Opinion
No. 3-209 / 02-0602.
Filed June 25, 2003.
Appeal from the Iowa District Court for Story County, William J. Pattinson, Judge.
Mark Meyer appeals the district court decision for plaintiffs in this suit involving a covenant not to compete. AFFIRMED.
William Koehn, Deborah Tharnish, and Behnaz Soulati of Davis, Brown, Koehn, Shors Roberts, P.C., Des Moines, for appellant.
L.W. Rosebrook and Brian Humke of Nyemaster, Goode, Voigts, West, Hansell O'Brien, P.C., Des Moines, for appellee.
Heard by Sackett, C.J., and Huitink and Vogel, JJ.
Mark Meyer appeals the district court decision for plaintiffs in this suit involving a covenant not to compete. He claims the district court erred by: (1) finding there had been a breach of the covenant not to compete; (2) denying his counterclaim; and (3) awarding attorney fees to plaintiffs. We affirm.
I. Background Facts and Proceedings
Meyer was formerly employed by AMPC, Inc., a company which markets, researches, and develops products principally derived from blood proteins, especially plasma. Meyer was a salesperson with the company and eventually became the president of European operations. In 1994, and again in 1997, Meyer signed a covenant not to compete which prohibited him from competing against AMPC for a period of five years after he left employment with the company. Meyer was prohibited from marketing "the same or similar types of products or services rendered by AMPC or its Affiliates . . . ."
AMPC, Inc. and AMP Company, Inc. are subsidiaries of The Lauridsen Group, Inc. We will refer to all of these companies together as AMPC.
In March 1999 Meyer resigned. Although under the employment contract AMPC was not required to pay Meyer severance payments, it agreed to pay him a total of $281,000 in bimonthly installments over a period of three years, with the understanding that Meyer's covenants not to compete would be recognized to be in full force.
Meyer created a company called Mg Biologics, Inc., which collected plasma from a closed herd of hyper-immunized horses. The plasma is frozen then sold to treat equine diseases. The plasma is also used to treat failure of passive transfer of antibodies in newborn foals. The plasma is high in antibodies and will help protect a foal suffering from failure of passive transfer against diseases. The plasma can be administered orally or intravenously. In addition, Meyer advertises the plasma as promoting enteric health in older horses.
Hyper-immunization involves injecting animals with various pathogens to create high levels of resulting antibodies in the animal's bloodstream.
After an animal is born, the mother's first milk is termed colostrum, and it contains antibodies necessary to fight diseases. The newborn animal's intestines will only pass the antibodies into the bloodstream in the first twenty-four hours. After that time the antibodies will not pass into the bloodstream, and this is termed "gut closure." If for some reason the animal does not receive colostrum in the first twenty-four hours, the animal is left without any natural immunity to disease, and this is referred to as "failure of passive transfer."
AMPC learned about Meyer's new business from an article in The Des Moines Register on August 6, 2000. AMPC became concerned because it sold a product called "Lifeline Calf," which can be used to treat failure of passive transfer in calves and foals. AMPC collects blood from cattle and swine at the slaughterhouse then dries the plasma, which retains disease-fighting antibodies. AMPC's dried plasma product can successfully treat failure of passive transfer if given orally within an animal's first twenty-four hours of life. Lifeline can also be used to promote enteric health in older cattle and horses. Due to its belief Meyer breached the covenant not to compete, AMPC quit paying Meyer the scheduled severance payments.
There was evidence of market resistance to the use of Lifeline Calf, which was made from cattle plasma, to treat horses. Nonetheless, tests showed the product was effective to treat foals, as well as calves.
AMPC filed suit against Meyer alleging breach of the covenant not to compete and sought an injunction. Meyer counterclaimed, alleging breach of the severance agreement and failure to pay wages under Iowa Code chapter 91A (1999). The case was tried to the district court. The court determined Meyer breached the noncompetition provision of his employment contract by producing a product similar to Lifeline. The court determined AMPC was justified in suspending its severance payments and was entitled to recover payments made after April 2000. The court concluded AMPC was entitled to damages of $36,023.80, plus reasonable attorney fees. The court denied the request for an injunction, finding it was not reasonably necessary to protect AMPC's business. The court also denied Meyer's counterclaims.
A separate hearing was held on attorney fees. AMPC sought attorney fees of $273,664, plus expenses of $9425.96. Meyer resisted, claiming the requested fees were excessive. The district court reduced the attorney fees to $92,602 and expenses to $5145.25. Meyer appeals the judgments against him.
II. Standard of Review
This case was pled as a law action and tried to the court. We review for correction of errors at law. Iowa R.App.P. 6.4. The trial court's findings of fact have the effect of a special verdict and are binding upon us if supported by substantial evidence. Iowa R.App.P. 6.14(6)( a). We view the evidence in the light most favorable to the trial court's judgment. Van Oort Constr. Co. v. Nuckoll's Concrete Serv., Inc., 599 N.W.2d 684, 689 (Iowa 1999).
III. Covenant Not to Compete
In Iowa we apply the following test to determine whether an employment contract containing a restrictive covenant is enforceable:
(1) Is the restriction reasonably necessary for the protection of the employer's business; (2) is it unreasonably restrictive of the employee's rights; and (3) is it prejudicial to the public interest?
Revere Transducers, Inc. v. Deere Co., 595 N.W.2d 751, 761 (Iowa 1999) (citing Lamp v. American Prosthetics, Inc., 379 N.W.2d 909, 910 (Iowa 1986)). We apply a reasonableness standard in maintaining a proper balance between the interests of the employer and the employee. Iowa Glass Depot, Inc. v. Jindrich, 338 N.W.2d 376, 381 (Iowa 1983).
Meyer claims the covenant not to compete was unenforceable because it was not reasonably necessary to protect AMPC's business. Meyer asserts his product is sufficiently different from AMPC's Lifeline product that he should not be considered to be in breach of the covenant. See Bridgestone/Firestone, Inc. v. Lockhart, 5 F. Supp.2d 667, 685 (S.D.Ind. 1998) (holding covenant not to compete was not enforceable because there was "no meaningful competition" between products sold by employee and his former employer).
The district court ruled:
Mr. Meyer marketed and attempted to license an orally-administered product (normal equine plasma) for the treatment of FPT [failure of passive transfer] in foals prior to gut closure. He also marketed a product designed to improve enteric health in older horses. These products are indeed similar to AMPC's Lifeline product. The fact that Mr. Meyer's products may be viewed as more effective or more acceptable in the marketplace (and, hence, more saleable) because they are equine-based as opposed to bovine-based does not make the product "different" or unique for purposes of this review.
Likewise, the fact that Mr. Meyer's products are produced in a sterile environment and are also amenable to administration post-gut closure does not change the conclusion that his FPT and enteric health products are similar to AMPC's Lifeline.
AMPC's Lifeline has been shown to be beneficial in treating FPT in foals and it has test marketed the product in Europe. There is nothing to prevent distributors from selling the product to horse owners. Jerry Frankl testified that one distributor was selling a fair amount of the product in California for use in race horses (presumable for enteric health).
In short, the Court finds that Mr. Meyer developed and sold a product similar to AMPC's Lifeline product in contravention of his employment agreement.
(Footnotes omitted.)
We determine the district court's factual-findings are supported by substantial evidence. See Van Oort, 599 N.W.2d at 691 (noting we consider whether substantial evidence supports the finding actually made by the trial court, not whether substantial evidence would have supported a different finding). In considering whether there was meaningful competition between Meyer's product and AMPC's product, we look to whether they could be used for the same purposes, not the means of manufacture. There is substantial evidence in the record to show the products could be used for the same purposes-failure of passive transfer in foals and enteric health in older horses. We affirm the district court's conclusion that Meyer breached the covenant not to compete.
IV. Counterclaim
Meyer contends the district court erred in concluding that he was not entitled to the remaining severance payments because he breached the covenant not to compete. We have already determined Meyer breached the covenant and do not consider this issue further.
In the alternative, Meyer contends that even if he did commit a technical breach of the covenant, it was not sufficient to discharge AMPC's obligation under the severance agreement. A party is discharged from performing his remaining duties under a contract by the other party's uncured material failure to perform. Id. at 692 n. 3 (citing Restatement (Second) of Contracts § 242 (1981)). The most significant factor in determining materiality is the extent to which the breach will deprive the injured party of the benefit that it justifiably expected. Id. at 692 (quoting II E. Allan Farnsworth, Farnsworth on Contracts § 8.16, at 496-97 (2d ed. 1998)); see also Restatement (Second) of Contracts § 241.
On this issue the district court concluded:
The Court additionally finds that the breach was material.
AMPC's sole purpose in giving Mr. Meyer the severance payments (to which he was not otherwise entitled) was to ensure that he would honor his non-competition covenants. AMPC was deprived of the intended benefit of its bargain (an absence of competition from Mr. Meyer) when Mr. Meyer began producing his similar, competing products. Consequently, AMPC was justified in suspending its severance payments to Mr. Meyer in August of 2000, and it is entitled to recover those payments made after April 2000.
We determine there is substantial evidence to support the district court's finding that Meyer's breach of the covenant was material, and thus AMPC was discharged from its duty to continue paying Meyer under the severance agreement. The purpose of the severance agreement was to ensure that Meyer understood the covenant not to compete would be recognized to be in full force. By selling a similar product, Meyer deprived AMPC of the benefit that it justifiably expected. We affirm the district court's denial of Meyer's counterclaim.
V. Attorney Fees
Meyer claims the attorney fees awarded to AMPC were excessive. He asserts that the district court's reduction of the fees was insufficient and should have included additional reductions to reflect AMPC's substantial lack of success.
An award of attorney fees is reviewed for an abuse of discretion. Equity Control Assocs., Ltd. v. Root, 638 N.W.2d 664, 674 (Iowa 2001). A court abuses its discretion when the grounds or reasons for the court's decision are clearly untenable, or when the court has exercised its discretion to an extent that is clearly unreasonable. Id. In making an award of attorney fees, a court looks at the time necessarily spent, the nature and extent of services, the amount involved, the difficulty of handling and importance of the issues, the responsibilities assumed and results obtained, the standing and experience of the attorney in the profession, and the customary charges for similar services. Vaughan v. Must, Inc., 542 N.W.2d 533, 541 (Iowa 1996).
In awarding attorney fees in this case, the court determined the hours logged solely by AMPC's lead counsel, L. W. Rosebrook, were more than sufficient to properly prepare and litigate the issues, and did not require Meyer to pay the fees of other attorneys in the same firm who assisted in the case. The court found a reasonable hourly amount for Rosebrook's work was $175 per hour, despite Rosebrook's request for $225 to $240 per hour. The court further determined that due to AMPC's lack of success on all claims, AMPC was entitled to fifty-five percent of the hours-times-reasonable-rate calculation, which resulted in an award of $92,602. Meyer was also required to pay only fifty-five percent of the law firm's claimed expenses, which resulted in an award of $5145.25.
The district court made detailed findings regarding each element of the attorney fees award. We note the district court is an expert on the issue of reasonable attorney fees. Equity Control, 638 N.W.2d at 674. The district court observed the efforts of counsel, and has the unique ability to assess the services rendered and their relationship to the various matters at issue. Id. We find no abuse of discretion in the award of attorney fees in this case.
We affirm the decision of the district court.