R3 Composites Corporation v. G&S Sales Corp.
Filing
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OPINION AND ORDER DENYING 49 MOTION for Hearing re 37 MOTION for Summary Judgment Defendant's Request for Oral Argument; GRANTING IN PART and DENYING IN PART 37 MOTION for Summary Judgment. By separate order, the Court will set a telephonic scheduling conference for purposes of scheduling the final pre-trial conference and trial. Signed by Chief Judge Theresa L Springmann on 2/27/19. (ksp)
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF INDIANA
FORT WAYNE DIVISION
R3 COMPOSITES CORPORATION,
Plaintiff/Counter-Defendant,
v.
G&S SALES CORP.,
Defendant/Counter-Plaintiff.
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CAUSE NO.: 1:16-CV-387-TLS
OPINION AND ORDER
This matter comes before the Court on Plaintiff R3 Composites Corporation’s Motion for
Summary Judgment [ECF No. 37], filed on August 24, 2018. The Defendant, G&S Sales Corp.,
filed a response [ECF No. 45] on September 28, 2018. On October 12, 2018, the Plaintiff filed a
reply [ECF No. 50] in further support of its Motion for Summary Judgment. The Defendant also
filed a Motion for Hearing [ECF No. 49] regarding the Plaintiff’s Motion for Summary Judgment.
STATEMENT OF FACTS
The parties’ dispute centers around whether R3 breached an agreement to pay
commissions to G&S for business that G&S procured on behalf of R3.
A.
Start of the Business Relationship Between R3 and G&S
In 2001, Roy Carver founded R3 to custom mold fiberglass parts. Around 2010, R3
purchased property in Grabill, Indiana, which included several hydraulic presses located on the
property. Carver bought the property with the intent to use the hydraulic presses to manufacture
grain storage bins. Shortly thereafter, Carver reached out to Steven Stefani, an equipment broker,
to either sell the hydraulic presses located on the property or to find potential customers for R3 in
need of molding work. Stefani and Carver had conversations discussing the potential to have
Stefani act as a sales representative for R3 working on commission. Around the same time,
Stefani was in communication with a former colleague, Mark Glidden, about joining him to find
potential customers for R3’s molding business. Glidden agreed to help Stefani procure business
for R3.
Glidden and Stefani first discussed the possibility of incorporating a new company called
G&S Sales Corporation.1 Glidden and Stefani also discussed that any commission payments
G&S earned would be split in half between Glidden and Stefani. Glidden ultimately expressed a
desire to form his own company that would act as a subcontractor assisting G&S on its work for
R3. Subsequently, Stefani’s wife, Patricia Stefani, incorporated G&S Sales Corporation as the
sole incorporator and as a 50% owner. Steven Stefani owned the remaining 50% of G&S.
On January 31, 2011, Glidden sent an email to Carver with a proposed written sales
representative agreement between R3 and G&S. The language pertaining to the proposed sales
commission arrangement stated that R3 would pay G&S a commission fee of 5% for any
business G&S brought to R3. The parties did not enter into this proposed agreement.
B.
Written Agreement
On February 10, 2011, R3 and G&S entered into a Non-Disclosure Agreement (“NDA”
or “Agreement”). Glidden signed the Agreement on behalf of G&S as “Managing Partner.” The
language pertaining to commissions states:
1
According to Carver’s deposition testimony, the “G” stands for Glidden and the “S” stands for Stefani.
2
12. General Business Agreements.
12.1 New Jobs. G&S will assist R3 in starting up new jobs sourced by G&S through the
pre-production approval process until such approval is given by the client/customer.
12.2 Commission. If G&S obtains jobs for R3, the parties will attempt to develop an
agreement whereby G&S is paid a commission with a guideline being a 5% commission
with the precise commission rate to be negotiated on a job-by-job basis. A commission
will also be paid for any and all extensions, renewals, subsequent phases or additional
terms of any such job obtained by G&S for R3, the amount of which to be determined on
a job-by-job basis. Any commissions to be paid to G&S in this Section 12.2 are
predicated upon G&S fulfilling all of its obligations under this Agreement, including
without limitation, those provisions of Sections 12.3 immediate [sic] following.
12.3 Existing Jobs. During the term of this Agreement and thereafter, G&S agrees not to
interfere with any existing R3 jobs by attempting to transfer such work to other molders
and this provision shall remain in place throughout the existence of any existing
production contract and all extensions, renewals, subsequent phases or additional terms
thereof.
13. Termination. Either party may, at any time, terminate this Agreement effective upon
written notice to the other party. Notwithstanding such termination, the obligations of
each party as set forth in Section[ ] . . . 12 of this Agreement shall survive termination of
this Agreement.
(See Def.’s Mem. in Opp. to Mot. for Summ. J., NDA, Ex. 9, §§ 12-13, ECF No. 47–11
(emphasis added).)
C.
Aquatic Bath Business
Before the Agreement was signed, Stefani raised the possibility of securing Aquatic Bath
as a customer for R3’s molding business. On June 8, 2011, Aquatic and R3 signed a purchase
and sales agreement that required R3 to manufacture and sell certain Aquatic products.
As R3’s Aquatic business was not as profitable as anticipated, G&S agreed to temporarily
forgo sales commissions. In February 2012, G&S proposed limiting the Aquatic commission
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payments to 10% of R3’s profit from the Aquatic business until monthly sales reached $600,000,
at which point the commission would be set to 5% of sales. R3 did not accept the offer.
After several months of back-and-forth, Stefani in June 2012 stated that he was interested
in the “long term” and was willing to “figure something out” on the Aquatic business until the
Aquatic business became more profitable for R3. A March 22, 2013, email chain between the
parties appears to reference an agreement between the parties that G&S would be paid a
commission of 3% on the Aquatic business when the monthly sales to Aquatic reached $600,000.
(Def.’s Mem. in Opp. to Mot. for Summ. J., Ex. 18, ECF No. 47–20.)
D.
R3 Hires Glidden as Plant Manager
At some point during the R3 and Aquatic negotiations, Carver contacted Glidden to offer
him a position as a plant manager at R3’s Grabill location. R3 ultimately hired Glidden on June
1, 2011. Although Stefani expressed conflict of interest concerns with Glidden accepting the
position while still working for G&S to procure business for R3, he eventually acquiesced to
allow Glidden to take the role as a plant manager for R3.
E.
Reductions to G&S Commissions
In 2014, Aquatic approached R3 with an offer to provide R3 sheet molding compound
(SMC) at no cost to mold Aquatic products. Aquatic represented that it would invoice R3
showing that R3 paid for the SMC and then credit R3 for the payment of those amounts from
what Aquatic would pay R3 for its molding work. Carver subsequently spoke with Glidden about
subtracting the SMC costs for the purposes of G&S’ Aquatic commission. Glidden represented
that R3 could subtract the SMC costs for the purposes of calculating G&S’ commission.
When the new set of agreements between R3 and Aquatic were signed, Glidden sent an
email to Stefani to inform him that G&S was “getting close to losing over half” of its
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commission. On November 5, 2014, R3 sent an email to G&S indicating that new commission
rates would go into effect in December 2014.
E.
R3 Terminated Agreement
On June 24, 2015, R3 sent G&S notice that it was terminating the Agreement effective
immediately, pursuant to section 13 of the Agreement. R3 continued to pay sales commissions to
G&S on all jobs with customers that G&S sourced before the termination of the Agreement,
including for Aquatic. On July 10, 2015, G&S sent a letter to R3 to remind R3 of its obligation to
continue to pay G&S commissions consistent with section 13, which explicitly stated that section
12 of the Agreement would survive termination.
F.
Further Reduction to Commission Amounts
Due to a reduction in profitability for the Trivector and Janesville Acoustics accounts for
R3, which G&S had also sourced, Glidden decided to adjust the commission being paid to G&S
on those accounts. Glidden instructed R3’s CFO, Kirk Klein, to change the commission being
paid to G&S. Instead of reducing the commission on the statements being sent to G&S, Glidden
instructed Klein to reduce the sales figures to lower the commission rate G&S was to receive.
Klein testified in his deposition that he believed Glidden had the authority to accept lower
commission rates on behalf of G&S.
G.
Attempt to Negotiate New Agreement
Over the course of the next year, the parties attempted to negotiate a new sales
representative agreement. Although G&S terminated its relationship with Glidden on September
2016, R3 and G&S continued their negotiations for a new agreement. Eventually, R3 stopped
making commission payments to G&S. According to R3, its decision to stop paying
commissions to G&S was based on G&S not soliciting new business for R3 and G&S not
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sourcing new business since Glidden’s termination. Conversely, G&S claimed that it had a right
to commission payments under the Agreement for any profit R3 obtained in connection with a
job for a customer so long as the customer was originally sourced by G&S.
H.
Instant Action
R3 filed the present lawsuit seeking a declaratory judgment that it had not breached any
agreement, expressed or implied, with G&S in connection with the payment of commission. The
Complaint [ECF No. 5] was originally filed in Allen Circuit Court. G&S removed the action to
federal court on November 14, 2016, and filed its Counterclaims [ECF No. 3] for breach of
contract and violation of the Indiana Sales Commission Act. On December 22, 2016, G&S filed
Amended Counterclaims [ECF No. 10] adding a third count requesting declaratory judgment
regarding R3’s continuing obligations to pay future sales commissions to G&S.
On August 24, 2018, the Plaintiff moved for summary judgment on the following 13
issues:
(a) That the term “job” in Section 12 of the NDA clearly and unambiguously means
production contract or purchase order.
(b) The term “job” in the NDA Section 12 clearly and unambiguously does not mean
“part.”
(c) That the term “job” in the NDA Section 12 clearly and unambiguously does not mean
“customer.”
(d) That the NDA only requires R3 to pay G&S commission if G&S (a) obtains a
production contract or purchase order; (b) starts up the production contract or purchase order;
and (c) takes the production contract or purchase order through the pre-production approval
process until the customer approves the production contract or purchase order.
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(e) That each purchase order issued by a customer of R3 is a new contract – not an
extension, renewal, subsequent phase, or additional term of an earlier and already fulfilled
purchase order.
(f) That G&S did not obtain a production contract or purchase order for which it would
be entitled to a commission from R3 since September 9, 2018.
(g) That G&S has not obtained an extension, renewal, subsequent phase, or additional
term of any production contract or purchase order for which it would be entitled to a commission
from R3 since September 9, 2018.
(h) That R3’s obligation to pay a commission to G&S only survives the NDA’s
termination if G&S continues to fulfill its obligations under the NDA by obtaining production
contracts or purchase orders; by starting up production contracts or purchase orders; and by
taking the parties through the pre-production approval process until the customer approves the
production contract or purchase order.
(i) That Mark Glidden (“Glidden”) had the authority to act on G&S’s behalf.
(j) That Glidden had the authority to negotiate commission rates on orders obtained by
G&S for R3 on an order-by-order basis.
(k) That liability under the Indiana Sales Commission Act (“Act”) cannot be predicated
on commission reductions or agreements to which Glidden, as a representative of G&S, agreed.
(l) That a bad faith claim under the Act cannot be predicated on commission reductions
or an agreement to which Glidden, as a representative of G&S, agreed.
(m) That, in the alternative, the NDA is an illusory agreement because it lacks sufficient
definiteness to be enforced; that the parties had only an oral contract for the payment of
commissions on orders obtained by G&S for R3; and that G&S is only entitled to commissions
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on purchase orders obtained by G&S for R3 before September 9, 2016. (See Pl.’s Mot. for
Summ. J.)
SUMMARY JUDGMENT STANDARD
Summary judgment is warranted when “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). The non-moving party must marshal and present the Court with evidence on which
a reasonable jury could rely to find in their favor. Goodman v. Nat’l Sec. Agency, Inc., 621 F.3d
651, 654 (7th Cir. 2010). A court must deny a motion for summary judgment when the
nonmoving party presents admissible evidence that creates a genuine issue of material fact.
Luster v. Ill. Dep’t of Corrs., 652 F.3d 726, 731 (7th Cir. 2011) (citations omitted). A court’s role
in deciding a motion for summary judgment “is not to sift through the evidence, pondering the
nuances and inconsistencies, and decide whom to believe. The court has one task and one task
only: to decide, based on the evidence of record, whether there is any material dispute of fact that
requires a trial.” Waldridge v. Am. Heochst Corp., 24 F.3d 918, 920 (7th Cir. 1994). Facts that
are outcome determinative under the applicable law are material for summary judgment
purposes. Smith v. Severn, 129 F.3d 419, 427 (7th Cir. 1997). Although a bare contention that an
issue of material fact exists is insufficient to create a factual dispute, a court must construe all
facts in a light most favorable to the nonmoving party, view all reasonable inferences in that
party’s favor, Bellaver v. Quanex Corp., 200 F.3d 485, 491–92 (7th Cir. 2000), and avoid “the
temptation to decide which party’s version of the facts is more likely true,” Payne v. Pauley, 337
F.3d 767, 770 (7th Cir. 2003). Additionally, a court is not “obliged to research and construct
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legal arguments for parties, especially when they are represented by counsel.” Nelson v.
Napolitano, 657 F.3d 586, 590 (7th Cir. 2011).
ANALYSIS
A.
Non-Disclosure Agreement
Although the parties devote much of their briefing to whether R3 breached the NDA and
their respective interpretations of the NDA, R3 argues in the alternative that if the Court should
find the NDA illusory due to indefiniteness, then the Court should also find that R3 did not
breach any oral contract or implied contract with G&S. Therefore, at the outset, the Court must
decide whether the NDA is illusory and unenforceable due to indefiniteness.
The existence of a contract is a question of law. Jernas v. Gumz, 53 N.E.3d 434, 445 (Ind.
Ct. App. 2016). For a contract to be enforceable, it “must be reasonably definite and certain in its
material terms so that the intention of the parties may be ascertained.” Wenning v. Calhoun, 827
N.E.2d 627, 629 (Ind. Ct. App. 2005). In other words, the parties must demonstrate the “intent to
be bound and definiteness of terms.” Wolvos v. Meyer, 668 N.E.2d 671, 675 (Ind. 1996) (quoting
1 Arthur Linton Corbin & Joseph M. Perillo, Corbin on Contracts § 2.8 at 131 (rev. ed. 1993))
(citing Restatement (Second) of Contracts § 33 cmt. f (1979) (“[p]romises may be indefinite. . . .
The more important the uncertainty, the stronger the indication is that the parties do not intend to
be bound.”).
Courts in Indiana provide that for a contract to be sufficiently definite, “amounts and
prices must be fixed, or be subject to some ascertainable formula or standard.” Inman’s Inc. v.
City of Greenfield, 412 N.E.2d 126, 129 (Ind. Ct. App. 1980) (citing Marshall v. Ahrendt, 332
N.E.2d 223 (Ind. Ct. App. 1975). “In the end, the contract must provide a basis for determining
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the existence of a breach and for giving an appropriate remedy.” McLinden v. Coco, 765 N.E.2d
606, 613 (Ind. Ct. App. 2002) (internal quotation marks omitted).
The Court finds that the NDA in this case to be an illusory, unenforceable contract. The
NDA states in relevant part: “If G&S obtains jobs for R3, the parties will attempt to develop an
agreement whereby G&S is paid a commission with a guideline being a 5% commission with the
precise commission rate to be negotiated on a job-by-job basis.” (Def.’s Ex. 9, §12.2.) The NDA
does not detail the commission rate R3 would be obligated to pay or detail some ascertainable
formula to arrive at a commission rate R3 would be obligated to pay. Instead, the NDA is
explicit about providing the parties the chance to attempt to negotiate a commission rate in the
future. Consequently, even if the Court were to find that R3 breached the NDA, the Court would
not only be unable to derive any remedy from the terms of the Agreement, but also, the Court
would be unable to fashion a remedy consistent with a material term of the Agreement—namely,
allowing the parties to negotiate a commission rate in the future.
Moreover, the Court will not find at this stage that the NDA binds the parties on the issue
of whether G&S is entitled a commission when the relevant language evidences that the parties
did not intend to be bound. Illustration 8 in §33 of the Restatement (Second) of Contracts speaks
to this very issue.2 The Restatement provides: “A promises to do a specified piece of work and B
promises to pay a price to be thereafter mutually agreed. The provision for future agreement as to
price strongly indicates that the parties do not intend to be bound.” Restatement (Second)
Contracts §33, cmt. e, illus. 8 (1981). Similar to the illustration in the Restatement, G&S
promised to procure business for R3 and R3 promised to attempt to develop an agreement to pay
2
Courts in Indiana cite to § 33 of the Restatement (Second) of Contracts as authority in cases where a
contract’s unenforceability due to indefiniteness is at issue. See, e.g., Wolvos, 668 N.E.2d at 675;
McLinden, 765 N.E.2d at 613.
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G&S a commission at a price to be thereafter mutually agreed. In fact, the agreement to agree in
this case is more indefinite and illusory than the Restatement’s illustration. In the Restatement’s
illustration, B promised to pay A for the work that it had done although the price would be
determined at some later date. In the present case, the Agreement did not even explicitly obligate
R3 to pay commission; the Agreement only provided the parties would attempt to develop an
agreement to pay commissions. Hence, the NDA is an illusory, unenforceable contract as its
language evidences that the parties did not intend to be bound on the important issue of
commission payments.
B.
Implied Agreement or Oral Contract
R3 argues that in the event the Court finds the NDA unenforceable, the Court should then
find that R3 did not breach any oral or implied contract to pay G&S commission.
As a preliminary matter, it appears that R3 has used the terms “implied contract” and
“oral contract” interchangeably in this litigation. The Court understands this to be the case
because R3 pleaded it had not breached an “implied agreement” in its Complaint while asking
the Court to find it had not breached an oral contract in its Motion for Summary Judgment. To
clarify, under Indiana law, “[e]xpress and implied contracts are very similar. They differ only in
that an express contract is evidenced by spoken or written words while an implied contract is
evidenced by the conduct of the parties.” DiMizio v. Romo, 756 N.E.2d 1018, 1024 (Ind. Ct.
App. 2001) (citations omitted); see also Indianapolis Real Estate Bd v. Wilson, 98 N.E. 400, 404
(Ind. App. Ct. 1933) (“The intention of the parties, in an express oral contract, is evidenced by
words. The intention of the parties, in an implied contract, is evidenced by acts, circumstances,
and implications.”).
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Regardless of whether R3 asks this Court to find an oral contract or implied contract, R3
fails to present argument supported by evidence regarding the existence of either. R3 has
presented no argument demonstrating that an implied contract existed through the conduct of the
parties—much less the terms of such an implied contract that would allow the Court to determine
whether a breach occurred. Similarly, R3 presented no argument evidencing that the parties
entered into a valid oral contract—much less the parameters of such an oral contract that would
allow this Court to determine whether a breach occurred. Therefore, because the parties have
neither demonstrated the existence of an implied or oral contract nor provided the specific terms
of an implied or oral contract, this Court will not grant summary judgment on whether such an
implied or oral contract existed nor whether such an implied or oral contract was breached.
C.
Glidden’s Apparent Agency
R3 also moves this Court to find that Glidden had the authority to bind G&S to the
commission rates that he negotiated with R3 through the principle of apparent authority. The
Court finds that a genuine issue of material fact exists as to whether Glidden had authority to
bind R3.
An agent has apparent authority to bind a principal when the third party in question
reasonably believes the agent possesses authority due to some act by the principal. Scott v.
Randle, 697 N.E.2d 60, 67 (Ind. Ct. App. 1998). An agent who is placed in a position to act and
make reasonable representations is sufficient to cloak the agent with apparent authority to bind
the principal. Mendard, Inc. v. Dage-MTI, Inc., 726 N.E.2d 1206 (Ind. 2000). There must be
“some form of communication, direct or indirect, by the principal, which instills a reasonable
belief in the mind of the third party” that the agent has the authority to act on behalf of the
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principal. AutoXchange.com, Inc. v. Dreyer & Reinbold, Inc., 816 N.E.2d 40, 48 (Ind. Ct. App.
2004). Statements or manifestations from the agent to the third party alone are not enough to
create an apparent agency relationship. Gallant Ins. Co. v. Isaac, 751 N.E.2d 672, 676–77 (Ind.
2001). However, when a “party places an agent in the position of sole negotiator on his behalf, it
may be reasonable for the third person to believe that the agent possesses authority to act for the
principal.” AutoXchange.com, Inc., 816 N.E. at 48.
To prevail on summary judgment on the apparent authority issue, R3 must present
evidence that Stefani’s communications with R3 or Carver instilled a reasonable belief on the
part of R3 and Carver that Glidden had apparent authority to bind G&S. Isaac, 751 N.E.2d at
676–77. R3, however, emphasizes that summary judgment on the issue of apparent authority is
warranted in its favor by presenting evidence of R3’s understanding of Glidden’s authority based
on Glidden’s representations to R3. This is not enough to find that Glidden had apparent
authority to bind G&S as statements or manifestations from the alleged agent are not alone
sufficient to create apparent agency. AutoXchange.com, Inc., 816 N.E. at 48.
It appears to the Court that R3 may be arguing that it was reasonable to believe that
Glidden had the authority to bind G&S based on Stefani placing Glidden in the position of sole
negotiator and representative for G&S. On the other hand, G&S has presented evidence that R3
knew Glidden did not have the authority to bind G&S to lower commission rates. For example,
Carver testified that his discussions and negotiations with Glidden regarding commission
payments were being relayed to Stefani, who Carver believed “was approving these things.”
(Pl.’s Mem. in Supp. of Mot. for Summ. J., Carver Dep., Ex. 1, 89–91, ECF No 39–1.) In the
context of the commissions that R3 supposedly withheld from G&S due to problems with the
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Aquatic business, Carver testified: “Every time we talked about these things, I always asked
[Glidden] if he was communicating with [Stefani], and [Glidden] said yes.” Id. at 92–93.
Therefore, a factfinder may reasonably conclude that instead of R3 having a reasonable
belief that Stefani bestowed Glidden with authority to bind G&S, R3 had reason to believe that
Glidden did not have the authority to bind G&S. Consequently, this Court denies summary
judgment on the issue of whether Glidden had apparent authority to bind G&S. See Bain v. Bd. of
Trs. of Starke Mem’l Hosp., 550 N.E.2d 106 (Ind. Ct. App. 1990) (finding trial court erred in
granting summary judgment on the issue of apparent authority when there was evidence
supporting a reasonable factfinder deciding either way on the issue).
D.
Indiana Sales Commission Act
R3 also moves the Court to find as a matter of law that it is not liable under the
Indiana Wholesale Representative Commission Act (Act), Indiana Code § 24-4-7-5, for reducing
commission payments to G&S.
The Act mandates that businesses pay their commissioned wholesale agents all accrued
commission within fourteen days of termination of the principal-agent relationship. Ind. Code
§ 24-4-7-5(a). “A principal who in bad faith fails to comply” with that requirement “shall be
liable, in a civil action brought by the sale representative, for exemplary damages in an amount
no more than three (3) times the sum of the commissions owed to the sale representative.” Ind.
Code § 24–4-7-5(b).
The parties again put the carriage before the horse as they devote their arguments to
discussing the proper interpretation of “wholesale” and whether R3 acted in bad faith without
first defining the parameters of the agreement between R3 and G&S. As the Court explained
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above, the NDA is unenforceable, and the parties have not defined the terms of an oral or
implied contract, to the extent such a contract exists. Accordingly, the Court cannot decide at this
summary judgment stage whether R3 is liable under the Act because the parties do not even
define their respective obligations under their principal-agent relationship.
Hence, in sum, the Court grants summary judgment in favor R3 on the issue that the
NDA is an unenforceable contract. The Court denies summary judgment on all other issues and
claims.
CONCLUSION
For these reasons, the Court GRANTS IN PART and DENIES IN PART the Plaintiff’s
Motion for Summary Judgment [ECF No. 37]. The Court DENIES the Defendant’s Motion for
Hearing on Summary Judgment [ECF No. 49]. By separate order, the Court will set a telephonic
scheduling conference for purposes of scheduling the final pre-trial conference and trial.
SO ORDERED on February 27, 2019.
s/ Theresa L. Springmann
CHIEF JUDGE THERESA L. SPRINGMANN
UNITED STATES DISTRICT COURT
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