Bradbury Company, Inc.
These allegations and exhibits must meet the factors set out by Kansas to show a partnership.
a. Parties' intentions
Consultants do not allege that there is a written partnership agreement; however, intent to form a partnership need not be express but can be implied by the actions of those involved. Nature's Share, Inc. v. Kutter Products, Inc., 752 F.Supp. 371, 383 (D.Kan. 1990). The business cards with the Group name and the November 15, 1999 agreement signed by the Group show that consultants were to do work on behalf of some of those companies in the Bradbury Group; however, it is not proof of an intent by all of the individual companies to be co-owners of Bradbury Group for profit. In fact, the five individual companies that consultants wish to join are not all listed on this business card. Consultants do not allege that all five individual companies were parties to the 1999 contract signed by the Group.
Consultant's exhibits are also unpersuasive. Exhibit one was written by consultants. Exhibit three is a fax sent by a third party to manufacturers addressing them as the Group. These exhibits show that others referred to these individual companies as the Group but it does not show that the individual companies had an intent to form a partnership. Exhibit two is a document showing a meeting between consultants and four other people with the words Bradbury Group quarterly meeting on it. Consultants do not tell us whether those people at the quarterly meeting are representing the five individual companies; therefore, it is of marginal relevance to show that the individual companies had an intent to carry on as co-owners of the Bradbury Group.
b. Sharing of Profits, losses and expenses
Consultants do not allege and offer no proof to show that the individual companies share profits, losses or expenses. This is an important factor as it is also emphasized in the Kansas Statute. K.S.A. § 56a-202 (c)(3) (A person who receives a share of the profits of a business is presumed to be a partner in the business). Indeed, summary judgment is routinely granted in favor of defendants in cases regarding joint ventures where plaintiffs can show no agreement, express or implied, to share profits. Nature's Share, Inc., 752 F.Supp. at 383. Given the widespread agreement that joint ventures and partnerships are treated similarly in the eyes of the law, this is a persuasive factor. Id; In re Groff, 898 F.2d 1475, 1476-1477 (10th Cir. 1990); Modern Air Conditioning, 226 Kan. at 76.
c. Joint Control of Management
Consultants do not allege and offer no proof showing that the individual companies in the Group are managed by the same people.
d. Joint Ownership of Assets
Consultants do allege the that Bradbury Company acquired each of the individual companies in the Group. They allege that the companies in the Group are owned by the same stockholders; however, "part ownership does not by itself establish a partnership . . ." K.S.A. § 56a-202(c)(1).
e. Active participation in management
Consultants offer no evidence nor do they allege that the individual companies actively participated in the management of the Bradbury Group.
Consultants are unable to show that the Bradbury Group is a partnership consisting of the six individual companies (including Bradbury Company, Inc.) as requested by this Court's April 21, 2004 order. Because we find that the Group as a matter of law is not a partnership and consultants have not alleged that it is any other legal entity capable of being sued, it cannot be joined in this litigation.
In the alternative, consultants argue that the individual companies should be joined. Consultants state the following facts: 1) The individual companies were members of the Bradbury Group; 2) Bradbury Company Inc. executed the November 15, 1999 contract as an agent for the Group; 3) Consultants worked on behalf of all counter defendants; and 4) That all counter defendants failed to pay them after using their services. (Countercl. at 9,13).
Consultants assert a breach of contract counter claim arising from the November 15, 1999 agreement. This right of relief will have similar questions of law and fact as plaintiff's claims and the breach of contract counter claim asserted against the Bradbury Company. Given the liberal interpretation of Rule 20, joinder of Strilich Technologies, Inc., American Machine Rollform Tech, Inc., Marion Die Fixture, Hayes International, and Beck Automation is appropriate.
II. Motion to Dismiss — 12(b)(6)
A motion to dismiss is appropriate when the plaintiff can prove no set of facts in support of the claims what would entitle the plaintiff to relief. Roman v. Cessna Aircraft Co., 55 F.3d 542, 543 (10th Cir. 1995). The Court must also accept any well-pleaded allegations in the complaint as true and construe them in the light most favorable to the plaintiff. Fuller v. Norton, 86 F.3d 1016, 1020 (10th Cir. 1996).
The Court will consider the motion to dismiss on behalf of the Bradbury Company, Inc., Chad Bradbury and David Bradbury. See D.Kan. Rule 5.1(d) (Counsel may make an entry of appearance by signing the initial motion). Although the motion to dismiss is also signed by the attorney for the Bradbury Group, this entity is not joined to this litigation and arguments on its behalf will not be entertained. The Court expresses no opinion as to the merits of arguments elucidated on behalf of Strilich Technologies, Inc., American Machine Rollform Tech, Inc., Marion Die Fixture, Hayes International, and Beck Automation.
A. Anti-Trust Claim
Manufacturers argue that consultant's anti-trust claim must be dismissed because they lack standing and have failed to plead any underlying facts or cause of action.
Consultants argue that manufacturers have conspired to restrain trade in the roll-forming machinery industry and that these actions violate unspecified state and federal antitrust laws. As a result of the above unlawful actions, consultants claim they have suffered two injuries. First, they have experienced a loss of potential clients for whom to provide their consulting services. Second, consultants have been adversely affected by the financial loss resulting from manufacturer's failure to acquire any businesses.
Manufacturer's assertions that the pleading must be dismissed for failure to provide sufficient facts or set forth a recognized legal theory are without merit. "Sections 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1 2, are broadly worded statutes designed to counter restraints of trade and monopolistic practices; but are actionable by private individuals only through Sections 4 and 16 of the Clayton Act, 15 U.S.C. §§ 15 26." Re/Max Int'l v. Realty One, 900 F.Supp.132, 145 (N.D. Ohio 1995).
It is true that consultants do not specifically state which antitrust statute on which they base their cause of action; however, because they are requesting treble damages, the Court will assume that they are suing under Section 4 of the Clayton Act. Full Draw Productions. v. Easton Sports, Inc., 182 F.3d 745, 750 (10th Cir. 1999) (Clayton Act § 4 creates a private cause of action for any person who has been injured in his business by reason of anything forbidden in the antitrust laws and provides for treble damages); See also 15 U.S.C. § 15; Cf. 15 U.S.C. § 26 (Entitles private parties to sue for injunctive relief for antitrust injuries). Additionally, the consultants have added underlying facts to their amended antitrust counterclaim in response to the Court's order. (Doc. 48); See also (Countercl. at 9-12, ¶¶ 52-62).
"Standing and antitrust injury are essential elements in a § 4 Clayton Act damage action." Sharp v. United Airlines, Inc., 967 F.2d 404, 406 (10th Cir. 1992) citing City of Chanute v. Williams Natural Gas Co., 955 F.2d 641, 652 n. 14 (10th Cir. 1992). "While the Supreme Court has avoided black-letter rules about antitrust standing, it has enumerated factors to be considered in evaluating standing: (1) the causal connection between the antitrust violation and the plaintiff's injury; (2) the defendant's intent or motivation; (3) the nature of the plaintiff's injury — i.e. whether it is one intended to be redressed by the antitrust laws; (4) the directness or the indirectness of the connection between the plaintiff's injury and the market restraint resulting from the alleged antitrust violation; (5) the speculative nature of the damages sought; and (6) the risk of duplicative recoveries or complex damages apportionment." Sharp, 967 F.2d at 406-407.
The third factor is pivotal as "standing cannot be established without an antitrust injury. . . ." Orr v. Beamon, 77 F.Supp.2d 1208, 1212 (D.Kan. 1999) quoting Sharp, 967 F.2d at 407. "[P]laintiff must prove antitrust injury, which is to say injury of the type the antitrust laws were intended to prevent and that flows from that which makes defendants's acts unlawful." PAS Communs., Inc. v. U.S. Sprint, Inc., 112 F.Supp.2d 11061112 (D.Kan. 2000) quoting Full Draw Productions, 182 F.3d at 750 quoting Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 489 (1977).
To support their argument for standing and antitrust injury, consultants state that they are members of the roll-forming machinery business. (Mem. in Opp'n to Mot. to Dismiss at 7). Consultants provide no factual support for this statement; conversely, their pleadings show that they are not members of the roll-forming machinery industry but rather consultants for members of this industry. (Id.); (Countercl. ¶ 40, 46, 47 and 74). Consultants are not members of a class who are eligible to maintain an antitrust claim against manufacturers because standing is not available when a plaintiff is the supplier for an allegedly injured direct competitor. Wichita Clinic v. Columbia/HCA Healthcare Corp., 45 F.Supp.2d 1145, 1197 (D.Kan. 1999).
Consultants also fail to show an adequate antitrust injury. "It is reasonable to assume that Congress did not intend to allow every person tangentially affected by an antitrust violation to maintain an action to recover threefold damages for the injury to his business or property." Blue Shield of Va. v. McCready, 457 U.S. 465, 478 (1982). Consultants claim injury because alleged anti-competitive behavior has reduced the number of clients for whom they can provide services. "The antitrust laws were designed to protect competition, not individual employment opportunities and, as such, this is not a cognizable antitrust injury." Donovan v. Digital Equip.Corp., 883 F.Supp. 775, 784 n5 (D.N.H. 1994). See also Orr v. Beamon, 77 F.Supp.2d at 1208 (Employees simply cannot establish an antitrust injury when they lose their employment as a result of some allegedly anticompetitive activity directed at or involving their employer); Donovan, 883 F.Supp. at 784(Whether the plaintiff was technically an employee or consultant does not impede the court's antitrust standing inquiry). Consultants have failed to meet the third factor by showing that the injury is one that was intended to be redressed by antitrust laws; therefore, they lack standing to maintain their federal antitrust counter claim.
To support their second argument for an antitrust injury, consultants state that manufacturers wrongfully denied them acquisition bonuses. (Mem. in Opp'n to Mot. to Dismiss at 7). The agreement between the parties stated that consultants would receive an acquisition bonus for successful completion of company acquisitions; however, even though consultants labored toward this end they did not receive a bonus because manufacturers did not acquire those companies. Id.
"An injury which is merely causally linked in some way to an alleged antitrust violation is insufficient." Sharp, 967 F.2d at 408. While consultants failure to receive a bonus can be causally linked to manufacturers failure to actually acquire businesses, this is an indirect consequence of alleged anticompetitive actions. Consultant's injury is not appropriately remedied by antitrust statutes as the injury appears to be one of contract or unjust enrichment. Again consultants fail the third factor in the standing analysis as their second argument does not assert an antitrust injury.
With regard to consultant's state antitrust claims, the court finds that consultants have failed to state which state antitrust statutes under which they seek relief. However, assuming arguendo that the pleading is sufficient, standing under Kansas law is similar to that required under federal law. Orr, 77 F.Supp.2d at 1211. Therefore, consultants vague state antitrust claims must also fail as a matter of law for want of standing.
B. Breach of Contract Claim
A federal court sitting in diversity jurisdiction applies the substantive law and the choice of law provisions of the forum state, which in this case is Kansas. Missouri P.R. Co. v. Kansas Gas Electric Co., 862 F.2d 796, 798 (10th Cir. 1988). When analyzing choice of law provisions with respect to contract construction, Kansas applies the rule of lex loci contractus (ie., the place of the making). Frasher v. Life Investors Ins. Co., 14 Kan. App. 2d 583, 586 (1990). The agreement was made in Kansas. The parties do not dispute, and the Court agrees, that Kansas contract law governs this claim.
The elements for a breach of contract claim are: 1) the existence of a contract between the parties; 2) consideration; 3) the plaintiff's performance or willingness to perform in compliance with the contract; 4) defendant's breach of the contract; and 5) that plaintiff was damaged by the breach. Britvic Soft Drinks, Ltd. v. ACSIS Techns., Inc., 265 F.Supp.2d. 1179, 1187 (D.Kan. 2003).
Consultants allege that manufacturers have breached a contract in two ways. First, manufacturers have not paid consultants for consulting services rendered after the termination of the November 15, 1999 agreement. (Countercl. at 15). Second, manufacturers have not paid the severance penalty for early termination of consultants's services. (Id. at 3, 4, and 15).
Consultants stated in the counter claim that there was an agreement with Bradbury Company Inc. which provided for a severance penalty to be paid in case of early termination. (Countercl. at 15). Consultants stated that the agreement was terminated early. (Id. at 13). Consultants deny that they were paid the severance penalty. (Id. at 4). This establishes a prima facie case for breach of contract. Clearly consultants would be entitled to relief if his facts are accepted as true; therefore, manufacturer's motion to dismiss the breach of contract counter claim against the Bradbury Company, Inc. is denied.
With respect to the second claim of breach of contract, consultants allege that Bradbury Company, Inc., engaged their services after the termination of the November 15, 1999 contract. (Id at 15). Consultants provided such services. (Id at 13). Consultants have not been paid for those services. (Id at 15). Accepting these allegations as true and drawing all reasonable inferences in favor of consultants, the Court finds that consultants have stated a claim upon which relief may be granted with respect to Bradbury Company, Inc. Murrell v. School Dist. No. 1, 186 F.3d 1238, 1244 (10th Cir. 1999) (Rules of Civil Procedure only require that the pleadings give a defendant notice of the claims against him).
Consultants allege a breach of contract against Chad and David Bradbury. Consultants state the following facts: 1) David served as the Chairman and CEO of Bradbury Company, Inc. and is a majority shareholder. (Countercl. at 7). 2) Chad was an officer of the Bradbury Company Inc. (Id.). 3) The November 15, 1999 agreement was terminated by David. (Countercl. at 13). 4) Manufacturers received consulting services for which they did not pay. (Id.). Even if consultants could prove these facts, they would not be entitled to any relief under Kansas law.
"The debts of a corporation are not the individual indebtedness of its stockholders, directors or officers. Speer v. Dighton Grain, Inc., 229 Kan. 272, 281 (10th Cir. 1981); See also Green v. De Voe Sales, Inc., 206 Kan. 238 (1970) (Generally corporate officers are not individually liable upon contracts); Abeles v. Cochran, 22 Kan. 405 (1879); K.S.A. § 17-7101 (No suit shall be brought against any officer for any debt of a corporation of which he is an officer, until judgment be obtained therefor against the corporation and execution thereon returned unsatisfied). The exceptions to the above rule include when the officer willfully participated in acts of fraud or deceit, the officer personally guarantees the contract, or the third person is unaware of the corporation's existence. See Hill Co. v. O'Malley, 15 Kan. App. 2d 709 (1991) Lentz Plumbing Co. v. Fee, 235 Kan. 266 (1984). Consultants do not allege that any exception applies; therefore, manufacturer's motion to dismiss the two claims of breach of contract against Chad Bradbury and David Bradbury is granted.
C. Inteference with Contractual/Business Relations
When analyzing choice of law provisions with respect to tortious conduct, Kansas applies the rule of lex loci delicti (ie., the situs of the injury). Ling v. Jan's Liquors, 237 Kan. 629, 634 (1985). The injury in this case is financial. ATC is a citizen of Georgia and GOI is incorporated in Georgia; therefore, the financial injury was felt in Georgia. St. Paul Furniture Mfg. Co. v. Bergman, 935 F.Supp. 1180, 1187 (D.Kan. 1996). The parties do not dispute that Georgia law governs this claim; therefore, the Court will apply Georgia law.
"Tortious interference with business relations is a distinct and separate tort from that of tortious interference with contractual relations, although some of the elements of the two torts are similar." Renden, Inc. v. Liberty Real Estate Ltd. Partnership, 213 Ga.App. 333, 334 (1994).
Georgia law states that tortious interference with contractual relations occurs when: 1) there is improper action or wrongful conduct by the defendant without privilege; 2) the defendant acted purposely and with malice with the intent to injure; 3) the defendant interfered with a third party's then existing contractual rights and relations; and 4) caused plaintiff financial injury. Britt/Paulk Ins. Agency v. Vandroff Ins. Agency, 952 F.Supp. 1575, 1583 (N.D.GA. 1996). The elements for tortious interference with business relations are the same except the third element does not require proof of a valid and enforceable contract. Id. To meet the third element, consultants must show that manufacturers induced a third party not to enter into or continue a business relationship with the plaintiff. Id.
Consultants allege the following facts in their amended counter claim:
1) The November 15, 1999 agreement contains no non-competition clause. (Countercl. ¶ 87).
2) Manufacturers have told current and prospective clients of consultants that consultants have violated a non-competition clause. (Id. ¶ 67).
3) These allegations damaged consultant's business. (Id. ¶ 89)
4) Consultants suffered financial harm. (Id. ¶ 90).
Manufacturers argue that the above allegations are conclusory and unsubstantiated because no third parties are named, no contract or business relation is identified and no interference is described.
"Rule 12(b)(6) motions may be granted only in the clearest of cases and must be denied when additional facts obviously are required before an ultimate judgment may be formed" Wrenn v. Kansas, 561 Kan. F.Supp. 1216, 1220 (D.Kan. 1983). Consultants have pled sufficient facts to give notice to manufacturers that a claim exists for interference with contractual relations and interference with business relations. Swierkiewicz v. Sorema N.A., 534 U.S. 506, 512 (2002). For example, the interference alleged was for telling current and prospective clients that consultants were bound by an alleged no compete agreement. The fact that these third parties are current or prospective clients indicates that these clients are either currently under contract for business or are possible clients. The third parties, while specifically unnamed, logically would be those competitors of the manufacturers. The Court will draw all reasonable inferences from the factual allegations in favor of the consultants; accordingly, manufacturer's motion to dismiss is denied. Scott v. Topeka Performing Arts Ctr., Inc., 69 F.Supp.2d 1325, 1327 (D.Kan. 1999); See also Arford v. Blalock, 199 Ga.App. 434, 441 (1991) (An officer of a corporation who takes part in the commission of a tort by the corporation is personally liable).
III. Defendant's Motion for Partial Summary Judgment
Defendants move for a partial summary judgment on plaintiff's claim of breaching an agreement not to compete. A short summary of the facts is as follows:
1. In May 1994, Bradbury Company and ATC and GOB made an agreement where defendants would provide services for plaintiffs. This agreement included a no-compete clause prohibiting defendants from engaging into any mission for a competitor of Bradbury Company for one year from the date of the last invoice. (Def's Ex A).
2. The July 14, 1995 letter from defendant to plaintiff terminated the 1994 agreement on July 31, 1995. Plaintiff contends that merely the specific work assignment in the agreement was terminated but that the contract (including the no-compete clause) survived. (Pl's Reply Br. at 10). Defendants state that the letter terminated the 1994 contract in its entirety. (Def's Br. ¶ 3).
3. On November 15, 1999 the parties entered into another agreement to perform specific work. This agreement does not have a no-compete clause.
4. The agreement was written on a Bradbury letterhead by the defendants. (Pl's Br. ¶ 7).
5. On December 23, 2000 Bradbury terminated the November 15, 1999 agreement effective February 28, 2001. (Pl's Br. ¶ 8). Defendant's factual allegations on paragraphs eight and nine are essentially uncontroverted although plaintiff speciously attempts to claim these facts are controverted. The parties are reminded that denials of factual contentions must be warranted on the evidence.
Fed.R.Civ.P. 11.
6. Plaintiff states additional facts in paragraphs 10-25. Defendants do not respond to these facts in the manner prescribed by local Rule 56(c). See D.Kan. Rule 56(c). This is the second time the Court has had to admonish defendant's counsel for failing to follow the local rules. (Doc. 48) (Mem. and Order Apr 21, 2004).
A. Standard
Summary judgment is proper if the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits show there is no genuine issue as to any material fact, and that the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). A principal objective of the summary judgment rule is to isolate and dispose of factually unsupported claims. Celotex Corp. v. Catrett, 477 U.S. 317, 323-324 (1986).
A fact is "material" if under the substantive law it is essential to the proper disposition of the claim." Wright ex rel. Trust Co. of Kansas v. Abbott Laboratories, Inc., 259 F.3d 1226, 1234-1232 (10th Cir. 2001) quoting Adler v. Wal-Mart Stores, 144 F.3d 664, 670 (10th Cir. 1998). "An issue is genuine if there is sufficient evidence on each side so that a rational trier of fact could resolve the issue either way." Adler, 144 F.3d at 670.
"The movant bears the initial burden of making a prima facie demonstration of the absence of a genuine issue of material fact and entitlement to judgment as a matter of law." Adler, 144 F.3d at 670; See Celotex, 477 U.S. at 323. The movant can do this by demonstrating a lack of evidence on an essential element of the nonmovant's claim. Adler, 144 F.3d at 670; See Celotex, 477 U.S. at 323. "If the movant carries this initial burden, the nonmovant that would bear the burden of persuasion at trial may not simply rest upon pleadings; the burden shifts to the nonmovant to go beyond the pleadings and `set forth specific facts' that would be admissible in evidence in the event of trial from which a rational trier of fact could find for the nonmovant." Thom v. Bristol-Myers Squibb Co., 353 F.3d 848, 851 (10th Cir. 2003) quoting Fed.R.Civ.P 56.
B. Analysis
The movants in this partial motion for summary judgment are the defendants. They have stated that there was an agreement in May 1994 and that the entire agreement was terminated on July 31, 1995 by a letter. (Def's Ex. B). They support these factual assertions with an affidavit and two exhibits (the 1994 contract and the letter showing its termination). If uncontroverted, these facts would defeat plaintiff's claim as the first element in a breach of contract claim is the existence of a contract. Britvic Soft Drinks, Ltd., 265 F.Supp.2d. at 1187.
The burden now shifts to the nonmovant to go beyond the pleadings and `set forth specific facts' that would be admissible in evidence in the event of trial from which a rational trier of fact could find for the nonmovant." Thom, 353 F.3d at 851 quoting Fed.R.Civ.P 56. The nonmovant is the plaintiff, Bradbury Company, Inc. Plaintiff disagrees with defendant's interpretation of the 1994 agreement and the 1995 termination letter. Plaintiff reads the 1995 termination letter as proof that the parties intended to maintain the obligation not to compete while ending the work in the 1994 assignment.
C. Did the no-compete clause in the 1994 contract survive the 1995 termination letter?
"A cardinal rule in the construction of contracts is to ascertain the intention of the parties and to give effect to that intention." Mobile Acres, Inc. v. Kurata, 211 Kan. 833, 838 (1973). Springer v. Litsey, 185 Kan. 531 (1959). "The construction of a written instrument is a question of law, and the instrument may be construed and its legal effect determined by an appellate court. Peterson v. Midland Nat'l Bank, 242 Kan. 266, 272 (1987).
The first source to resolve this issue is the 1994 contract itself. The relevant portion of which states:
"G.O.B. is bound not to engage into any mission for a competitor of BCO Industries, and this for a period of one year from the date of the last invoice.
. . .
We ambition this program to become permanent, with of course various adjustments and reorientation of missions and tasks, and of compensation terms accordingly." (Def's ex. A).
"Prior to a resort to extrinsic evidence, the instrument is to be interpreted from its `four corners'." First Nat'l Bank v. Clark, 226 Kan. 619, 624 (1979). The contract is silent regarding the intention of the parties to specifically make the no-compete clause a permanent part of the parties' future dealings. However, the clause stating it is expected that the program become permanent with future changes to the mission and pay is helpful but not determinative. "[W]here ambiguity or uncertainty of contract is involved in an agreement, the intention of the parties is not ascertained by resort to literal interpretation, but by considering all language employed, the circumstances existing when the agreement was made, the object sought to be attained, and other circumstances, if any, which tend to clarify the real intention of the parties." Universal Motor Fuels v. Johnston, 260 Kan. 58, 63 (1996).
The next source the Court will use to determine the intention of the parties is the 1995 termination letter. The parties disagree as to what exactly was terminated in the letter. (Def's ex. B). In relevant part the letter states:
1. "Larry . . . thought that the Bradbury Company's management must prove that it can stand on its own feet without any consultant's help."
2. "GO/B's present assignment will terminate on July 31st"
3. "Until then I will transfer contacts and data and will inform all our contacts by letter that our mission has come to an end and that all pending business should be pursued with Larry and Al."
4. "Since Bradbury is terminating the assignment, . . ."
5. "I am at your disposal whenever you wish to resume work on a case by case basis, my fees being then compensated either on time spent plus expenses or on a straight fee basis, or on a draw and commission basis"
6. "Keep in mind that I am bound to Bradbury by a no-compete agreement for one year from date of last invoice. Any one-time work you would give me would reactivate this no-compete agreement for one year."[emphasis added]
The termination letter clearly ends defendant's assignment; however, the parties disagree on the meaning of the word `assignment'. Defendants argue that the word assignment is a synonym for agreement or contract. Plaintiff argues that the word assignment describes the type of work.
Referring back to the 1994 contract, the word assignment is used to describe the type of labor and specific missions that defendants are being paid for. Looking at the language, there are three roman numerals in the 1994 agreement designating sections and only the first two section titles have the word `assignment' in it. This shows that the assignment is only part of a greater agreement; therefore, the word assignment as used by the parties is not a synonym for agreement or contract. See Kennedy v. Classic Designs, Inc. 239. Kan. 540, 543 (1986) (In construing a written instrument, language used anywhere in the instrument should be considered and construed in harmony with all provisions and not in isolation). Not only do the principles of contract construction support this conclusion but defendants' own statements do as well.
Defendants stated in the 1995 termination letter that any one time work would reactivate the no-compete agreement for one year. (Def's Ex. B). This written statement shows that the 1995 letter only terminated the assignment part of the 1994 agreement, leaving intact defendants' obligation to not compete. Indeed this illuminates the statement at the end of the 1994 contract that the overall program is expected to become permanent even with mission and pay adjustments.
Furthermore, "doubtful language in a contract is construed most strongly against the party preparing the instrument or employing the words concerning which doubt arises." First National Bank of Lawrence v. Methodist Home for the Aged, 181 Kan. 100, 104 (1957). Macke Laundy Serv. Ltd. Partnership v. Mission Assocs., 19 Kan. App. 2d 553, 556 (1994). It is undisputed that defendant drafted both the 1994 contract and the 1995 termination letter. (Def's Br. at 3 ¶ 1) (Pl's Br. at 5 ¶ 14).
"Where there is ambiguity in a written contract and extrinsic evidence is required to ascertain the intention of the parties, summary judgment should not be entered in the face of contradictory or conflicting evidence." Mobile Acres, Inc., 211 Kan. at 840.
D. The 1999 Agreement and a No Compete Clause
Defendants state that there was no non-compete agreement in the 1999 agreement. Plaintiff purports to controvert this fact by stating that defendant's obligation in the 1999 agreement not to disclose confidential information also functions as a no-compete covenant. The plaintiff provides no support for his theory. This circuit's case law shows that such an expansive reading of a non-disclosure agreement is disfavored. See Harvey Barnett, Inc. v. Shidler, 338 F.3d 1125, 1134 (10th Cir. 2003) (Confidentiality and non-disclosure agreements could not be characterized as restrictive covenants because they serve entirely different purposes than do agreements not to compete and must be analyzed on the basis of those distinct purposes alone). The November 15, 1999 agreement does not contain a no compete clause and this Court will "use common sense and not to strain to create an ambiguity in a written instrument when one does not exist." Allied Mut. Ins. Co. v. Moeder, 30 Kan.App.2d 729, 733 (2002). Plaintiff provides no other evidence to repudiate defendant's statement of fact in paragraph seven that there is no non-compete covenant in the written November 15, 1999 agreement; therefore, the Court will accept that as true.
However, plaintiff argues that the no compete clause from the 1994 agreement supplements the 1999 agreement and that the two documents should be read together.
"It is well settled in this jurisdiction that where two or more instruments are executed by the same parties contemporaneously, or even at different times in the course of the same transaction, and concern the same subject matter, they will be read and construed together so far as determining the respective rights and interests of the parties, although they do not in terms refer to each other." West v. Prairie State Bank, 200 Kan. 263, 267 (1968).
The 1994 and 1999 agreements were not between all of the same parties. The 1994 agreement was between Bradbury Company and Gean Overseas/Bossard (GOB). The parties to the 1999 agreement were Gean Overseas Inc. (GOI), Bradbury Company, American MRT and Hayes International. There are two additional parties and the name of the defendant's company is different. The 1999 agreement was executed five and half years after the 1994 agreement.
While in a general sense the two agreements concern the same subject matter (work), the scope and nature of the assignments are very different. The 1994 agreement was designed to assist Bradbury Company increase European business and establish a telemarketing and database system to improve contacts with Europe. (Def. ex. A). The 1999 agreement designated defendant ATC as Vice President of Strategic Marketing International Sales. (Def. ex. C). He was to participate as a Board member, participate in meetings with sales and engineering teams, and prepare memos and presentations to implement policy and provide advice regarding acquisitions. (Id.). The nature of the work described in the two agreements cannot be characterized as the same transaction.
This legal conclusion also comports with defendant's statement in the 1995 termination letter. Defendants stated that any one-time work would reactivate this no-compete agreement. The 1999 agreement contains detailed and varied work assignments for ATC which could hardly be characterized as one-time work. Therefore, it is not appropriate to supplement the 1999 agreement with the 1994 no compete clause.
E. Oral No Compete Agreement
In the alternative, plaintiff argues that the duty not to compete emanates from oral agreements. "[T]he terms of a written contract may be varied, modified, waived, annulled, or wholly set aside, by any subsequently executed contract, whether such subsequently executed contract be in writing or in parol." Todd v. Allen, 18 Kan. 543, 545 (1877).
Plaintiff relies on the Bradbury affidavit to support this proposition which states:
1. "In January 2000, Bradbury and the duCros Defendants modified the 1999 Agreement by subsequent agreement. They orally agreed that the duCros Defendants will not perform services for Bradbury's competitors without Bradbury's permission . . ." (Pl. ex. A ¶ 25).
2. "In the oral agreements, the duCros Defendants agreed that they will not perform services for Bradbury's competitors without Bradbury's permission. Bradbury agreed to purchase their consulting services. These agreements could be terminated at any time and could be performed within one year." (Id. ¶ 5). Plaintiff also relies on numerous exhibits from 1993-2001, all showing that defendants stated they had an obligation not to compete with Bradbury.
Defendants dispute that there was an oral agreement but state that even if there were such an agreement, oral no compete agreements are unenforceable. Defendants provide no case law to support their position; conversely, there is case law stating that oral no competes are not per se invalid. Fireworks Spectacular, Inc. v. Premier Pyrotechnics, Inc., 86 F.Supp.2d 1102 (D.Kan. 2000).
Defendant ASC also disputes that there was an oral agreement. ASC contends that Bradbury's letter warning ASC that defendants ATC and GOI are possibly violating confidentiality covenants did not mention a violation of a duty not to compete. (ASC ex. A ¶ 7). ASC argues that the failure to mention any duty not to compete is evidence that no such duty existed. This merely demonstrates that there is a genuine issue of material fact as to whether an oral no compete agreement existed.
In the alternative, defendant ASC contends that any oral contract made must fail for want of consideration. David Bradbury's affidavit, states "In January 2000, Bradbury and the duCros Defendants modified the 1999 Agreement by subsequent agreement. They orally agreed that duCros Defendants will not perform services for Bradbury's competitors without Bradbury's permission, and that the DuCros Defendants' role and compensation would be increased." (Pl. Ex. A ¶ 25). Plaintiff has gone beyond the pleadings to show consideration in the oral agreement not to compete; therefore, it is a genuine issue of material fact.
E(1). Statute of Frauds
Defendants then argue that any oral agreement between the parties is barred by statute of frauds because it could not be completed within one year. K.S.A. § 33-106. The oral agreement was made in January 2000; therefore, the agreement not to compete must have been completed by January 2001 to comply with the statue of frauds. In October 2001 defendants began working for plaintiff's competitors. (Pl. Mem. in Opp'n to Summ. J. ¶ 25). This is well outside the statute of frauds.
Plaintiff states that the oral agreement not to compete could be completed within a year; yet plaintiff fails to provide any details about how long the parties agreed that the no compete agreement would last. (Pl's ex A ¶ 5). This statement in the Bradbury affidavit is vague, unsupported and self serving. Plaintiff provides no other evidence to support his conclusory statement that the oral agreement not to compete could be completed within a year. This lone statement does not create a genuine issue of material fact as it is short of being significantly probative. Hall v. Bellmon, 935 F.2d 1106, 1111 (10th Cir. 1991) (Conclusory and self-serving affidavits not sufficient to withstand motion for summary judgment).
Plaintiff also asserts that there were other oral agreements made outside of the January 2000 oral modification of the 1999 contract; however, the statements supporting the existence of such oral agreements are even more vague. (Pl. Mem. in Opp'n to Motion for Sum. J. at 15-17). Plaintiff provides no dates as to when these other alleged oral contracts were made or how long the parties agreed they would last.
Even with a narrow construction of the statute of frauds and drawing all factual inferences in favor of the plaintiff, the Court cannot find a genuine issue of material fact. Augusta Bank Trust v. Broomfield, 231 Kan. 52, 59 (1982) (Kansas has adopted a narrow construction of the statue of frauds). Plaintiff's vague statements in the affidavit do not meet the burden required of a nonmoving party once the moving party has demonstrated an absence of proof on an essential element. Celotex, 477 U.S. at 322-323; See also Lujan v. National Wildlife Federation, 497 U.S. 871, 888 (1990) (In Rule 56 motion, a court must resolve factual issues in favor of non moving party only when facts specifically averred by that party contradict facts specifically averred by movant)[emphasis added]. The statute of frauds bars the enforcement of the oral agreements.
E(2) Promissory Estoppel
Plaintiff argues that the doctrine of promissory estoppel justifies enforcement of the oral agreement despite the statute of frauds. Kansas law permits the doctrine of promissory estoppel to enforce oral agreements in certain circumstances. Fireworks Spectacular, Inc. v. Premier Pyrotechnics, Inc., 147 F.Supp.2d 1057, 1064 (D.Kan. 2001); Bittel v. Farm Credit Servs., of Cent. Kan., P.C.A., 265 Kan. 651 (1998). The Kansas Supreme Court has stated that:
The doctrine of promissory estoppel may render enforceable any promise upon which the promisor intended, or should have known, that the promisee would act to his detriment, and which is indeed acted upon in such a manner by the promisee, where application of the statue of frauds to that promise would thus work a fraud or a gross injustice upon the promisee.
Before the doctrine of promissory estoppel can be invoked in a case involving the statute of frauds the promisee must first show by competent evidence that a valid and otherwise enforceable contract was entered into by the parties.
In order for the doctrine of promissory estoppel to be invoked the evidence must show that the promise was made under circumstances where the promisor intended and reasonably expected that the promise would be relied upon by the promisee and further that the promisee acted reasonably in relying upon the promise. Furthermore, the promissory estoppel should be applied only if a refusal to enforce it would be virtually to sanction the perpetration of fraud or would result in other injustice. Fireworks Spectacular, Inc., 147 Fsupp.2d at 1064 quoting Decatur Coop. Assoc. v. Urban, 547 P.2d 323, 329-330 (Kan. 1976) (citations and internal quotation marks omitted).
Plaintiff has provided evidence that the parties made an oral agreement in January 2000 and this agreement would be enforceable but for the statute of frauds. (Pl. Ex. A ¶ 25, A-7, A-9, A-10). Plaintiff argues that defendants expected plaintiff to rely on their promises not to compete; furthermore, plaintiff did rely on these promises as they entrusted defendants with confidential commercial information. (Pl. Mem in Opp'n to Summ. J. ¶ 13, Pl. ex. A ¶ 8). Plaintiff states it has been damaged by defendant's breach of their promise not to compete. (Pl. Mem. in Opp'n to Summ. J. ¶ 25, Pl. ex. A ¶ 28). Plaintiff's many exhibits show that defendants did continually make promises, orally and in writing, after January 2000 stating that they were bound by a non-compete agreement. (Pl. Ex. A-7, A-9, and A-10). The Court holds that there is a genuine issue of material fact regarding the enforceability of the oral agreement not to compete under the doctrine of promissory estoppel; therefore, summary judgment is not appropriate.
Therefore it is ORDERED that Counter Plaintiff's Motion to add additional parties (Doc. 53), as to Strilich Technologies, Inc.; American Machine Rollform Tech, Inc.; Marion Die Fixture; Hayes International; and Beck Automation; David Bradbury, inhis individualcapacity; and Chad Bradbury, in his individual capacity, be GRANTED, but be DENIED as to the Bradbury Group;
It is further ORDERED that Counter Defendant's Motion to Dismiss (Doc. 71) be GRANTED as to the anti-trust counter claim for Bradbury Company, Inc., Chad Bradbury and David Bradbury and as to the breach of contract counter claims for Chad Bradbury and David Bradbury, but DENIED as to the breach of contract counter claims for Bradbury Company, Inc., and tortious interference with business and contractual relations counterclaims for Bradbury Company, Inc., Chad Bradbury and David Bradbury; and
It is further ORDERED that Defendant's Motion for Partial Summary Judgment (Doc. 104) be DENIED.
SO ORDERED.