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entertaining an action for breach of a non-solicitation agreement against an independent contractor, but declining to find a breach of the agreement on the particular facts of the case
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No. 5-667 / 05-0073
Filed November 9, 2005
Appeal from the Iowa District Court for Polk County, Robert J. Blink, Judge.
Farm Bureau Mutual Insurance Company and Farm Bureau Life Insurance Company appeal from adverse rulings of the district court. AFFIRMED.
Jason T. Madden of Bradshaw, Fowler, Proctor Fairgrove, P.C., Des Moines, and James A. Pugh of Morain Pugh, P.L.C., Des Moines, for appellant.
Andrew B. Howie of Hudson, Mallaney Shindler, P.C., West Des Moines, for appellee.
Considered by Sackett, C.J., and Hecht and Vaitheswaran, JJ.
Farm Bureau Mutual Insurance Company and Farm Bureau Life Insurance Company (jointly "Farm Bureau") appeal from adverse rulings of the district court. We affirm.
I. Background Facts and Proceedings.
Greg Osby began selling insurance for Farm Bureau as an independent contractor in 1987. In January of 2002, Osby entered into two Farm Bureau Career Agent contracts each containing a non-solicitation clause which stated:
[U]pon the termination of this [Contract], [Osby] will not solicit insurance or initiate replacements or exchanges of any type from any person who is a policyholder of [Farm Bureau] within any County in which [Osby] sold or serviced any products pursuant to this Contract. If Career Agent violates this provision, commission already paid on earned premium on all policies will be due and payable to [Farm Bureau] . . . This provision will be enforceable for a period of one year following the termination of this Contract.
(Emphasis supplied).
In June of 2003, Farm Bureau notified Osby that new contracts would be issued to all career agents. The new contracts contained a modified non-solicitation clause that would require a terminating agent to "neither sell nor solicit insurance" to a Farm Bureau customer for one year following the termination. Osby refused to sign the modified contract and on June 30, 2003, Osby informed Farm Bureau that he was terminating his contracts with them. On July 1, 2003, Osby began selling insurance for American National Property Casualty Company (American).
Soon after forming his new agency relationship with American, Osby began an advertising campaign which included (1) newspaper advertisements, (2) notices in movie theatres and in coupon books, (3) a website, and (4) mass postal mailings. Each advertisement informed potential customers of Osby's name, address, and affiliation with American. The advertisements also made reference to various incentive programs designed to induce potential insureds to purchase American's insurance policies.
During the one year period following Osby's termination, Farm Bureau discovered that several policyholders had, with Osby's help, canceled their Farm Bureau policies and purchased new policies through American. Farm Bureau sued Osby alleging he breached the contract by soliciting business from Farm Bureau policyholders. Farm Bureau's petition sought to enforce the non-solicitation clause by (1) enjoining Osby from sales of insurance to Farm Bureau customers for the remainder of the non-solicitation period, and (2) recouping commissions in the amount of $10,253.64 allegedly earned by Osby on the sales of insurance policies to Farm Bureau insureds during the one-year non-solicitation period.
Osby filed a counterclaim against Farm Bureau alleging Farm Bureau breached the contract by withholding commissions in the amount of $10,143.42 earned by Osby during the last ten days of his agency with Farm Bureau.
On January 21, 2004, the district court held a hearing on Farm Bureau's motion for a temporary injunction. While noting that additional discovery might support Farm Bureau's claim for lost profit damages under the non-solicitation clause, the court reasoned that Farm Bureau's attempt to equate the word "solicit" with activities constituting a simple sale of insurance was "tenuous at best." In denying the motion for a temporary injunction, the court concluded Farm Bureau had not met its burden to demonstrate a likelihood of success on the merits of their breach of contract claim.
On October 25, 2004, trial was held on the contract claims of both parties. Osby admitted he had engaged in certain advertising conduct alleged by Farm Bureau, but he claimed the advertisements were directed at the general public. He specifically denied that his advertisements were targeted at Farm Bureau policyholders with whom he had a prior relationship. Osby testified that his understanding of the non-solicitation clause would not prohibit him from simply selling a policy to replace an existing Farm Bureau policy so long as the Farm Bureau policyholder initiated contact with him.
Osby's understanding of the non-solicitation clause is evidenced by his practice during the non-solicitation period of having all potential customers sign a form attesting to the fact they were not currently a Farm Bureau policyholder, or if they were, that Osby had not initiated contact with them.
In support of his counterclaim for unpaid commissions accruing during the last 10 days of his agency with Farm Bureau, Osby testified that his damages could be calculated by multiplying the total premiums received by Farm Bureau during that period on policies previously sold by Osby by his average commission rate. When this formula is employed using the total relevant premiums revealed by Farm Bureau's discovery responses, the value of Osby's counterclaim would be limited to $4,169.60. However, Osby testified that the documents provided by Farm Bureau failed to disclose additional premiums the company would have received during the relevant ten-day period on other policies Osby had sold for Farm Bureau. Based on his commission statements generated in previous months, Osby claimed he was entitled to an additional $5,973.72 in unpaid commission on premiums received but not disclosed by Farm Bureau.
The district court noted the Career Agent contracts Osby signed did not define the term "solicit." Using the common definition of that term to evaluate Osby's conduct during the non-solicitation period, the district court concluded proof of "solicitation" required evidence of "active conduct by [Osby] — affirmative conduct directed at a specific individual." Because Osby's advertising conduct was directed at the public in general rather than Farm Bureau customers in particular, the district court found Osby did not breach the non-solicitation clause, and dismissed Farm Bureau's petition. The district court further found that Farm Bureau had breached the contract by withholding commissions earned by Osby. While noting `[t]he record is not completely clear as to the exact manner by which any commission percentage of sales was calculated," the court found Osby was entitled to judgment against Farm Bureau on the counterclaim in the amount of $10,143.43.
Farm Bureau appeals, contending the district court erred in (1) failing to find Osby's conduct after its customers made initial contact with Osby constituted solicitations of Farm Bureau insureds, and (2) finding Osby met his burden to prove his counterclaim for unpaid commissions.
II. Scope and Standard of Review.
We review the breach of contract claims raised in this appeal for correction of errors at law. Iowa R. App. P. 6.4; Land O'Lakes, Inc. v. Hanig, 610 N.W.2d 518, 522 (Iowa 2000). We will uphold the ruling of the district court if it is supported by substantial evidence. Hanig, 610 N.W.2d at 522. Evidence is substantial when a reasonable mind would accept it as adequate to reach a conclusion. Falczynski v. Amoco Oil Co., 533 N.W.2d 226, 230 (Iowa 1995).
III. Discussion.
A. Farm Bureau's Contract Claim.
Osby breached the contract with Farm Bureau if his conduct constituted solicitation of insurance. As the district court aptly noted, the parties failed to specify within the contract the types of conduct the non-solicitation clause was intended to prohibit. When a term is left undefined in a contract, we give the undefined term the ordinary meaning a reasonable person would attach to it. American Family Mut. Ins. Co. v. Petersen, 679 N.W.2d 571, 577 (Iowa 2004). Where a term used in a written contract is susceptible to two reasonable interpretations, we resolve the ambiguity against the drafter. Village Supply Co., Inc. v. Iowa Fund, Inc., 312 N.W.2d 551, 555 (Iowa 1981); see also Fashion Fabrics of Iowa, Inc. v. Retail Investors Corp., 266 N.W.2d 22, 27 (Iowa 1978) (indicating that doubtful language in a written instrument will be construed against the party which selected it).
We acknowledge that contract provisions restricting a party's right to engage in future competition following the breakdown of the contractual relationship may be enforceable if the restrictions are confined within appropriate parameters. Dental Prosthetic Serv. v. Hurst, 463 N.W.2d 36, 38 (Iowa 1990). While we do not believe the non-solicitation clause employed in these contracts is so restrictive as to render it unenforceable, because the clause restrains trade we must strictly and narrowly confine its application to the conduct explicitly restricted. See, e.g., Uptown Food Store, Inc. v. Ginsberg, 255 Iowa 462, 467, 123 N.W.2d 59, 62 (Iowa 1963) (stating that contracts in restraint of trade must be narrowly interpreted). We therefore must determine whether the term "solicit" was intended by the parties to prohibit Osby from (1) advertising his services to the general public, and (2) engaging in the sale of insurance to Farm Bureau insureds.
After applying these principles in this case, we conclude the district court correctly found Osby did not "solicit" Farm Bureau insureds by advertising his services and American's insurance products in the newspaper, movie theatres, coupon books, and business cards. We first note that Webster's New Collegiate Dictionary 1106 (7th ed. 1976) defines "solicit" as follows: "to make petition, entreat; to approach with a request or plea; to try to obtain by urgent requests or pleas." Thus, the common usage of the term "solicit" implies active conduct on the part of the solicitor directed at a specific target audience. When the non-solicitation clause in the contract is read in light of the common usage of the term "solicit," we do not believe the parties intended their contract to effectively prohibit Osby from broadly disseminated advertisements designed to reach the public in general for one year after his separation from Farm Bureau. A contrary interpretation of the contract would effectively prohibit Osby from all meaningful attempts to advertise his insurance sales business, and would, in our view, untenably broaden the restraint on trade expressly agreed to by the parties. Hurst, 463 N.W.2d at 38.
However, Farm Bureau contends Osby breached the solicitation clause of the contract not merely by broadly advertising American's insurance products, but also by selling insurance to existing Farm Bureau insureds. In particular, Farm Bureau points out that Osby prepared appropriate forms for replacement of Farm Bureau policies and provided advice, explanations, and information while "working in concert with each [Farm Bureau] policyholder throughout the replacement process." While it is undisputed that Osby engaged in conduct that would clearly constitute the sale of insurance, we conclude the contract drafted by Farm Bureau did not preclude Osby from selling to Farm Bureau insureds who contacted Osby and offered to purchase insurance coverage. Instead of choosing contract terms proscribing a wider range of conduct by Osby, Farm Bureau bargained only to preclude Osby from soliciting which, as we concluded above, forbade only insurance activities initiated by Osby with Farm Bureau insureds. Our conclusion that the parties distinguished between the terms "sell" and "solicit" is evidenced by the fact that Farm Bureau requested Osby to execute a new agreement that would have expressly precluded Osby from selling insurance to existing Farm Bureau insureds for one year after his separation. As noted above, Osby refused to sign the proposed agreement.
The non-compete clause at issue in Hurst restricted the terminating employee's right to "enter into or engage in any business similar to the type of business conducted by employer." Hurst, 463 N.W.2d at 38 (emphasis supplied). A similarly broad restrictive covenant is not found in the contract that is the subject of this case.
We therefore conclude the contract clause prohibiting Osby's solicitation of Farm Bureau insureds should not be interpreted broadly to preclude his sale of insurance to Farm Bureau customers who initiated insurance replacements through Osby. The district court correctly concluded Osby did not violate the non-solicitation clause, and we therefore affirm the dismissal of Farm Bureau's petition.
B. Osby's Contract Claim.
A claim for contract damages must fail if the proof of such damages is speculative and uncertain. Patterson v. Patterson, 189 N.W.2d 601, 605 (Iowa 1971). Here, the Farm Bureau Career Agent contracts amply evidenced Farm Bureau's agreement to pay Osby a commission upon receipt of premiums paid by insureds on policies sold by Osby. Osby offered substantial evidence tending to prove that Farm Bureau received some amount of premium payments from such insureds during the relevant 10-day period and that Farm Bureau failed to pay commissions on some of those premiums. We therefore conclude Osby's proof that he sustained some amount of damages was neither speculative nor uncertain.
Where it is asserted that "uncertainty lies only in the amount of damages, recovery may be had if there is a reasonable basis in the evidence from which the amount can be inferred or approximated." Montgomery Prop. Corp. v. Economy Forms Corp., 305 N.W.2d 470, 478 (Iowa 1981). We conclude such a reasonable basis in the evidence exists to sustain the district court's approximation of the amount of damages sustained by Osby. Osby relied upon his prior Farm Bureau commission statements to estimate the amount of commission owing on certain Farm Bureau policies he sold which were not disclosed by Farm Bureau in the discovery phase of this case. Those commission statements showed Osby as the selling agent on those policies. In the absence of evidence that the policies in question lapsed or were amended, Osby testified that Farm Bureau continued during the relevant ten-day period to receive premiums upon which it owed commissions calculated at the rate previously paid by Farm Bureau on the same policies. We believe the district court's reliance upon Osby's prior commission statements to determine the amount of commissions Farm Bureau owed for the relevant ten-day period was reasonable under the circumstances of this case.
We likewise find no error in the district court's use of Osby's average commission rate to calculate damages in this case. Osby testified that while his commission rate fluctuated depending on the type of insurance policy sold, the average commission rate he used to calculate these damages was on the low end of the range of rates he regularly received, and thus was a reasonable factor from which to calculate the damages sustained in this case. Accordingly, we affirm the district court's ruling on the counterclaim.