Opinion
Case No. 3:19-cv-00078
2022-02-24
GENERAL IRRIGATION, INC., Plaintiff, v. ADVANCED DRAINAGE SYSTEMS, INC., Defendant.
Ryan C. McCamy, Conmy Feste, Ltd, Fargo, ND, for Plaintiff. Brent J. Edison, Caren W. Stanley, Vogel Law Firm, Fargo, ND, Andrew H. King, Pro Hac Vice, Keith Shumate, Pro Hac Vice, Squire Patton Boggs LLP, Columbus, OH, for Defendant.
Ryan C. McCamy, Conmy Feste, Ltd, Fargo, ND, for Plaintiff.
Brent J. Edison, Caren W. Stanley, Vogel Law Firm, Fargo, ND, Andrew H. King, Pro Hac Vice, Keith Shumate, Pro Hac Vice, Squire Patton Boggs LLP, Columbus, OH, for Defendant.
ORDER GRANTING, IN PART, AND DENYING, IN PART, MOTION FOR PARTIAL SUMMARY JUDGMENT
Daniel M. Traynor, United States District Judge
INTRODUCTION
[¶ 1] THIS MATTER comes before the Court on a Motion for Partial Summary Judgment filed by the Defendant, Advanced Drainage Systems, Inc., ("ADS") on April 9, 2021. Doc. No. 55. The Plaintiff, General Irrigation, Inc., ("General"), filed a Response on April 30, 2021. Doc. No. 56. ADS filed a Reply on May 14, 2021. Doc. No. 57. For the reasons set forth below, ADS's Motion for Partial Summary Judgment is GRANTED, IN PART, AND DENIED, IN PART . Counts I, and IV of the Complaint are DISMISSED .
BACKGROUND
[¶ 2] General is a North Dakota corporation in the business of designing, selling, and servicing agricultural drainage systems. General is headquartered in Oakes, North Dakota. ADS is registered to do business in North Dakota but is a Delaware corporation with its principal place of business in Hilliard, Ohio. ADS manufactures plastic drainage pipe and other water management products.
[¶ 3] In September 2015 Dana and Ryan Rosendahl ("Dana" and "Ryan" or "Rosendahls" collectively) were at the Big Iron farm show in West Fargo, ND. Dana is the President/CEO of General and Ryan is General's owner. Doc. Nos. 56-1 at ¶ 1, 56-2 at ¶ 1. While at the Big Iron, Dana and Ryan approached Gary Nordick ("Nordick"), ADS's regional Sales Representative, and Kris Sayre ("Sayre"), ADS's District Sales Manager, to talk about forming a distributor arrangement. Doc. Nos. 56-1, ¶ 2, 55-2 at ¶ 1, 55-4 at ¶ 1. According to Dana, after comparing General's business with smaller businesses in Minnesota, both Sayer and Nordick told Dana and Ryan they "would have no problem achieving similar sales volumes of or more than $1 million during [their] first year." Doc. No. 56-1 at ¶ 7.
[¶ 4] The Rosendahls claim Nordick, and Sayre told them all ADS sales in the region would go through General, with the exception of independent install contractors who had distribution agreements with ADS already in place. Doc. No. 56-2 at ¶ 2. Ryan states he specifically asked Nordick and Sayer "what happens when Quandt Brothers (as an example) calls Gary and says I want to order a load of drain tile, you're saying that sale will be run through General Irrigation?" Doc. No. 56-2 at ¶ 3. Ryan claims Nordick and Sayre both responded yes, all sales will go through General. Id. According to Dana, both Sayre and Nordick told the Rosendahls they would make 10% profit on ADS products because customers could not purchase ADS products for less than what General was paying. Doc. No. 56-1 at ¶ 8. The record is unclear, but at some point, Ryan claims Nordick told him the "farmer price" would be the lowest anyone could buy ADS products. Doc. No. 56-2 at ¶ 7. Dana claims, without providing specifics, Nordick and Sayre said General could offer the customer the lowest price possible. Doc. No. 56-1 at ¶ 23.
[¶ 5] Both Sayre and Nordick deny making any promise or representation to the Rosendahls regarding General's ability to offer the lowest prices to customers or orders for ADS products would be handled exclusively by General. Doc. Nos. 55-2 at ¶ 5, 55-4 at ¶ 5. Sayre and Nordick also state they had no intent to deceive General nor did they make any statements they knew or believed to be false. Doc. Nos. 55-2 at ¶ 6, 55-4 at ¶ 6.
[¶ 6] On October 12, 2015, General and ADS entered into an agreement to establish a dealership relationship between ADS and General. Doc. No. 55-3. The Agreement provides in relevant part:
Under this agreement ADS will sell General Irrigation drainage products at a standard rate of 10% below farmer list price. Other pricing may be obtained on a job by job basis. Terms of the sale will be stated on each invoice. ADS will assist in the promotion and marketing of drainage products for General Irrigation.
General Irrigation agrees to stock and distribute only ADS drainage products for use in the Agricultural Market.
Doc. No. 55-3, p. 2. In other words, ADS would sell its products to General at a 10% discounted rate in exchange for General agreeing to sell only ADS drainage products. See id. The Agreement did not expressly prevent ADS from selling its products directly to consumers. See id. General claims they entered into this agreement based on the claims made by Sayre and Nordick at the Big Iron show. Doc. No. 56-1 at ¶ 28.
[¶ 7] In order to advertise the new partnership between ADS and General, in early 2016, the Parties worked together on a joint marketing effort. Doc. No. 55-4 at ¶ 7. They worked together to prepare mailers and an invitation to a luncheon. Id. Emails were exchanged in which customer information was sent between ADS and General. Doc. Nos. 55-5, 55-6, 55-7, 55-10. The purpose of these exchanges was to generate a list of individuals ADS and General could invite to the luncheon.
[¶ 8] According to Nordick, the Rosendahls never made any indication the contents of the mailing lists were confidential or otherwise trade secrets or proprietary information. Doc. No. 55-4 at ¶ 11. Nordick also states no one at General asked ADS to keep that information confidential. Id. Furthermore, Nordick claims the information in the list was easily obtainable because ADS has sold products in North Dakota for numerous years and several names on the list were existing ADS customers. Doc. No. 55-4 at ¶ 12. ADS could use its own database to obtain many of the other names and addresses on the mailing list. Id. Both Nordick and Sayre state ADS did not acquire any trade secrets or confidential or proprietary information from General. Doc. Nos. 55-4 at ¶ 13, 55-2 at ¶ 7.
[¶ 9] Ryan states Nordick called to ask him about General's customers in the area Nordick did not know well. Doc. No. 56-2 at ¶ 17. Nordick needed this information before talking to those individuals. Id. According to Ryan, he and Nordick discussed what General's customers had already purchased, items in need of replacing, and areas of inquiry to focus on. Id. Ryan gave Nordick "detailed information" relating to General's business with Brian Vculek farm, German Farms, Thorpe Farms, Quandt, Paul Roney, Hansen Farm, and others. Id. at ¶ 18. Until sharing their customer list with ADS, General had not shared it with anyone. Id. According to Ryan, Nodrick stated ADS would use the information to advertise but co-branded with General to help increase customer contacts for General. Id. The record contains no reference or implication Nordick, Sayre, or anyone at ADS was specifically told or had reason to know General considered their customer list confidential. It is undisputed ADS could have found all of the relevant customer information easily by other means.
[¶ 10] After entering the agreement, sending out the mailings, and having the luncheon reception, Dana claims General learned Nordick sold directly to customers totaling $450,000 worth of sales. Doc. No. 56-1 at ¶ 23. Dana spoke with Nordick and explained he did not expect Nordick to use the customer information for ADS's benefit. Id. at ¶ 26. Dana was "shocked to learn that Nordick was diverting long-time General customers to make purchases directly through ADS." Id. According to Ryan, when pressed on this issue, Nordick told him customers did not want to buy drain tile from General. Doc. No. 56-2 at ¶ 5. But those same customers received quotes from General and continued purchasing irrigation and other products from General. Id. In 2016 and 2017, General's gross sales of ADS products was $175,363 and $103,048 respectively. Doc. No. 56-1 at ¶ 18. General claims its profits have come up short approximately $175,000. Doc. No. 56-1 at ¶ 22. [¶ 11] General sent ADS a letter dated December 20, 2017, expressing General's dissatisfaction with the results of the Agreement. Doc. No. 56-8. General sought to change the terms of the written agreement, but to continue as an ADS distributor. Id. On March 6, 2018, Sayre responded by email saying ADS cannot change the terms of the Agreement at that time. Doc. No. 56-9. The email further states, "[i]t has never been our policy to force ADS customers to do business with our agricultural distribution partners in any geography." Id. Sayre then reassured General ADS had been trying to push their clients in the Oakes area to work with General but were being met with "firm resistance" from the clients. Id.
[¶ 12] Unsatisfied with the breakdown of the Agreement and relationship with ADS, General filed the Complaint in this case in State District Court on April 8, 2019. Doc. No. 1-2. ADS removed the State action to this Court on May 2, 2019 on diversity grounds. Doc. No. 1. General Irrigation is a citizen of North Dakota, ADS is a citizen of Delaware and Ohio, and the amount in controversy exceeds $75,000. Therefore, this court has jurisdiction pursuant to 28 U.S.C. § 1332. The Complaint brings five claims: (1) Misappropriation of Trade Secrets; (2) Breach of Contract; (3) Fraud/Deceit; (4) Unjust Enrichment/Quantum Meruit; and (5) Declaratory Judgment. ADS seeks summary judgment on Counts One through Four of the Complaint.
DISCUSSION
I. Summary Judgment Standard
[¶ 13] The Court will grant summary judgment "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a) ; see also Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). "An issue is ‘genuine’ if the evidence is sufficient to persuade a reasonable jury to return a verdict for the nonmoving party." Schilf v. Eli Lilly & Co., 687 F.3d 947, 948 (8th Cir. 2012) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986) ). "A fact is material if it ‘might affect the outcome of the suit.’ " Dick v. Dickinson State Univ., 826 F.3d 1054, 1061 (8th Cir. 2016) (quoting Anderson, 477 U.S. at 248, 106 S.Ct. 2505 ). Courts must afford "the nonmoving party the benefit of all reasonable inferences which may be drawn without resorting to speculation." TCF Nat'l Bank v. Market Intelligence, Inc., 812 F.3d 701, 707 (8th Cir. 2016) (quoting Johnson v. Securitas Sec. Servs. USA, Inc., 769 F.3d 605, 611 (8th Cir. 2014) ). "At summary judgment, the court's function is not to weigh the evidence and determine the truth of the matter itself, but to determine whether there is a genuine issue for trial." Nunn v. Noodles & Co., 674 F.3d 910, 914 (8th Cir. 2012) (citing Anderson, 477 U.S. at 249, 106 S.Ct. 2505 ).
[¶ 14] If the movant demonstrates the absence of a genuine issue of material fact, "[t]he nonmovant ‘must do more than simply show that there is some metaphysical doubt as to the material facts,’ and must come forward with ‘specific facts showing that there is a genuine issue for trial.’ " Torgerson v. City of Rochester, 643 F.3d 1031, 1042 (8th Cir. 2011) (en banc) (quoting Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986) ). "Where the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party, there is no genuine issue for trial." Id. In this diversity action, the Court will apply the substantive law of North Dakota. Atkinson v. McLaughlin, 462 F.Supp.2d 1038, 1047 (D.N.D. 2006). II. Misappropriation of Trade Secrets
[¶ 15] ADS moves for summary judgment on General's Misappropriation of Trade Secrets claim, which alleges ADS used General's client lists to essentially lure General's clients to do business with ADS. ADS argues there is no evidence in the record to establish (1) the mailing list information is a "trade secret"; (2) ADS misappropriated the information contained in the mailing lists; and (3) General suffered any actual damages by the alleged misappropriation. General argues there is sufficient evidence to establish its misappropriation of trade secrets claim. The Court concludes General has failed to establish the information in the mailing list was a trade secret and has failed to show it was misappropriated.
[¶ 16] North Dakota has adopted the Uniform Trade Secrets Act ("UTSA") which recognizes a statutory claim for "misappropriation of trade secrets." See N.D.C.C. 47-25.1, et seq. ; Macquarie Bank Ltd. v. Knickel, 723 F.Supp.2d 1161, 1183 (D.N.D. 2010). Under the UTSA, "a complainant is entitled to recover damages for misappropriation" of a trade secret. N.D.C.C. § 47-25.1-03. The UTSA defines "Trade Secret" as:
Chapter 47-25.1, et seq. , may be referred to as the Uniform Trade Secrets Act. N.D.C.C. § 47-25.1-08.
In general, the UTSA "displaces conflicting tort, restitutionary, and other law of this state providing civil remedies for misappropriation of a trade secret." N.D.C.C. § 47-25.1-07(1).
[I]nformation, including a formula, pattern, compilation, program, device, method, technique, or process, that:
a. Derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use; and
b. Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.
N.D.C.C. § 47-25.1-01(4). The UTSA defines "misappropriation" as:
a. Acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means; or
b. Disclosure or use of a trade secret of another without express or implied consent by a person who:
(1) Used improper means to acquire knowledge of the trade secret;
(2) At the time of disclosure or use, knew or had reason to know that the person's knowledge of the trade secret was:
(a) Derived from or through a person who had utilized improper means to acquire it;
(b) Acquired under circumstances giving rise to a duty to maintain its secrecy or limit its use; or
(c) Derived from or through a person who owed a duty to the person seeking relief to maintain its secrecy or limit its use; or
(3) Before a material change of the person's position, knew or had reason to know that it was a trade secret and that knowledge of it had been acquired by accident or mistake.
N.D.C.C. § 47-25.1-01(2). " ‘Improper means’ includes theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, or espionage through electronic or other means." N.D.C.C. § 47-25.1-01(1). [¶ 17] The customer lists involved in this dispute are, as a matter of law, not trade secrets. It is undisputed General made no effort to communicate, in any way, to ADS the customer lists were confidential. Ryan claims he spoke with Nordick about certain General customers. Ryan also claims Nordick "is the first person we have shared our customer list and sales information with as this information is not shared with any other supplier." Doc. No. 56 at ¶ 18. None of these statements confirm General held their customer lists out to be confidential. At most, they confirm the subjective, yet undisclosed view General had over their customer and sales lists. This was in no way communicated to ADS. The emails from General contain no confidentially provision. Neither of the Rosendahls expressed to ADS the lists were to be confidential. In short, the customer lists were not "the subject of efforts that are reasonable under the circumstances to maintain its secrecy." N.D.C.C. § 47-25.1-01(4).
[¶ 18] In addition, General has failed to produce any evidence to suggest the information was not easily ascertainable by proper means. ADS, through Nordick and Sayre, provided affidavits evidencing ADS could have procured this information through proper means, including through its own customer database. General simply ignores this evidence and urges the Court find the information was confidential because General provided more than mere customer lists, such as discussions with ADS regarding specific customers and the products they had purchased from General.
[¶ 19] General relies on Macquarie Bank Ltd. v. Knickel, 723 F.Supp.2d 1161 (D.N.D. 2010), arguing the relationship between the parties established an expectation the shared information would be kept confidential. The present matter is distinguishable from Macquarie Bank. In Macquarie Bank, the record showed the parties agreed "there was an auspice of confidentiality" in the information involved in that case. 723 F.Supp.2d at 1186. In other words, it was understood by the parties the shared information would be kept confidential. In the present case, there is no evidence ADS agreed the shared information would be kept confidential. The record clearly establishes General did not purport to even suggest any of the shared information was confidential.
[¶ 20] The present case is similar to CDI Energy Services v. West River Pumps, Inc., 567 F.3d 398 (8th Cir. 2009). In CDI, the plaintiff moved for a preliminary injunction on the grounds the defendants stole proprietary information while working for CDI and solicited business from CDI's clients. Id. at 400. The plaintiff claimed it took reasonable efforts to maintain the secrecy of its alleged proprietary information. Id. at 401. The information included customer lists, contact information, business strategies, customer repair and purchase histories, and CDI pricing information. Id. CDI claimed it had policies in place informing its employees such information was confidential. Id. The defendants claimed the information was unguarded and not kept or marked as confidential. Id. The district court denied the request for preliminary injunction.
[¶ 21] On appeal, the Eighth Circuit noted, "[t]he information at issue was of the type that may, in some industries, be treated as trade-secret information (customer names, contact information, pricing information, etc.)." Id. However, the Eighth Circuit ultimately affirmed holding, "CDI, however, failed to show that any of the information in this case was actually a trade secret, i.e., information that has economic value by virtue of having been kept secret and that cannot be ‘ascertain[ed] by proper means.’ " Id. at 402 (quoting N.D.C.C. § 47-25.1-01(4) ).
[¶ 22] Similarly here, it is undisputed the information claimed to be confidential (the purchase histories of General's customers and its customer lists), were not kept under secrecy or marked as confidential. As previously noted, it is undisputed the information could be easily determined by proper means. As the Eighth Circuit noted, General's customer information provided to ADS may be treated as a trade secret in some industries. However, General has failed to provide any basis to show the information is generally kept as a trade secret in the agricultural drainage industry. There is simply no evidence in the record for a reasonable jury to conclude General's customer information was, in fact, a trade secret as defined by N.D.C.C. § 47-25.1-01(4).
[¶ 23] Accordingly, ADS's Motion for Partial Summary Judgment as it relates to General's claim for Misappropriation of Trade Secrets is GRANTED . Count One of the Complaint is DISMISSED .
III. Breach of Contract
[¶ 24] It is well established in North Dakota that a claim for breach of contract must meet three elements: "(1) the existence of a contract; (2) breach of the contract; and (3) damages which flow from the breach." Bakke v. Magi-Touch Carpet One Floor & Home, Inc., 2018 ND 273, ¶ 13, 920 N.W.2d 726. "The nonperformance of a contractual duty when it is due is a breach of contract." Three Aces Properties LLC v. United Rentals (North America), Inc., 2020 ND 258, ¶ 10, 952 N.W.2d 64. Under North Dakota law, the language of a contract controls when such language is clear, explicit, and free from absurdity. N.D.C.C. § 9-07-02. Contracts are interpreted to give effect to the mutual intention of the parties. N.D.C.C. § 9-07-03. "The whole of a contract is to be taken together so as to give effect to every part if reasonably practicable." ND.C.C. § 9-07-06. To aid in that determination, "[e]ach clause is to help interpret the others." Id.
[¶ 25] Under North Dakota law, "[t]he execution of a contract in writing, whether the law requires it to be written or not, supersedes all the oral negotiations or stipulations concerning its matter which preceded or accompanied the execution of the instrument." N.D.C.C. § 9-06-07 ; see also Citizens State Bank-Midwest v. Symington, 2010 ND 56, ¶ 19, 780 N.W.2d 676 (quoting N.D.C.C. § 9-06-07). In North Dakota, the parol evidence rule "precludes use of evidence of prior oral negotiations and agreements to vary the terms expressed in a written contract." Des Lacs Valley Land Corp. v. Herzig, 2001 ND 17, ¶7, 621 N.W.2d 860. Nevertheless, parol evidence may be considered if the written contract "is ambiguous, or when the written agreement does not reflect the parties’ intent because of fraud, mistake, or accident." Citizens State Bank-Midwest, 2010 ND 56 at ¶ 20, 780 N.W.2d 676.
[¶ 26] The North Dakota Supreme Court has explained:
Where parties, without any fraud or mistake, have deliberately put their engagements in writing, the law declares the writing to be not only the best, but the only, evidence of their agreement: ... all preliminary negotiations, conversations and verbal agreements are merged in and superseded by the subsequent written contract ... and unless fraud, accident, or mistake be averred, the writing constitutes the agreement between the parties, and its terms cannot be added to nor subtracted from by parol evidence.
Citizens State Bank-Midwest, 2010 ND 56 at ¶ 19, 780 N.W.2d 676 (quoting Des Lacs Valley Land Corp. v. Herzig, 2001 ND 17, ¶8, 621 N.W.2d 860 (citations and quotation marks omitted)).
[¶ 27] ADS contends the Contract is clear and unambiguous and, therefore controls their dealings in this case. The Contract does not prohibit ADS from selling directly to its customers nor does the Contract contain any term that states General alone could offer the lowest prices on ADS products to its customers. General claims the term "10% below farmer list price" (Doc. No. 55-3, p. 1) is ambiguous, which opens the door for the Court to consider parol evidence relating to the prior oral negotiations. ADS argues the term is unambiguous and the plain language of the Contract controls.
[¶ 28] The Court agrees the plain language of the Contract is clear and unambiguous. "10% below farmer list price" means exactly what it purports to mean. ADS would sell its product to General for 10% below what General would sell the product to its customers. But General's argument misses the mark. Parol evidence may be considered not only when a term is ambiguous, but also " when the written agreement does not reflect the parties’ intent because of fraud , mistake, or accident." Citizens State Bank-Midwest, 2010 ND 56 at ¶ 20, 780 N.W.2d 676 (emphasis added).
[¶ 29] As discussed in more detail below, there is actionable fraud in this case. Assuming the Rosendahl's testimony is true, there is evidence ADS made statements to General that General would be the sole provider of ADS products in General's region may prove to be fraudulent under the circumstances. If the jury concludes this statement is fraudulent, the statements relating to General being the only provider of ADS products outside other known distributors in the area may constitute the intent of the parties in forming the Contract and, therefore, would be a term of the Contract. See Kary v. Prudential Ins. Co. of Am., 541 N.W.2d 703, 706 (N.D. 1996). Based on this purported contractual term, a jury could conclude ADS breached the Contract when they sold their product directly to customers in General's region because they allegedly agreed General would be the sole seller of ADS drainage products. This term would unambiguously prevent ADS from selling its drainage products in General's region. See Citizens State Bank-Midwest, 2010 ND 56 at ¶ 20, 780 N.W.2d 676 (parol evidence may be considered when there is evidence of fraud in the formation of the contract). In light of the potential fraud, the Contract may be rescinded pursuant to N.D.C.C. § 9-03-02 or General may affirm the Contract to recover damages. General has chosen to seek to enforce the Contract, it appears General has chosen the latter and seeks to recover damages.
[¶ 30] Accordingly, ADS's Motion for Partial Summary Judgment as it relates to General's Breach of Contract claim (Count Two) is DENIED as it relates to ADS's alleged statements relating to General being the only seller of ADS drainage products apart from known prior distributors.
[¶ 31] As discussed in more detail below, the other statements not contained in the Contract relating to potential profits and General's pricing of ADS products do not constitute fraud and therefore parol evidence on these matters is inadmissible. The Contract is otherwise clear and unambiguous as it relates to pricing and distribution of ADS products. Accordingly, in these respects, ADS's Motion for Partial Summary Judgment on General's Breach of Contract claim is GRANTED . IV. Fraud / Deceit
[¶ 32] ADS argues General failed to produce sufficient evidence ADS had an intent to deceive or an intent to induce General into the Contract. General speculates ADS "switched gears and offered a different, and presumably, more favorable pricing structure," which was different from what was promised to General during their negotiations. Doc. No. 56 at p. 10. The Court has reviewed the record in this matter and concludes General has provided evidence to support its claim for fraud as it relates to ADS's statements relating to General being the sole distributor of ADS products in the region (apart from other disclosed distributors). In all other respects, General has failed to provide evidence to support its fraud and deceit claims.
[¶ 33] Under North Dakota law, Actual Fraud is defined as:
Actual fraud within the meaning of this title consists of any of the following acts committed by a party to the contract, or with the party's connivance, with intent to deceive another party thereto or to induce the other party to enter into the contract:
1. The suggestion as a fact of that which is not true by one who does not believe it to be true;
2. The positive assertion, in a manner not warranted by the information of the person making it, of that which is not true though that person believes it to be true;
3. The suppression of that which is true by one having knowledge or belief of the fact;
4. A promise made without any intention of performing it; or
5. Any other act fitted to deceive.
N.D.C.C. § 9-03-08. Deceit under North Dakota law is defined as:
1. The suggestion as a fact of that which is not true by one who does not believe it to be true;
2. The assertion as a fact of that which is not true by one who has no reasonable ground for believing it to be true;
3. The suppression of a fact by one who is bound to disclose it, or who gives information of other facts which are likely to mislead for want of communication of that fact; or
4. A promise made without any intention of performing.
[¶ 34] In North Dakota, the same conduct that gives rise to fraud may give rise to deceit because both involve a promise made without any intention of performing it. Erickson v. Brown, 2008 ND 57, ¶ 24, 747 N.W.2d 34. Fraud, however, applies to parties to a contract. Id. Deceit applies when there is no contract. Id. The North Dakota Supreme Court has described this distinction:
Under Chapter 9–03, N.D.C.C., "[a] promise made without any intention of performing it" and with intent to deceive or to induce another to enter into a contract is "actual fraud" for purposes of nullifying apparent free consent to the contract. N.D.C.C. §§ 9–03–01, 9–03–03, and 9–03–08(4). If there is a contract between the parties and a party's apparent free consent to the contract is obtained by fraud, N.D.C.C. § 9–03–02 authorizes the defrauded party to rescind the contract in the manner prescribed by Chapter 9–09, N.D.C.C. The defrauded party may also affirm the contract and recover damages. Schaff v. Kennelly, 61 N.W.2d 538 (N.D.1953) ; Beare v. Wright, 14 N.D. 26, 103 N.W. 632 (1905) ; see Restatement (Second) of Torts § 549 (1977) ; Calamari and Perillo, Contracts § 9–23 (3rd ed.1987); Dobbs, Remedies
§ 9.1 et seq. (1973); Prosser and Keeton on Torts § 110 (5th ed.1984); 37 Am.Jur.2d, Fraud and Deceit § 327 (1968).
Under Chapter 9–10, N.D.C.C., if there is no contract between the parties, "[o]ne who willfully deceives another with intent to induce him to alter his position to his injury or risk is liable for any damage which he thereby suffers," and "deceit" is defined as "[a] promise made without any intention of performing." N.D.C.C. §§ 9–10–01, 9–10–02(4), and 9–10–03. Under those statutes, a promise made without any intention of performing it which does not meet the requirements of a contract between the parties may nevertheless satisfy the requirements of deceit, and the victim of that deceit may recover for any damage suffered.
Delzer v. United Bank of Bismarck, 527 N.W.2d 650, 653 (N.D. 1995)
[¶ 35] Because the present dispute sounds in contract, the Court only considers General's claim for fraud. In North Dakota "expression of mere opinion or predictions of future events are not actionable in fraud." Kary v. Prudential Ins. Co. of America, 541 N.W.2d 703, 705 (N.D. 1996). This is especially true for "statements of value and predictions of future earnings or profits fall within the class of statements whose truth or falsity cannot be precisely determined and which are not, therefore, actionable as misrepresentations of fact." Id. at 706. "One of the essential elements of fraud is that there be a false representation of a material fact which either exists in the present or has existed in the past, and a mere expression of an opinion in the nature of a prophecy as to the happening or nonhappening of a future event is not actionable." Id. (quoting Sperle v. Weigel, 130 N.W.2d 315, 320 (N.D. 1964) ) (quotation marks omitted). "When a party responds to an inquiry about the subject matter of a contract, the response must disclose full, accurate, and truthful information." West v. Carlson, 454 N.W.2d 307, 310 (N.D. 1990). Actual fraud cannot be presumed but may be inferred from the circumstances. Id.
[¶ 36] In the present case, there are three statements which General purports constitute fraud or deceit. General claims (1) ADS made false statements General would be the sole distributor of ADS products in General's region, and ADS would route customer inquiries to General for sales (2) ADS made false statements that General would be offering the lowest prices available for ADS products, and (3) ADS made false statements General's profits would easily be $1 million.
[¶ 37] According to Ryan Rosendahl, he specifically asked Nordick and Sayre if the sales will run through General, and both Nordick and Sayre responded that all sales in the area would run through General. Doc. No. 56-2 at ¶ 3. In answering in this manner, a jury could conclude ADS withheld pertinent information to induce General into contracting with ADS, namely, ADS withheld the fact that ADS sold its product in General's region and would continue to do so. Accordingly, there is sufficient evidence in the record to survive summary judgment on General's Fraud claim as it relates to the alleged statements from ADS that General would be the sole seller of ADS products, apart from those who already had distribution agreements with ADS.
[¶ 38] This case is similar to West v. Carlson, 454 N.W.2d 307 (N.D. 1990). In West, the parties agreed to swap property with the plaintiffs taking an assignment of a contract from the defendants relating to property in Montana. This would have entitled the plaintiffs to get monthly payments from a third party for a house and property the defendants sold to plaintiffs. In negotiating the agreement, the defendants made assurances the third party would have no issue making the payments. At the time the agreement was entered, the defendants knew the third-party did not make a down payment on the property and that Montana allowed the third-party to abandon the contract without liability for a deficiency judgment. The defendants also knew the property produced only two-thirds of a gallon of water when the defendants told the third-party it produced six gallons. The defendants failed disclose these facts to the plaintiff. The North Dakota Supreme Court concluded the complaint sufficiently pled facts to show fraud on the part of the defendants. Id. at 312.
[¶ 39] In this case, there is evidence ADS affirmatively told General it would be the sole distributor of ADS products, apart from the few independent installers who already had distribution agreements. Despite this affirmative statement, ADS continued to sell its products and admits it routinely sells directly to consumers. On this record, a jury could conclude ADS intentionally withheld the information that it sells and would continue to sell its own products, despite affirmatively telling General that General would be only distributor of ADS's product. This is sufficient to show ADS suppressed a fact that was true when they had knowledge of that fact. See N.D.C.C. § 9-03-08(4).
[¶ 40] However, on the record before the Court, there is insufficient evidence to establish ADS's statements regarding General offering the lowest prices occurred during the negotiation process prior to entering the contract. Read in context of the Rosendahl's declarations, it appears the statements may have been made after entering into the Agreement. Regardless of whether the statements were made before or after entering the Agreement, there is no evidence beyond mere speculation and hearsay that ADS was, in fact, offering prices lower than General.
[¶ 41] In fact, the only evidence relating to ADS offering lower prices than General comes by way of hearsay. Ryan claims he was told by Quandt Brothers Cattle Company that ADS offered the lower prices. According to Ryan, in February 2019, he had a conversation with John, Jason, and Nathan Quandt in which Ryan learned Nordick was selling drain tile to the Quandts directly at a much lower price than General could offer. Doc. No. 56-2 at ¶ 12. Ryan claims, "John Quandt also stated when General Irrigation became a dealer, [Nordick] told him they did not have to buy through General Irrigation and could continue buying through him at the special price." Id. Each of these statements, however, are inadmissible hearsay. General provides no basis in law for the Court to consider these statements. Although alleged statements made by Nordick to the Quandts is a statement of a party opponent, see Fed. R. Evid. 801(d)(2), the statements by the Quandts to Ryan are classic hearsay and do not fall within any hearsay exception. See Fed. R. Evid. 801 ; 802.
[¶ 42] As it relates to ADS's claims General's profits would easily be $1 million, these statements do not amount to fraud. This is mere puffery or opinion, which does not constitute fraud. Golden Eye Resources, LLC v. Ganske, 2014 ND 179, ¶ 23, 853 N.W.2d 544. Furthermore, these statements are also "statements of value and predictions of future earnings or profits [which] fall within the class of statements whose truth or falsity cannot be precisely determined and which are not, therefore, actionable as misrepresentations of fact." Kary v. Prudential Ins. Co. of America, 541 N.W.2d 703, 705 (N.D. 1996). Accordingly, ADS's claims relating to General's profits from distributing ADS's products were not fraudulent.
[¶ 43] As it relates to General's claim for Fraud, ADS's Motion for Partial Summary Judgment is DENIED with respect to General's claim that ADS promised General to be the only seller of ADS products in the region, with known exceptions of others with distribution agreements already in place. Relating to General's claims that ADS's statements about General's potential profits and sales prices, ADS's Motion for Summary Judgment is GRANTED .
[¶ 44] Because this action sounds in Contract, ADS's Motion for Partial Summary Judgment on General's claim for Deceit is GRANTED . Count Three, insofar as it alleged Deceit under North Dakota Law, is DISMISSED .
4. Unjust Enrichment / Quantum Meruit
[¶ 45] ADS argues General has failed to establish its claim for Unjust Enrichment/Quantum Meruit because a valid contract existed between the parties. General claims it has provided sufficient evidence to show ADS received benefits at General's expense. ADS responds contending General has failed to establish the absence of a contractual relationship between ADS and General, which is necessary for an unjust enrichment/quantum meruit claim. The Court agrees.
[¶ 46] It is fundamental under equitable doctrine that unjust enrichment is "applied in the absence of an express or implied contract , to prevent a person from being unjustly enriched at the expense of another." Zuger v. North Dakota Ins. Guar. Ass'n, 494 N.W.2d 135, 138 (N.D. 1992) (emphasis added). Absence of a remedy at law is an essential element for unjust enrichment. Albrecht v. Walter, 1997 ND 238, ¶ 23, 572 N.W.2d 809. "The doctrine of unjust enrichment ‘is invoked "when a person has and retains money or benefits which in justice and equity belong to another.’ " " Apache Corp. v. MDU Resources Group, Inc., 1999 ND 247, ¶ 14, 603 N.W.2d 891 (quoting Midland Diesel Svc. & Engine Co. v. Sivertson, 307 N.W.2d 555, 557 (1981) (quoting Schlichenmayer v. Luithle, 221 N.W.2d 77, 83 (N.D. 1974) )). When a plaintiff has "a direct contractual relationship with [the defendant], [the plaintiff is] not entitled to recover under unjust enrichment, because there is an express contract between the parties relative to the same subject matter." Ritter, Laber and Associates, Inc. v. Koch Oil, Inc., 2004 ND 117, ¶ 29, 680 N.W.2d 634.
[¶ 47] In Ritter, Laber and Associates, the parties entered into a contract defining their rights regarding unreported oil and proceeds. The North Dakota Supreme Court held that, because the Contract defined the parties’ respective rights and duties, the plaintiff's claim for unjust enrichment was precluded. Id. The North Dakota Supreme Court "conclud[ed] that contract defines the parties’ rights and precludes a claim for unjust enrichment." The same holds true here. General seeks to enforce the Contract and its terms as discussed at length above. The Contract defined the relationship, and they are therefore precluded from bringing a claim for unjust enrichment. If the jury finds ADS committed fraud and therefore were prohibited under the contract from selling, General's claims are covered by the Contract. If no fraud was committed, then terms of the Contract still govern the relationship and no unjust enrichment occurred by ADS continuing to sell their product directly to its customers. Under either scenario, the Contract governs the dispute.
[¶ 48] General's quantum meruit claim suffers a similar fate. ADS contends the Contract governs the relationship and General has failed to identify any benefit it provided to ADS that ADS has not paid. General contends the Motion is premature and it should have the opportunity to present evidence at trial relating to this claim.
[¶ 49] The Court agrees with ADS. "Quantum meruit is an equitable action in which the law implies a promise to pay for the reasonable value of services furnished." Hayden v. Medcenter One, Inc., 2013 ND 46, ¶ 22, 828 N.W.2d 775. To establish a claim for quantum meruit, a plaintiff must show the defendant received a benefit "under circumstances which would reasonably notify the [defendant] that the [plaintiff] had an expectation of payment for the services rendered." Id. Typically, the right to recover under a quantum meruit theory is fact dependent. Schmidt v. First Nat. Bank and Trust Co., 453 N.W.2d 602, 605 (N.D. 1990). However, "[o]nly when the evidence is such that reasoning minds could draw but one conclusion does the fact question become a question of law for which summary judgment may be appropriate." Id.
[¶ 50] General has not pointed to any evidence of a benefit received by ADS that falls outside the alleged contract. On this ground alone, their quantum meruit claims fails. Much like the analysis on General's unjust enrichment claim, if ADS committed fraud, the Contract governs the dispute and General can recover under the Contract. If they did not commit fraud, the Contract still governs the relationship and ADS received no benefit outside of the Contract. For the same reasons articulated for granting summary judgment on General's unjust enrichment claim, summary judgment on its quantum meruit claim is appropriate. See Hayden, 2013 ND 46 at ¶ 24, 828 N.W.2d 775 (affirming dismissal of quantum meruit claim for same reasons as dismissing an unjust enrichment claim (citing Wilson v. Sisters of St. Francis Health Servs., Inc., 952 N.E.2d 793, 795-97 (Ind.Ct.App. 2011) (dismissing quantum meruit claim for same reasons unjust enrichment claim rejected))).
[¶ 51] Because the contractual relationship between General and ADS govern this dispute, ADS's Motion for Partial Summary Judgment regarding General's claim for unjust enrichment and/or quantum meruit is GRANTED . Count Four of the Complaint is, therefore, DISMISSED .
5. Damages
[¶ 52] ADS, throughout its briefing, claims General has failed to provide evidence to show the alleged wrongful conduct proximately caused General damages. General argues it has provided sufficient evidence to survive summary judgment at this time.
[¶ 53] While the Court appreciates that mere speculation is insufficient to withstand a motion for summary judgment, Heart River Partners v. Goetzfried, 2005 ND 149, ¶ 8, 703 N.W.2d 330, the Court is also cognizant damages are fact questions for the jury to decide. See Ballensky v. Flattum-Riemers, 2006 ND 127, ¶ 13, 716 N.W.2d 110. The Court has reviewed the record in this case and, while scant, there is sufficient evidence to support General has suffered declining sales since entering the Contract with ADS. In other words, the Court will not disturb the general rule: damages are necessarily a question of fact. See id. Summary judgment on the question of damages is DENIED .
CONCLUSION
[¶ 54] For the foregoing reasons, ADS's Motion for Partial Summary Judgment is GRANTED, IN PART, and DENIED, IN PART . Counts One and Four of the Complaint are DISMISSED in their entirety. Trial shall commence as scheduled on Counts Two and Three as outlined above.
[¶ 55] IT IS SO ORDERED .