Opinion
No. C 97-0197
May 7, 1999.
MEMORANDUM OPINION AND ORDER ON PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT ON DEFENDANT'S COUNTERCLAIMS ORDER
Before the Court is a motion for summary judgment by the Plaintiff, CRST Logistics Inc. ("CRSTL"). (Doc. 45.) CRSTL moves the Court to enter summary judgment on counterclaims filed by the Defendants, Todd Transportation, Inc., ("TTI") and Jerry Todd ("Todd"). CRSTL previously moved for summary judgment on the Defendants' counterclaims and the Court denied the motion in part, and granted it in part. (Doc. 31.) The Court now turns to the merits of the Defendants' remaining counterclaims: (1) intentional interference with the oral employment contracts and written non-compete contracts between TTI and its employees; (2) intentional interference with a prospective business advantage with the freight shippers and truck lines; and (3) breach of the contractual provision prohibiting CRSTL from using TTI's confidential information.
The Defendants counterclaimed under three separate legal theories. First, the Defendants' alleged that CRSTL tortiously interfered with the Defendants' contractual relationships with (1) the truck lines and shippers with whom the Defendants conducted business and (2) its employees. Second, the Defendants alleged that CRSTL intentionally interfered with the Defendants' prospective business advantages, again, with the truck lines and shippers. Third, the Defendants alleged that CRSTL breached a confidentiality provision in its contract with the Defendants by using confidential information beyond the extent necessary to perform the agreement. The Court granted CRSTL's motion on the tortious interference with the Defendant's contractual relationship with the truck lines and shippers claim in an order resolving the earlier summary judgment motion, but denied the motion on the tortious interference with the Defendants' contractual relationships with its employees. The Court also denied CRSTL's motion for summary judgment on the claims for intentional interference with a prospective business advantage and breach of contract. (Doc. 31.)
I. FACTUAL SUMMARY
In its prior Memorandum Opinion and Order, the Court thoroughly discussed the relevant factual events giving rise to the dispute. (Doc. 31.) Accordingly, the Court will only supplement that factual narrative in this Order. Because this is a motion for summary judgment, the facts will be viewed in a light most favorable to the nonmoving party, the Defendants. Montgomery v. John Deere Co., 169 F.3d 556, 559 (8th Cir. 1999).
The Defendants point out that CRSTL failed to include a statement of material facts as required by N.D. Ia. L. R. 56.1 when CRSTL moved for summary judgment. (Doc. 48, at 4.) The Defendants maintain that the Court should dismiss CRSTL's motion "on that basis alone." Id. The Court notes that CRSTL has submitted the requisite statement in the interim since the Defendants filed their reply, and L.R. 56.1 affords the Court the discretion to deny a motion for summary judgment filed without an accompanying statement of material facts. The Court will not deny CRSTL's motion on this basis.
Before CRSTL and TTI signed a contract to conduct business with each other, TTI was in the business of facilitating commercial relationships between freight shippers and truck lines. (Doc. 48, Ex. 1, Jerry Todd Dep., at 34-35 (Apr. 21, 1998) (hereinafter First Todd Dep.).) TTI assisted shippers and truck lines negotiate and draft the terms of contracts between the parties. ( Id. at 109-10.) As a transportation broker, TTI was not a party to the contracts between the freight shippers and the truck lines. TTI received compensation in the form of commissions for brokering the transactions between the parties. TTI maintains that the business relationships TTI has with various shippers and truck lines "are the lifeblood of TTI's business." (Doc. 48, at 5.)
On September 1, 1997, CRSTL and TTI entered into an Exclusive Agency Agreement ("the Agreement") in which TTI assisted CRSTL in acquiring contracts to haul freight for shippers. During the period CRSTL and TTI worked together, TTI employed approximately seventeen employees. First Todd Dep. at 58-60. The Defendants maintain that TTI and its employees operated under "handshake agreement" at will employment contracts and written non-compete agreements. (Doc. 48, Ex. B, Jerry Todd Dep., at 10-11 (Feb. 18, 1999) (hereinafter Second Todd Dep.).)
The Agreement governed the rights and responsibilities of CRSTL and TTI. (Doc. 48, Ex. 3, ¶ 12.)
The Defendants allege that when the business association between TTI and CRSTL soured, Larry Berry, a CRSTL vice president, threatened several TTI employees with criminal and civil liability. Todd testified that Berry told several TTI employees that if they did not leave TTI to work for CRSTL, they would be subject to criminal penalties and would be liable for lawsuits brought against TTI. (First Todd Dep., at 26, 62-64.) TTI alleges that several TTI employees subsequently left TTI and began work for CRSTL. (First Todd Dep., at 65.)
The Defendants also counterclaimed for intentional interference with a prospective business advantage. The Defendants allege that CRSTL became aware of TTI's business associations with numerous truck lines and shippers (for example, St. Louis Cold Drawn, Northwestern Steel, Huntco Steel) by accessing TTI's confidential lists of clients. CRSTL then allegedly converted the business associations TTI had cultivated to CRSTL's own use.
Finally, TTI has counterclaimed for breach of contract. The Defendants assert that Berry was present in TTI's office where it kept much of the company's confidential information, including the non-compete agreements, financial records, contracts, and shipper/truck line lists, and the non-compete agreements disappeared at the conclusion of the CRSTL-TTI relationship. TTI apparently alleges that Berry was responsible for the disappearance, and this disappearance constitutes a breach of the confidential information provision in the Agreement. TTI alleges that it has suffered damages as a result of CRSTL's actions.
II. ANALYSIS
Summary judgment is appropriate if the record shows that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law. Berryhill v. Schriro, 137 F.3d 1073, 1075 (8th Cir. 1998) (citing Fed.R.Civ.P. 56(c)). The Agreement contains a valid choice of law clause, and the parties agree that Iowa contract law governs the case. Accordingly, the Court will apply Iowa law. Amana Refrigeration, Inc. v. Pidgeon's Furniture Appliance Stores, Inc., 883 F.2d 657, 658 (8th Cir. 1989).
CRSTL has based its motion for summary judgment on two points. First, CRSTL asserts that ¶ 10 of the Agreement precludes TTI from successfully pursuing any of its remaining counterclaims because the clause bars claims for consequential damages. Second, CRSTL asserts that the Defendants have failed to offer substantial evidence that CRSTL intentionally interfered with TTI's contracts with its employees and thus, no genuine issue of material fact exists for trial as to that counterclaim.
A. Paragraph 10
Paragraph 10 provides in full:
Disclaimer of Consequential Damages. In no event, regardless of the form of action or type of claim asserted, whether in contract, tort or otherwise, shall either party be liable for any indirect, consequential, incidental or exemplary damages, regardless of whether it has been advised of the possibility of such damages. In addition, neither party shall be liable to the other because of termination of this Agreement for compensation, reimbursement or damages for the loss of prospective profits or anticipated sales on account of any expenditures, investments, or commitments made by either party in connection with the business or good will of either party or for any other reason whatsoever based upon or growing out of such termination.
(Doc. 48, Ex. 3, ¶ 10.) CRSTL maintains that ¶ 10 precludes the Defendant's recovery of damages via any of its counterclaims because the Defendants have only sued for consequential damages. (Doc. 46, at 7.)
The Defendants insist that they do not seek indirect, consequential, incidental, or exemplary damages in their claims for interference with prospective business relations, interference with employment contractual relations, and breach of contract (for failure to maintain the confidentiality provision of the Agreement). To the contrary, the Defendants maintain that they have suffered direct damages, and ¶ 10 does not preclude recovery of direct damages. Further, the Defendant's maintain that since their claims do not arise from the Agreement, ¶ 10 does not apply to their counterclaims.
In Iowa, parties may contract and provide remedies on their own terms so long as the remedies are not contrary to public policy. Red Giant Oil Co. v. Lawlor, 528 N.W.2d 524, 534 (Iowa 1995). For example, parties to a contract may exclude consequential damages from one party's potential recovery in the event of a breach. Bruce v. ICI Americas, Inc., 933 F. Supp. 781, 790 (S.D. Ia. 1996). Courts will also enforce contracts which exempt parties from liability for their own negligence. Advance Elevator Co. v. Four State Supply, 572 N.W.2d 186, 188 (Iowa App. 1997); Manning v. Int'l Harvester Co., 381 N.W.2d 376, 379 (Iowa App. 1985).
However, a contractual term exempting a party from tort liability for harm caused intentionally is unenforceable on grounds of public policy. Restatement (Second) of Contracts § 195 (1981) ("A term exempting a party from tort liability for harm caused intentionally or recklessly is unenforceable on grounds of public policy."); W. Page Keeton et al., Prosser Keeton on the Law of Torts § 68, at 482 (1984) ("such agreements are generally not construed to cover the more extreme forms of negligence, described as willful, wanton, reckless or gross . . ."); 6A Corbin Contracts § 1472, 596-597 (1962) (an exemption from liability for harm caused "is always invalid if it applies to harm willfully inflicted . . ."). In this case, the contract between CRSTL and the Defendants precludes the recovery of indirect, consequential, incidental, or exemplary damages regardless of whether the party seeks recovery in tort or contract. Iowa Courts will enforce this type of agreement. See Bruce, 933 F. Supp. at 790. CRSTL asserts that ¶ 10 bars all three of the Defendants' remaining counterclaims because the Defendants' Amended Answer states that they seek "the loss of business and revenues." (Doc. 37, Amended Answer, 11-12.) CRSTL maintains that by defining their damages as "the loss of business and revenues" in each of its counterclaims, the Defendants have taken their claim within the scope of ¶ 10 and its prohibition on consequential damages. Consistent with this interpretation, CRSTL asserts that ¶ 10 bars the Defendants' counterclaims, and the Court should grant its motion for summary judgment.
While the Court has been unable to find any Iowa case supporting this proposition, Iowa has explicitly adopted other sections of the Restatement (Second) of Contracts (1981). Anderson v. Douglas Lomason Co., 540 N.W.2d 277, 283 (Iowa 1995).
Black's Law Dictionary defines the damage in the following way: Consequential damages. Such damage, loss or injury as does not flow directly or immediately from the act of the party, but only from some of the consequences or results of such act. . . . Those losses or injuries which are a result of an act but are not direct and immediate. Incidental damages. [E]xpenses incident to delay or other breach. Exemplary damages. Damages on an increased scale, awarded to the plaintiff over an above what will barely compensate him for his property loss, where the wrong done to him was aggravated by circumstances of violence, oppression, malice . . ." Exemplary damages are also called punitive damages. Black's Law Dictionary 270-72 (6th ed. 1991)
The Defendants' measure of damage, "the loss of business and revenues," falls squarely within the definition of consequential damages. Accordingly, it would appear at first glance that ¶ 10 precludes the three counterclaims. However, two of the Defendants' three counterclaims are for intentional torts: intentional interference with a contract and intentional interference with a prospective business advantage. A contract that exempts a party from liability for intentional torts is unenforceable for public policy reasons. See Restatement (Second) of Contracts § 195; Keeton et al., § 68; Corbin on Contracts § 1472, supra. Accordingly, ¶ 10 does not bar the Defendants' intentional tort counterclaims.
Next, the Court must determine whether ¶ 10 bars TTI's counterclaim that CRSTL breached the Agreement by improperly using TTI's confidential information. TTI contends that ¶ 10 does not apply in this case, and the Court should deny CRSTL's motion for summary judgment on the breach of contract counterclaim because the breach of contract counterclaim did not arise from termination of the Agreement. TTI is trying to apply the second sentence of ¶ 10, but they ignore the first sentence. The first sentence of ¶ 10 does not require that the counterclaim arise from the Agreement. The first sentence of ¶ 10 plainly precludes consequential damages "regardless of the action or type of claim asserted . . ." In light of the plain language of ¶ 10 and the fact that TTI seeks only the loss of business and revenue in their breach of contract claim (Doc. 37, 12.), CRSTL's motion for summary judgment on the Defendant's breach of contract counterclaim for "loss of business and revenue" is granted.
Todd is not a party to the contract so he cannot maintain a viable counterclaim for breach of contract. Accordingly, Todd's counterclaim for breach of contract is dismissed.
B. Intentional Interference with TTI's Employment Contracts
CRSTL has also moved for summary judgment on the Defendants' counterclaim that CRSTL intentionally interfered with the at will oral employment contracts and written non-compete contracts between TTI and its employees for an additional reason. CRSTL maintains that the defendants have failed to generate a genuine factual issue for trial on the question of whether CRSTL intentionally interfered with the employment contracts.
The Defendants must prove all of the following propositions in order to successfully maintain a claim for intentional interference with a contract: (1) the Defendants had contracts with its employees; (2) CRSTL knew of the contracts; (3) CRSTL intentionally and improperly interfered with the contracts; (4) the interference caused TTI's employees not to perform the contracts; and (5) the amount of damage caused by the improper interference. Nesler v. Fischer Co., 452 N.W.2d 191 (Iowa 1990); Iowa Civil Jury Instruction 1200.1 (1987). CRSTL maintains that the Defendants' claim fails because they have failed to adduce substantial evidence on the third requirement, improper interference.
Todd testified that three TTI employees (Tom Baker, Tammy Hall, and Lynn Metz) left TTI and broke their at will oral employment contracts and written non-compete contracts at the urging of CRSTL Vice President Berry. Second Todd Dep. at 7-9. However, he also stated at the deposition that he "did not know" the reason that the three employees left TTI. Id. at 8-10. Additionally, Todd stated in first deposition that his knowledge of CRSTL's interference with TTI's employment contracts was premised on statements made to him by TTI employees. First Todd Dep. at 63-64. Todd's assertions in his two depositions are the sole evidence the Defendants have offered in resistance to CRSTL's motion for summary judgment. The Defendants have not offered any evidence from TTI's employees about what they heard Berry say that supports their counterclaim.
In support of its motion, CRSTL has submitted affidavits from Baker, Hall, and Metz that each explain that CRSTL did not influence their decision to leave TTI. All three employees stated that they left TTI for reasons unrelated to CRSTL and Berry. (Doc. 47, Ex. 2-4.) CRSTL has also pointed out the conflicting testimony Todd's offered in his depositions: Initially, Todd stated that CRSTL improperly caused several employees to leave TTI, then later in the deposition, he stated that he did not know why the employees left TTI. Finally, Todd lacks personal knowledge (or, at best, Todd's knowledge was based on inadmissible hearsay) of actual improper interference by CRSTL. See Love v. Commerce Bank, 37 F.3d 1295, 1296 (8th Cir. 1994) (holding summary judgment proper because plaintiff's affidavit was not based on personal knowledge or, at best, inadmissible hearsay). In light of these facts, the Court finds that Todd's bare assertions that Berry improperly interfered with TTI's contracts with its employees do not rise to the level of substantial evidence, and thus fail to generate a genuine issue for trial. Accordingly, summary judgment is granted on the Defendant's counterclaim for intentional interference with TTI's employment contracts.
ORDER
For the foregoing reasons, CRSTL's motion for summary judgment on TTI's counterclaim for intentional interference with a prospective business advantage is DENIED.
CRSTL's motion for summary judgment on intentional interference with TTI's at will oral employment contracts is GRANTED.
CRSTL's motion for breach of the contractual provision prohibiting CRSTL from using TTI's confidential information is GRANTED.