Loftness Specialized Farm Equipment, Inc. v. Twiestmeyer et al
MEMORANDUM OPINION AND ORDER. 1. Loftness's Motion for Summary Judgment on Defendants' Counterclaim for Breach of the NDA (Doc. No. 118 ) is GRANTED IN PART and DENIED IN PART as follows: a. As a matter of law, neither Twiestmeyer nor Hoo d is a party or assignee of the NDA. Thus, the Court grants Loftnesss motion to the extent that Defendants' counterclaim for breach of the NDA is premised on Twiestmeyer or Hood being a party or assignee. b. Fact issues remain as to whether Tw iestmeyer and Hood are third-party beneficiaries to the NDA. Thus, the Court denies Loftnesss motion to the extent that Defendants claim that Twiestmeyer and Hood are third-party beneficiaries to the NDA. 2. Loftness's Motion to Strike Defendants' Damages Expert (Doc. No. 121 ) is DENIED. (Written Opinion) Signed by Judge Donovan W. Frank on 8/23/2017. (BJS)
UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
Loftness Specialized Farm
Civil No. 11-1506 (DWF/TNL)
OPINION AND ORDER
Terry Twiestmeyer, Steven
Hood, and Twiestmeyer &
Jeremy D. Robb, Esq., Karna A. Berg, Esq., Katie M. Connolly, Esq., and Peter D. Gray,
Esq., Nilan Johnson Lewis PA, counsel for Plaintiff.
Aaron A. Myers, Esq., Victoria H. Buter, Esq., and Thomas H. Dahlk, Esq., Kutak Rock
LLP, counsel for Defendants.
Plaintiff Loftness Specialized Farm Equipment, Inc. (“Loftness” or “Plaintiff”)
brought this declaratory judgment action against Defendants Terry Twiestmeyer
(“Twiestmeyer”), Steven Hood (“Hood”), and Twiestmeyer & Associates, Inc.’s (“TAI”)
(collectively, “Defendants”). Defendants brought several counterclaims, including
claims for unjust enrichment and the breach of two contracts--a May 2008 Override
Agreement and a Non-Disclosure Agreement (“NDA”). Plaintiff previously moved to
dismiss Defendants’ counterclaims. In an Order dated April 13, 2012, the Court
dismissed all counterclaims with the exception of the counterclaims for breaches of the
Override Agreement and NDA. (Doc. No. 36.) Plaintiff then moved for summary
judgment on Defendants’ remaining counterclaims. In an Order dated October 15, 2012,
the Court granted Plaintiff’s motion on the two remaining breach-of-contract
counterclaims. (Doc. No. 61.) Defendants appealed the Court’s grant of summary
judgment and the Court’s previous dismissal of the unjust enrichment claim. The Eighth
Circuit Court of Appeals affirmed the grant of summary judgment on the counterclaim
for breach of the Override Agreement and the dismissal of the unjust enrichment claim,
and vacated and remanded the Court’s order granting summary judgment on the
counterclaim for breach of the NDA. (Doc. No. 75; Loftness Specialized Farm Equip.,
Inc. v. Twiestmeyer, 742 F.3d 845 (8th Cir. 2014) (“Loftness I”).) On remand, the Court
granted Plaintiff’s motion for summary judgment on the remaining counterclaim for
breach of the NDA. Defendants again appealed, and the Eighth Circuit concluded that
fact issues exist with respect to the parties’ intent on whether the NDA protected
information disclosed by TAI for the term of the NDA (twenty (20) years) regardless of
whether that information subsequently became publicly available. (Doc. No, 93; Loftness
Specialized Farm Equip., Inc. v. Twiestmeyer, 818 F.3d 356 (8th Cir. 2016) (“Loftness
Presently before the Court are two motions. First, Plaintiff moves for summary
judgment on Defendants’ sole remaining counterclaim—breach of the NDA. (Doc.
No. 118.) 1 Second, Plaintiff moves to strike Defendants’ damages expert, Zach Eubank.
(Doc. No. 121.) For the reasons discussed below, the Court grants in part and denies in
part Plaintiff’s motion for summary judgement and denies the motion to strike.
The facts of this case have been thoroughly recited in prior orders and the Court
briefly summarizes the facts herein. Loftness is in the business of manufacturing and
selling specialized farm machine equipment, including grain bag loaders (“GBLs”) and
grain bag unloaders (“GBUs”). Loftness uses independent sales representatives to sell its
products. Twiestmeyer owns TAI, which is in the business of marketing and selling grain
bagging equipment. (Doc. No. 13, Answer (“Ans.”) and Counterclaim (“CC”), Ans. ¶ 2.)
TAI was an independent sales representative for Loftness. (CC ¶ 6.) Hood & Company,
Inc., owned by Defendant Steven Hood, was also a sales representative for Loftness. (Id.
¶¶ 2, 7.)
Twiestmeyer and Hood sold grain-bagging equipment manufactured in Argentina,
giving them knowledge about the market for grain-bagging equipment and insight into
possible improvements that could be made to the Argentine-made equipment. On
May 15, 2007, Twiestmeyer and Hood met with representatives of Loftness to discuss an
idea for a grain-bagging product line to sell in the United States—the “Grain Bag Storage
Plaintiff asks the Court to find that the only party with a claim against Plaintiff
under the NDA is TAI and seeks to dismiss Twiestmeyer and Hood. Thus, in essence,
the motion is for partial summary judgment as TAI’s counterclaim for breach of the NDA
will go forward regardless.
System.” At the meeting, Loftness and TAI executed the NDA. 2 (Doc. No. 1, Compl.
¶ 8, Ex. A (the “NDA”); Ans. ¶ 8; CC ¶ 10.) The NDA contains the following key
provisions and definitions:
This [NDA] is made between TWIESTMEYER & ASSOCIATES, INC., a
Nebraska corporation having offices at 3119 Briarwood Blvd.,
Grand Island, NE, 68803 (the “Disclosing Party”) and LOFTNESS
SPECIALIZED FARM EQ, INC. (the “Receiving Party”), having offices at
650 SO. MAIN ST, HECTOR, MN 55342.
(NDA at 1.)
1. Confidential Information. Such information that [TAI] considers
to be proprietary and/or confidential, which may include, but is not limited
to, prototypes, representative or demonstrative objects, trade secrets,
discoveries, ideas, know-how, techniques, designs, specifications,
drawings, data, computer programs, business activities and operations,
reports, memoranda, studies, and other technical or business information.
2. Disclosing Party. For purposes of this Agreement, the Disclosing
Party will be the party that is revealing or disseminating information to
another party, person or entity.
3. Project. Any matter being developed, discussed, worked on,
shared or contracted for between the parties to this Agreement.
4. Receiving Party. For purposes of this Agreement, the Receiving
Party will be the party, person or entity that receives Confidential
Information from the disclosing party.
(NDA, Definitions ¶¶ 1-4.)
The NDA was drafted on TAI’s behalf by Twiestmeyer’s daughter, who is an
attorney. (Doc. No. 54 ¶ 2, Ex. 3 (TAI 30(b)(6) Dep.) at 21.) The NDA was executed by
TAI and Loftness. (NDA at 3.)
2. Protection of Confidential Information. [Loftness] acknowledges
that [TAI] claims its Confidential Information as a valuable and unique
asset. For itself and on behalf of its officers, directors, agents, employees,
and affiliates, [Loftness] agrees that it will keep in confidence all
Confidential Information, and that it will not directly or indirectly disclose
to any third party or use for its own benefit, or use for any purpose other
than the Project, any Confidential Information it receives from [TAI].
[Loftness] agrees to protect the Confidential Information, and agrees that in
no event will it use less than the same degree of care to protect the
Confidential Information as it would employ with respect to its own
information of like importance that it does not desire to have published or
11. Miscellaneous. This is the only agreement between Disclosing
Party and Receiving Party concerning Confidential Information, and it may
not be modified, amended or terminated, in whole or in part, except in
writing signed by both parties.
(NDA, Agreement ¶¶ 2, 11.) Finally, the NDA states “Duties to Third Parties” without
further reference to any such parties or respective duties to them. (Id. at 3.) The only
other provision in the NDA that uses the term “third parties” is paragraph 4, “No
License,” which states:
No license under any trademark, patent, copyright or other right is granted
or conveyed by Disclosing Party’s transmittal of Confidential Information
or other information to Receiving Party under this Agreement, nor shall
such transmission constitute any representation, warranty, assurance,
guaranty or inducement by the Disclosing Party to the Receiving Party with
respect to infringement of patent or other rights of third parties.
(Id. ¶ 4.) Finally, the NDA specified a twenty (20) year term. (Id. ¶ 8.)
After Loftness signed the NDA, TAI gave Loftness information about the Grain
Bag Storage System. Specifically, Defendants allege that Twiestmeyer and Hood shared
information about the market for grain bag equipment, the components of the proposed
Grain Bag Storage System, and the components of the Grain Bag Storage System that
included a GBU with the proposed improvements. Defendants further assert that
Loftness had no prior experience manufacturing or marketing grain handling equipment
and that Twiestmeyer and Hood presented their past experiences and ideas on how to
succeed in developing the Grain Bag Storage System. Ultimately, Loftness decided to
manufacture the equipment.
Following the May 2007 meeting, the parties discussed how Twiestmeyer and
Hood would be compensated for their role in developing the new product line.
Ultimately, the parties entered into the Override Agreement. Pursuant to the Override
Agreement, Loftness agreed to pay Twiestmeyer and Hood a two-percent (2%) override
of the dealer net price on all grain bagging equipment and related products, except grain
bags, sold by Loftness during the term of the agreement. The Override Agreement
specified a two year period, but Loftness paid the two-percent override until early 2011,
at which time Loftness advised Twiestmeyer and Hood that it intended to stop payments.
Twiestmeyer and Hood presented Loftness with a proposed agreement that would
provide for a continuation of the override payments, but Loftness declined and advised
Twiestmeyer and Hood that it would stop using TAI’s trademark and cease the override
payments after February 2011.
On June 8, 2011, Loftness brought the present action, seeking a declaration that it
had no duty to pay TAI, Twiestmeyer, or Hood under any existing contract or other
obligation. Defendants filed an Answer and asserted five counterclaims. The only
counterclaim that remains at present is the claim for breach of the NDA. Plaintiff argues
that the only party with a claim against it under the NDA is TAI and, accordingly, has
moved for summary judgment dismissing Twiestmeyer and Hood as parties. 3
Summary judgment is proper if there are no disputed issues of material fact and
the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a). The
Court must view the evidence and the inferences that may be reasonably drawn from the
evidence in the light most favorable to the nonmoving party. Enter. Bank v. Magna Bank
of Mo., 92 F.3d 743, 747 (8th Cir. 1996). However, as the Supreme Court has stated,
“[s]ummary judgment procedure is properly regarded not as a disfavored procedural
shortcut, but rather as an integral part of the Federal Rules as a whole, which are designed
‘to secure the just, speedy, and inexpensive determination of every action.’” Celotex
Corp. v. Catrett, 477 U.S. 317, 327 (1986) (quoting Fed. R. Civ. P. 1).
Loftness originally sought to dismiss Twiestmeyer and Hood from this case via a
motion in front of Magistrate Judge Tony N. Leung. Magistrate Judge Leung declined to
rule on this issue and instead allowed the parties to move for summary judgment
regarding Twiestmeyer and Hood’s factual and legal basis to be considered parties or
beneficiaries to the NDA. (Doc. No. 113 at ¶ 5(a).)
The moving party bears the burden of showing that there is no genuine issue of
material fact and that it is entitled to judgment as a matter of law. Enter. Bank, 92 F.3d at
747. The nonmoving party must demonstrate the existence of specific facts in the record
that create a genuine issue for trial. Krenik v. Cnty. of Le Sueur, 47 F.3d 953, 957
(8th Cir. 1995). A party opposing a properly supported motion for summary judgment
“may not rest upon the mere allegations or denials of his pleading, but must set forth
specific facts showing that there is a genuine issue for trial.” Anderson v. Liberty Lobby,
Inc., 477 U.S. 242, 256 (1986).
Presently, Loftness seeks to dismiss Twiestmeyer and Hood on the grounds that
they do not have rights to enforce the NDA because they are not parties, third-party
beneficiaries, or assignees to the NDA. Defendants oppose Loftness’s motion, arguing
that the record shows that Twiestmeyer and Hood were both individually involved in the
events surrounding the NDA, each acted as a “Disclosing Party,” and each expected to
benefit under the NDA.
Parties to the NDA
Loftness submits that the only parties to the NDA are those specifically named—
TAI and Loftness. Defendants, however, argue that Twiestmeyer and Hood meet the
definition of “Disclosing Party” under the NDA when considering the “surrounding
circumstances.” The primary goal of contract interpretation is to determine and enforce
the intent of the parties. Motorsports Racing Plus, Inc. v. Arctic Cat Sales, Inc., 666
N.W.2d 320, 323 (Minn. 2003). Where the parties express their intent unambiguously,
the words of the contract are to be given their plain and ordinary meaning. Id. at 323-24.
Whether a contract is ambiguous is a question of law. In re SRC Holding Co., 545 F.3d
661, 665 (8th Cir. 2008). “A contract is ambiguous if it is susceptible to more than one
interpretation based on its language alone.” Hous. & Redev. Auth. of Chisholm v.
Norman, 696 N.W.2d 329, 337 (Minn. 2005).
The initial paragraph of the NDA explicitly states that the NDA is between TAI
and Loftness, that TAI is the “Disclosing Party,” and that Loftness is the “Receiving
Party.” (NDA at 1.) Loftness argues that this unambiguous language ends the analysis of
who is the “Disclosing Party” because the language of the NDA is not susceptible to
more than one construction. Defendants, however, assert that “surrounding
circumstances” relating to the NDA are admissible to determine the parties’ intent, and
that the circumstances here demonstrate that Twiestmeyer and Hood were each a
“Disclosing Party.” In support, Defendants argue that when the surrounding
circumstances are considered, the definition of “Disclosing Party” is broader than just
TAI. Those circumstances include, for example, the fact that Twiestmeyer and Hood
provided Confidential Information to Loftness and that the parties intended for
Twiestmeyer and Hood to be compensated. At a minimum, Defendants assert that
resolving any conflict regarding the parties’ contractual intent on this point is a fact issue
for the jury.
Defendants rely on In re Soper’s Estate, 264 N.W. 427 (Minn. 1935). In In re
Soper’s Estate, two women claimed the right to the proceeds of a trust instrument, which
required the interpretation of the word “wife” in an escrow agreement. Id. at 430-31.
The court ultimately found, from the “facts and circumstances” that the parties intended
the “wife” to be the woman who believed she was married to the deceased (and the only
one known or considered by the contracting parties to be the deceased’s wife), despite the
fact that the deceased had a “real wife” who he had left years before after faking his own
suicide. Id. Here, however, the disputed term—“Disclosing Party”—is specifically
defined as TAI, which was not the case in In re Soper’s Estate, where the agreement
simply used the word “wife” without naming a specific woman. In addition, it was
evident in In re Soper’s Estate that there was only one intended, albeit unnamed, “wife”
at the time the trust agreement was drafted. Here, the NDA specifically names only two
parties, TAI and Loftness, and specifically excluded Twiestmeyer and Hood despite their
known involvement. For these reasons, the Court finds In Soper’s Estate to be
distinguishable from the case at hand.
The Court determines that the relevant language of the NDA is clear and
unambiguous. The NDA explicitly names TAI as the Disclosing Party and Loftness as
the Receiving Party. Because there is no ambiguity, the language is given its plain and
ordinary meaning and the Court’s inquiry ends. The Court also notes that looking at the
entirety of the NDA supports this conclusion. There is no reference in the NDA to any
person or entity other than TAI as the Disclosing Party. Indeed, the NDA identifies TAI
as the Disclosing Party. Moreover, the definition of “Disclosing Party” refers “to the
party that is revealing or disseminating information” in the singular and does not suggest
additional “disclosing parties” entitled to receive benefits under the NDA. The NDA
even references both parties when discussing a necessary agreement to modify or
terminate the NDA. (NDA ¶ 11.) In addition, the NDA was executed by Twiestmeyer,
as TAI’s president, and Gloria L. Nelson, as Loftness’ president. Neither Twiestmeyer
nor Hood is a signatory to the NDA. In sum, the Court concludes that the plain language
of the NDA demonstrates that the only Disclosing Party is TAI.
Third-Party Beneficiaries or Assignees
Defendants also argue that Twiestmeyer and Hood are intended third-party
beneficiaries or assignees under the NDA. Defendants argue that Loftness’s corporate
representative and the signatory of the NDA understood that Twiestmeyer and Hood
would disclose information to Loftness at the time the NDA was executed (Doc. No. 136
(“Dahlk Decl.”) ¶ 4, Ex. C (“Loftness 30(b)(6) Dep.”) at 27-28; id. ¶ 5, Ex D (“Nelson
Dep.”) at 25), and that Twiestmeyer (on behalf of TAI) intended to confer a benefit on
Hood and himself. (Id. ¶ 6, Ex. E (“Twiestmeyer Decl.”) ¶ 4.) Defendants assert that,
under Minnesota law, when it is clear from the language of the agreement and the
surrounding circumstances that both TAI and Loftness intended that the obligations
agreed to by Loftness under the NDA should extend to Twiestmeyer and Hood,
Twiestmeyer and Hood are intended third-party beneficiaries. See, e.g., Hickman v.
SAFECO Ins. Co. of Am., 695 N.W.2d 365, 369-70 (Minn. 2005).
Plaintiff disagrees and argues that neither Twiestmeyer nor Hood is an intended
beneficiary under the NDA. Specifically, Plaintiff argues that the terms of the NDA do
not expressly or by implication show an intent to benefit Twiestmeyer or Hood
individually. Plaintiff points out that the NDA does not mention them, the NDA only
specifically refers to TAI as the Disclosing Party, and the “Duties to Third Parties” does
not identify Twiestmeyer and Hood or any corresponding duties.
Generally, one who is not a party to a contract does not have rights under a
contract, but an intended third-party beneficiary may acquire contractual rights. The law
distinguishes between intended and unintended beneficiaries: intended beneficiaries have
enforceable rights, while incidental beneficiaries do not. Caldas v. Affordable Granite &
Stone, Inc., 820 N.W.2d 826, 832 (Minn. 2012). “[A] third party is an intended
beneficiary under a contract when it is appropriate to recognize third-party beneficiary
rights to effectuate the intent of the parties to the contract, and either the duty owed or the
intent-to-benefit test is satisfied.” Id. at 833. A third party to the contract who does not
meet this standard is merely an incidental beneficiary and has no right to enforce the
contract. See id.
In Hickman v. SAFECO Inc. Co. of Am., 695 N.W.2d 365 (Minn. 2005), the
Minnesota Supreme Court explained that Minnesota applies Section 302 of the
Restatement (Second) of Contracts in determining beneficiary status. 695 N.W.2d at 369.
That section provides:
Unless otherwise agreed between promisor and promisee, a
beneficiary of a promise is an intended beneficiary if recognition of a right
to performance in the beneficiary is appropriate to effectuate the intention
of the parties and either
(a) the performance of the promise will satisfy an obligation of the
promisee to pay money to the beneficiary [duty owed test]; or
(b) the circumstances indicate that the promisee intends to give the
beneficiary the benefit of the promised performance [intent to benefit
(2) An incidental beneficiary is a beneficiary who is not an intended
Restatement (Second) of Contracts § 302. The Restatement refers to two tests: (1) the
“duty owed” test; and (2) the “intent to benefit test”—“the contract must express some
intent by the parties to benefit the third party through contractual performance[.]” Cretex
Cos., Inc. v. Construction Leaders, Inc., 342 N.W.2d 135,138 (Minn. 1984); see also
Hickman, 695 N.W.2d at 369.
Defendants assert that Twiestmeyer and Hood are intended beneficiaries under the
“intent to benefit” test. In particular, Defendants maintain that the surrounding
circumstances demonstrate that Twiestmeyer and Hood spent considerable time and
money developing Confidential Information disclosed to Loftness in May 2007, and that
TAI and Loftness intended to give both Twiestmeyer and Hood the benefit of Loftness’
promises. (Twiestmeyer Decl. ¶ 4.) In support, Defendants rely on Hickman. In
Hickman, the Minnesota Supreme Court interpreted an insurance contract that covered
property on which Hickman held a mortgage. The Minnesota Supreme Court then
considered whether Hickman was a third-party beneficiary under the “intent to benefit”
test. The insurance contract recognized a class of “borrowers” that is defined as the
mortgagor of an insured location indebted under a mortgage and referred to the
“borrower” as an entity other than the party that had entered into the insurance contract
and that the “borrower” would obtain benefits. Id. at 370. The Minnesota Supreme
Court concluded that the provisions of the insurance contract established that Hickman
was an intended beneficiary of some of the insurance proceeds. Id.
Hickman is not directly on point because here there is no reference in the NDA to
any person or entity other than TAI as the Disclosing Party and the NDA identifies TAI
as the Disclosing Party. The NDA also contains the heading “Duties to Third Parties,”
but that section is incomplete and does not identify any class of third parties or
corresponding duties. However, the NDA also lacks a clause disclaiming third-party
beneficiary rights. The Court concludes that looking at the language of the NDA as a
whole, the NDA is ambiguous as to the third-party beneficiary status of Twiestmeyer and
Hood. Thus, viewing the evidence in the light most favorable to Defendants, including
the circumstances surrounding the execution of the NDA, there is a material issue of fact
as to whether the parties intended that the obligations agreed to by Loftness under the
NDA would extend to Twiestmeyer and Hood and, therefore, whether they are third-party
beneficiaries. Thus, summary judgment is denied on this point. 4
Motion to Strike Damages Expert
Loftness also moves to strike Defendants’ damages expert, Zach Eubank
(“Eubank”), from opining that Plaintiff’s use of information disclosed under the NDA
could have caused TAI as much as $6 million in damages. Loftness argues that Eubank
The Court concludes that there is no evidence suggesting that Twiestmeyer or
Hood are assignees to the NDA. An assignment generally “operates to transfer all rights
possessed by the assignor and the assignor retains no interest in the right transferred.”
Martin ex rel. Hoff v. City of Rochester, 642 N.W.2d 1, 13 (Minn. 2002). Thus, had TAI
assigned its rights to Twiestmeyer and Hood, TAI would have no cause of action against
Loftness for breach of the NDA. However, TAI is the party that brought the
counterclaim for breach of the NDA against Loftness. Moreover, there is no record
evidence of an assignment.
In addition, because the Court has denied summary judgment on the issue of
whether Twiestmeyer and Hood are third-party beneficiaries, the Court declines to
consider whether TAI could maintain a counterclaim for breach of the NDA for their
benefit without joining them as parties.
arrived at his damage calculation using a reasonable royalty measure of damages and that
a reasonable royalty is not an appropriate measure of damages for breach of the NDA.
Defendants oppose the motion and argue that the reasonable royalty measure of damages
is appropriate in the present case.
In general, Federal Rules of Civil Procedure 702 and 703, as well as the teachings
of Daubert v. Merrell Dow Pharms., Inc., 509 U.S. 579 (1993), govern the admissibility
of expert testimony. Before accepting the testimony of an expert witness, the trial court
is charged with the “gatekeeper” function of determining whether an opinion is both
relevant and reliable. Daubert, 509 U.S. at 589-90; Aviva Sports, Inc. v. Fingerhut Direct
Mktg., Inc., 829 F. Supp. 2d 802, 820 (D. Minn. 2011). Under Federal Rule of Evidence
702, an expert may testify if: (1) the expert’s scientific, technical, or other specialized
knowledge will help the fact-finder to understand the evidence or determine a fact in
issue; (2) the testimony is based on sufficient facts or data; (3) the testimony is the
product of reliable principles and methods; and (4) the expert has reliably applied those
principles and methods to the facts of the case. Fed. R. Evid. 702; see also Lauzon v.
Senco Prods., Inc., 270 F.3d 681, 686 (8th Cir. 2001). In addition, Rule 703 reads:
An expert may base an opinion on facts or data in the case that the expert
has been made aware or personally observed. If experts in the particular
field would reasonably rely on those kinds of facts or data in forming an
opinion on the subject, they need not be admissible for the opinion to be
admitted. But if the facts or data would otherwise be inadmissible, the
proponent of the opinion may disclose them to the jury only if their
probative value in helping the jury evaluate the opinion substantially
outweighs their prejudicial effect.
The Court also notes that “Rule 702 reflects an attempt to liberalize the rules
governing the admission of expert testimony,” and it favors admissibility over exclusion.
Lauzon, 270 F.3d at 686. When examining an expert opinion, a court applies a general
rule that “the factual basis of an expert opinion goes to the credibility of the testimony,
not the admissibility, and it is up to the opposing party to examine the factual basis for
the opinion in cross-examination.” Bonner v. ISP Techs., Inc., 259 F.3d 924, 929 (8th
Cir. 2001) (citation and quotation omitted). “[I]f the expert’s opinion is so fundamentally
unsupported that it can offer no assistance to the jury,” then it must be excluded. Id.
at 30. In Kumho Tire Co. v. Carmichael, 526 U.S. 137, 152 (1999), the Supreme Court
concluded that “the trial judge must have considerable leeway in deciding in a particular
case how to go about determining whether particular expert testimony is reliable.” The
proponent of the evidence has the burden of establishing by a preponderance of the
evidence that testimony is admissible. Lauzon, 270 F.3d at 686.
Here, Plaintiff argues that the use of a reasonable royalty as a measure of damages
is inappropriate and would be prejudicial to Loftness because the theory of recovery does
not fit the facts of the case. Loftness asserts that Eubank has failed to base his reasonable
royalty calculation on the behavior that TAI claims constituted a breach of the NDA.
Plaintiff points out Defendants originally asserted the breach of two contracts, the NDA
(entered into by TAI and Loftness) and the Override Agreement (entered into by
Twiestmeyer, Hood, and Loftness, and which provided payment to Twiestmeyer and
Hood). Twiestmeyer and Hood asserted a claim against Loftness for breach of the
Override Agreement, claiming that Loftness should have paid them beyond the term in
the Override Agreement. That claim was dismissed by this Court and that dismissal was
affirmed by the Eighth Circuit. Plaintiff argues that Eubanks conflates the facts related to
the NDA and the Override Agreement to come up with his damages calculation. More
specifically, Plaintiff contends that the NDA did not impose a duty on Loftness to make
royalty payments to TAI and, instead, that TAI benefited under a separate Sales
Representative Agreement and that Twiestmeyer and Hood benefited under the Override
Agreement. Plaintiff also argues that TAI cannot seek damages based on a royalty
dictated by the separate Override Agreement, but rather that Eubank should have looked
solely at the terms of the NDA to calculate damages. 5 In sum, Plaintiff argues that, for
the above reasons, Eubank’s damages report is irrelevant, will not assist the trier of fact
in determining damages, and is highly prejudicial.
Defendants oppose the motion. First, Defendants argue that the reasonable royalty
measure of damages is appropriate in assessing damages under the NDA. Second,
Defendants assert that Eubank did not consider the NDA and Override Agreement as one
contract, but instead that he appropriately considered the 2% royalty in the Override
Agreement as one of several data points in determining a reasonable royalty. (Doc.
No. 127 (“Berg Aff.”) ¶ 2, Ex. 3 (“Eubank Report”) at 10.) Finally, Defendants maintain
that the law of the case doctrine does not prohibit a claim for damages based on a
The Court notes that the Override Agreement provided for royalty payments to
Twiestmeyer and Hood, but TAI was not a party to that agreement.
Here, the sole remaining claim is whether Loftness breached the non-use provision
of the NDA and, specifically, whether Loftness breached the NDA by using Confidential
Information for Loftness’s own benefit during the twenty-year term of the NDA. TAI
asserts that Loftness breached the terms of the NDA when it began selling GBUs and
GBLs to Brandt Agricultural Products Ltd. (“Brandt”) in 2010, and by doing so,
disclosing Confidential Information to Brandt while the NDA was still in effect. (CC
¶ 50.) In Loftness II, the Eighth Circuit held that fact issues remained with respect to
whether the parties intended for the NDA’s protections to last for twenty years or to end
when the Confidential Information was no longer confidential. 818 F.3d at 362. In
addition, the Eighth Circuit did not find the lack of a payment provision in the NDA
dispositive. (Id. at 363.) The Eighth Circuit explained:
[S]o long as Loftness continued to pay TAI, TAI reasonably may have
considered Loftness’s use of TAI’s confidential information as part of the
Brandt Industries relationship to be a non-competitive use. Under this
view, had Loftness wished to continue to use TAI’s confidential
information in a potentially competitive manner, Loftness could have
continued to enter into ancillary payment agreements with TAI.
In his report, Eubank prepared a damage calculation based on a reasonable royalty
using the general framework set out in Georgia-Pacific Corp. v. U.S. Plywood Corp., 318
F. Supp. 1116, 1120 (S.D.N.Y. 1970) and which is often used in patent cases. (Eubank
Report at 10-21.) A reasonable royalty can be calculated from an established royalty, the
infringer’s profit projections for infringing sales, or a hypothetical negotiation based on
the factors set forth in Georgia–Pacific. See Lucent Techs., Inc. v. Gateway, Inc., 580
F.3d 1301, 1324 (Fed. Cir. 2009) (patent damages). The hypothetical negotiation
“attempts to ascertain the royalty upon which the parties would have agreed had they
successfully negotiated an agreement,” and “necessarily involves an element of
approximation and uncertainty.” Lucent, 580 F.3d at 1324-25 (citation omitted). As part
of this analysis, Eubank considered multiple factors, including royalty rates received
under the Override Agreement, market rates for similar royalties paid in the applicable
industry, rates paid by Loftness for the use of comparable intellectual property, the nature
and scope of the NDA, the profitability and commercial success of the relevant products,
the utility of the products over old modes or devices, the nature and benefits of the
relevant products, the extent to which Loftness used Confidential Information, anticipated
profit margins, and the portion of the profit credited to Confidential Information.
(Eubank Report at 10-21.) Based on his analysis, Eubank concluded that a reasonable
royalty rate would range between 2% and 5% of net sales for the use of the confidential
grain bagging information provided by Twiestmeyer, Hood and/or TAI to Loftness. (Id.
The Court concludes that if the evidence bears out and the trier of fact finds that
Loftness breached the NDA and that the parties intended that Defendants be compensated
under the NDA for the use of Confidential Information, then Eubank’s reasonable royalty
analysis will be admissible. While a reasonable royalty analysis is normally used in
patent infringement cases, there is precedent for using the analysis in a case involving the
breach of an NDA. See, e.g., Tate v. Scanlan Int’l, Inc., 403 N.W.2d 666, 672-74 (Minn.
App. 1987) (affirming a jury verdict applying a reasonable royalty in a case involving a
breach of a nondisclosure agreement). The Court finds that Eubank’s reasonable royalty
calculation is based on a reliable methodology, is relevant, and will assist the trier of fact.
To the extent that Loftness argues that Eubank’s opinion results from assumptions that
are not based on an understanding of the fundamental facts of the case and a failure to
distinguish between facts related to the NDA and the Override Agreement, Loftness can
address those concerns via vigorous cross-examination and through the presentation of its
own evidence. For these reasons, the Court denies Loftness’s motion to strike.
Accordingly, IT IS HEREBY ORDERED that:
Loftness’s Motion for Summary Judgment on Defendants’ Counterclaim
for Breach of the NDA (Doc. No. ) is GRANTED IN PART and DENIED IN
PART as follows:
As a matter of law, neither Twiestmeyer nor Hood is a party or
assignee of the NDA. Thus, the Court grants Loftness’s motion to the extent that
Defendants’ counterclaim for breach of the NDA is premised on Twiestmeyer or
Hood being a party or assignee.
Fact issues remain as to whether Twiestmeyer and Hood are
third-party beneficiaries to the NDA. Thus, the Court denies Loftness’s motion to
the extent that Defendants claim that Twiestmeyer and Hood are third-party
beneficiaries to the NDA.
Loftness’s Motion to Strike Defendants’ Damages Expert (Doc. No. )
Dated: August 23, 2017
s/Donovan W. Frank
DONOVAN W. FRANK
United States District Judge
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