Opinion
Civil Action No. 02-2216-JAR
February 3, 2004
MEMORANDUM AND ORDER DENYING IN PART AND GRANTING IN PART MOTION FOR PARTIAL SUMMARY JUDGMENT
This matter comes before the Court on Defendant and Counterclaim Plaintiff, Air Products and Controls Inc.'s (Air Products) Motion for Partial Summary Judgment (Doc. 95) against Defendant SafeTech International, Inc. (SafeTech).
Air Products seeks summary judgment on Count one (breach of Non-Disclosure Agreement), Count two (breach of the Covenant Against Disclosure and Solicitation), Count three (tortious interference with SafeTech's business relations), and Count seven (permanent injunction to enjoin Air Products from contacting SafeTech's customers and from disclosing confidential information to third parties) of SafeTech's Complaint (Doc. 1); and on Count one (action on account), Count two (breach of February 11th contract), Count three (breach of Direct Invoicing Agreement), Count four (failure to pay for goods sold and delivered), Count five (unjust enrichment) and Count six (quantum meruit) of Air Products Second Amended Answer and Counterclaims (Doc 4). As set forth in more detail below, Air Products' motion is granted in part and denied in part.
I. Summary Judgment Standard
Summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law." The requirement of a "genuine" issue of fact means that the evidence is such that a reasonable jury could return a verdict for the nonmoving party. Essentially, the inquiry is "whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law."
See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).
Id. at 251-52.
The moving party bears the initial burden of demonstrating the absence of a genuine issue of material fact. This burden may be met by showing that there is a lack of evidence to support the nonmoving party's case. Once the moving party has properly supported its motion for summary judgment, the burden shifts to the nonmoving party to show that there is a genuine issue of material fact left for trial. "A party opposing a properly supported motion for summary judgment may not rest on mere allegations or denials of his pleading, but must set forth specific facts showing that there is a genuine issue for trial." Therefore, the mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment. The court must consider the record in the light most favorable to the nonmoving party.
See Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986).
See Anderson, 477 U.S. at 256.
Id.
See id.
See Bee v. Greaves, 744 F.2d 1387, 1396 (10th Cir. 1984), cert denied 469 U.S. 1214(1985).
The Court notes that summary judgment is not a "disfavored procedural shortcut"; rather, it is an important procedure "designed to secure the just, speedy and inexpensive determination of every action."
Celotex, 477 U.S. at 327 (quoting Fed.R.Civ.P. 1).
II. Statement of Uncontroverted Facts
The following facts are either uncontroverted or related in the light most favorable to SafeTech, the nonmoving party. This determination was complicated by SafeTech's insistence on responding to Air Products factual allegations, not with specific facts, but with legal assertions or conclusory statements. Further complicating the situation was the source of SafeTech's alleged factual allegations, all of which came from an affidavit authored by Gaylen Davenport (Davenport), SafeTech's own president and himself a Counterclaim Defendant. To survive summary judgment Davenport's affidavit "must be based upon personal knowledge and set forth facts that would be admissible in evidence; conclusory and self-serving affidavits are not sufficient." Rather than setting forth facts based on personal knowledge, the affidavit is littered with unsubstantiated statements and legal conclusions. The Court has disregarded all conclusory, self-serving so-called facts in its determination of the uncontroverted facts material to this Order.This case results from a dispute between Air Products, Safe Tech and Davenport concerning the sale of certain life safety products from Air Products to SafeTech and the business relationship between the parties. In 1993, SafeTech opened an account with Air Products to purchase Air Products' goods on credit, and has purchased goods on credit since that time.
On April 8, 1999, SafeTech and Air Products entered into a Covenant Against Disclosure and Solicitation ("Covenant") to prevent Air Products from encouraging Safe Tech's customers to buy goods directly from Air Products, rather than placing their orders through SafeTech. The Covenant also prohibited Air Products from using any confidential or proprietary information of SafeTech to its detriment or from disclosing the confidential information.
Subsequent to the Covenant, Air Products expressed an interest in acquiring SafeTech. In connection with the potential purchase of SafeTech, on December 26, 2000, the parties executed a Non-Disclosure Agreement ("Agreement"), which sought to protect SafeTech's confidential information and prohibited the use or disclosure of confidential information except in compliance with the Agreement. In particular, the Agreement protected information that was designated as "confidential information" and any information disclosed that related to the purpose of the Agreement, i.e., the investigation of Safe Tech by Air Products for a possible purchase.
During late 2001 and early 2002, SafeTech began to have problems staying current on its credit arrangement with Air Products. As a result, the parties entered into a letter agreement ("Contract") on February 11, 2002. The Contract provided a mechanism for SafeTech to return its debt to current terms. Specifically, the Contract provided:
Air Products will go forward with your proposal to collect payment directly from your customers as per your letter of February 8, 2002. Any collections to be made directly from your customers will be based on terms no more favorable than 2% 10 net 30. As per your plan, [Air Products] will ship product to SafeTech's customers and include a SafeTech packing slip. SafeTech will invoice these customers directly using the [Air Products] address for payment remittance. Copies of these invoices will be forwarded to [Air Products] for verification. [Air Products] will then collect payment directly from the end customer, and using a SafeTech endorsement stamp, directly deposit these checks into the [Air Products] account, applying a credit for the margin towards the SafeTech account balance. Copies of these checks will be forwarded to yourselves. This process will minimize the impact of our agreement for the end customer.
. . . .
If at any time your customers are delinquent with payment outside of the agreed terms, SafeTech will become responsible for satisfactory coverage of the outstanding amount.
Pursuant to the Contract, SafeTech was also to pay Air Products a minimum of $15,000 in excess of the value of the goods invoiced and paid for on a monthly basis, with $30,000 being due to Air Products by the end of March 2002.
Air Products began shipping goods to SafeTech according to the Contract, but SafeTech continued to have problems with its credit account with Air Products. On April 3, 2002, Jim Ludwig of Air Products contacted some of SafeTech's customers. At the time Air Products contacted SafeTech's customers, the Contract, Covenant and Agreement remained in effect. The purpose of the Air Products and Ludwig contacts was in part to collect payment on goods that Air Products had shipped directly to the customers.
SafeTech contends that Air Products also made such contacts to solicit business for itself and to direct business away from SafeTech, but has put forth no proof of such improper contacts, other than the Davenport affidavit, which the Court disregards for the reasons previously discussed.
SafeTech admits that the total amount currently owed to Air Products is between $196,000 and $206,000, but claims that payments to Air Products ceased because of violations of the Covenant, Agreement and Contract. As a result of those violations, SafeTech argues it is entitled to an offset.
III. Discussion
A. Breach of Non-Disclosure Agreement, Breach of Covenant Against Disclosure and Solicitation, and Tortious Interference with Business Relations Claims 1. Contract Interpretation and Right to Directly Contact SafeTech's Customers
Air Products seeks summary judgment on SafeTech's claims for breach of the Non-Disclosure Agreement (Count one), Breach of the Covenant Against Disclosure and Solicitation (Count two), and tortious interference with business relations (Count 3). Specifically, Air Products contends that the Feb. 11, 2002 Contract gave it the right to directly collect payment from Air Products' customers and therefore, it could not have breached the Agreement, or the Covenant, or tortiously interfered with SafeTech's business relations when it directly contacted SafeTech's customers.
Under Kansas law, the construction of a contract is a matter of law to be resolved by the court. The cardinal rule of contract interpretation is that the court must ascertain the parties' intention and give effect to that intention when legal principles so allow. Where a contract is complete and unambiguous on its face, the court must determine the intent of the parties from the four corners of the document, without regard to extrinsic or parol evidence. If the court determines that a contract is ambiguous, the question of intent of the parties becomes paramount and summary judgment is improper. "To be ambiguous, the contract must contain provisions or language of doubtful or conflicting meaning, as gleaned from a natural and reasonable interpretation of the language." Contractual ambiguity appears only when "the application of pertinent rules of interpretation to the face of the instrument leaves it genuinely uncertain which one of two or more meanings is the possible meaning." The court must not consider the disputed provision in isolation, but rather must construe the provision in light of the contract as a whole.
Hart v. Sprint Communications Co., 872 F. Supp. 848, 854 (D. Kan. 1994) (citing First Hays Bankshares, Inc. v. Kansas Bankers Sur. Co., 769 P.2d 1184 (Kan. 1989).
Kay-Cee Enter. v. Amoco Oil Co., 45 F. Supp.2d 840, 843 (D. Kan. 1999) (citing Hollenback v. Household Bank, 829 P.2d 903 (Kan. 1992))
Id (citing Smith v. Nat'l Farmers Org., Inc., 829 P.2d 884 (Kan. 1992).
Integrated Living Communities, Inc. v. Homestead Co., 106 F. Supp.2d 1141, 1143 (D. Kan. 2000).
Id.
Kay-Cee Enter., 45 F. Supp.2d at 843.
Id.
Air Products alleges the Contract unambiguously gives it the right to directly contact SafeTech's customers because such right is necessarily implied by the Contract's authorization to directly collect payment. To support its interpretation of the Contract, Air Products notes that the dictionary definition of collect as "to call for and obtain payment of" means that Air Products had the right to call customers to directly obtain payment.
SafeTech responds that the Contract only allowed for the direct collection of payment and that the procedure established by the Contract was specifically designed to keep Air Products from directly contacting SafeTech's customers. As SafeTech counters and Air Products recognizes, the procedure established in the Contract was to "minimize the impact of our agreement for the end customer." The procedure provided that Safe Tech, not Air Products, was to directly invoice SafeTech's customers. Customers would make payment in SafeTech's name, and then through the use of a Safe Tech endorsement stamp, the checks would be deposited into Air Products' account. Finally, the Contract provided that if payment was not made under the terms of the Contract, SafeTech, not Safe Tech's customers, must forward payment.
Arguably, the procedures contained in the Contract suggest that Air Products was not to directly contact Safe Tech's customers. Yet, Air Products claims the Contract unambiguously gave it the right to directly contact SafeTech's customers. The Contract interpretation sought by Air Products would result, at best, in a finding of ambiguity regarding which one of two meanings is the proper meaning making summary judgment improper. Consequently, Air Products' summary judgment motion for breach of the Non-Disclosure Agreement, breach of the Covenant not to Disclose, and tortious interference with business relations based on the contract interpretation is denied.
2. Safe Tech as Guarantor
D. Kan. Rule 7.1(b) governs motion practice in this Court and permits the parties to file a dispositive motion, a response to the motion, and a reply by the movant. In its reply to SafeTech's Memorandum Opposing Partial Summary Judgment, Air Products asserts, for the first time, that SafeTech was a guarantor, and as such, "had the first right to seek payment from the end customers before looking to SafeTech for payment." Air Products asserted a right to directly contact SafeTech's customers in its initial motion, but never contended that a guarantor agreement existed, making it impossible for SafeTech to respond to the claim of a guarantor agreement in SafeTech's response. The Court will not consider new arguments presented in a defendant's reply brief when that issue was not raised in the initial motion for summary judgment. Hence, the Court disregards SafeTech's guarantor argument. 3. Breach of Non-Disclosure Agreement and Confidential Information
See Thurston v. Page, 931 F. Supp. 765, 768 (D. Kan. 1996).
The Pretrial Order also fails to mention a guarantor agreement. It is settled that "[t]he pretrial order controls the subsequent course of the action, and the trial court need not consider any matter that is not embodied in it." Gardner v. Safeway Stores, Inc., 99 F.R.D. 258, 260 (D. Kan. 1983).
Air Products argues that it is entitled to summary judgment on the breach of the Non-Disclosure Agreement claim because SafeTech never designated any information as "confidential information" as required for protection under the Agreement, nor did SafeTech disclose any information which related to the purpose of the Agreement. The Agreement provides in pertinent part:
"Confidential Information" means information of an Owner [SafeTech] (a) which relates to the purpose and the subject matter identified in the recital to this Agreement, including computer programs, business and technical information, and data, or (b) which, although not related to such purpose or subject matter, is nevertheless disclosed hereunder, and which, in any case, is disclosed by an Owner or an affiliate to Recipient [Air Products] in document or other tangible form bearing an appropriate legend indicating its confidential or proprietary nature, or which, if initially disclosed orally or visually is identified as confidential at the time of disclosure and a written summary hereof, also marked with such a legend, is provided to Recipient within fifteen (15) days of the initial disclosure.
SafeTech argues that the Non-Disclosure Agreement only requires designation of information as confidential if the information does not relate to the purposes and subject matter identified in the Agreement. While SafeTech's argument regarding the interpretation of the contract may be correct, it is undisputed that SafeTech did not provide any information to Air Products that related to the purpose and subject matter of the Agreement. The Agreement was "for the purpose of exploring a possible purchase or sale of goods, services, license, other agreement or future business relationship for the distribution of systems and devices pertaining to alarm and communication systems." SafeTech admits that it "never provided any information to Air Products in connection with any potential sale of SafeTech to Air Products." Because SafeTech did not provide any information to Air Products pursuant to the Agreement, SafeTech has no legitimate claim against Air Products for breach of the Agreement and Air Products is entitled to summary judgment as a matter of law.
B. Permanent Injunction
Air Products seeks summary judgment on SafeTech's claim for permanent injunction (Count seven). To obtain a permanent injunction, the moving party must demonstrate an imminent threat of an irreparable injury, which outweighs the harm the injunction would cause the opposing party, and that the public interest is not harmed by the injunction. An injunction is appropriate only where future conduct is at issue. Moreover, the moving party must satisfy the court that relief is needed by showing some cognizable danger of recurrent violation, something more than the mere possibility which serves to keep the case alive.
Tyler v. Kansas Lottery, 14 F. Supp.2d 1220, 1223 (D. Kan. 1998).
Id.
Id.
Air Products contends that it has not engaged in any unlawful action that would subject it to an injunction. Furthermore, Air Products argues that SafeTech has offered no evidence that Air Products has continued to engage in unlawful conduct, nor has SafeTech shown how irreparable harm will result if the injunction is not issued.
SafeTech responds to Air Products' summary judgment motion by asserting that "merely reviewing the original complaint filed herein, which contains the proper allegations to frame the claim for equitable relief, and the pretrial order . . . shoots down this argument by Air Products." Apparently, SafeTech misunderstands its burden at the summary judgment stage. It "may not rest on mere allegations or denials of [its] pleading, but must set forth specific facts showing that there is a genuine issue for trial." Indeed, the only "fact" SafeTech provides in its response is that its President testified "at some length in his deposition taken by an attorney for Air Products about the damages SafeTech has suffered and continues to suffer." SafeTech, however, fails to direct the Court to the portion of Mr. Davenport's deposition in which he testified about such damage, in violation of D. Kan. Rule 56.1(b)(1), and the Court disregards the fact. Consequently, Air Products' summary judgement motion on SafeTech's claim for permanent injunction is granted.
See Anderson, 477 U.S. at 256.
Pursuant to D. Kan. R. 56.1(b)(1), a memorandum in opposition to a motion for summary judgment "shall refer with particularity to those portions of the record upon which the opposing party relies;" see Miller v. Pfizer, Inc., 196 F. Supp.2d 1095, 1098 n. 1 (D. Kan. 2002) ("Under D. Kan. Rule 56.1(a), those material facts which plaintiffs have failed to adequately controvert are deemed admitted for purposes of summary judgment.")
C. Action on Account, Breach of Contract, Breach of Direct Invoicing Agreement, Failure to Pay for Goods Sold and Delivered, Unjust Enrichment, and Quantum Meruit.
Air Products seeks summary judgment on Counts one through six of its Counterclaim, which "are all primarily based upon the uncontroverted evidence that SafeTech ordered goods from Air Products that Air Products shipped to SafeTech and its customers, but for which Air Products has not received payment from SafeTech or its customers." Because Air Products relies upon the same evidence to support each of its six claims, the Court will consider the claims together.
Action on Account (Count one), Breach of Contract (Count two), Breach of Direct Invoicing Agreement (Count three), Failure to Pay for Goods Sold and Delivered (Count four), Unjust Enrichment (Count five), and Quantum Meruit (Count six).
To support its motion for summary judgment, Air Products directs the Court to the Davenport deposition. After being presented with an itemized list of Air Products' invoice numbers, shipping dates, and the names of the entity to whom the product was shipped, and the outstanding amounts for each shipments, Davenport agreed in his deposition that SafeTech owes Air Products $200,000 or $201,000, "within say ten grand, 5,000 either way." However, Air Products never specifies in its Motion for Summary Judgment, what damage amount it is seeking, nor does it attach documentation showing what amount remains outstanding. Indeed, the only reference to damage by Air Products, who bears the burden of proving damages on each of its six counterclaims, is the range of $196,000 to $206,000, a range of $10,000. Even if the Court were to grant summary judgment for Air Products on any of its counts, it would be impossible for the Court to determine the amount Air Products is due, based on the record before it. Hence, Air Products' motion for summary judgment on counts one through six of its Counterclaim is denied.
IT IS THEREFORE ORDERED BY THE COURT that Defendant and Counterclaim Plaintiff's Motion for Summary Judgment (Doc. 95) on Count two for breach of the Covenant Against Disclosure and Solicitation and Count three for tortious interference with business relations of Plaintiff's Complaint shall be DENIED;
IT IS FURTHER ORDERED BY THE COURT that Defendant and Counterclaim Plaintiff's Motion for Summary Judgment on Count one for breach of the Non-Disclosure Agreement and Count seven for a permanent injunction of Plaintiff's Complaint shall be GRANTED;
IT IS FURTHER ORDERED BY THE COURT that Defendant and Counterclaim Plaintiff's Motion for Summary Judgment on Counts one through six, on Count one for Action on Account, Count two for Breach of Contract, Count three for Breach of Direct Invoicing Agreement, Count four for Failure to Pay for Goods Sold and Delivered, Count five for Unjust Enrichment, and Count six for Quantum Meruit of its Second Amended Answer and Counterclaims shall be DENIED.