Riddle et al v Geckobyte.com, Inc.

Filing 81

MEMORANDUM AND ORDER: IT IS HEREBY ORDERED that: 1. Defendants' Motion for Summary Judgment 54 is DENIED; 2. Plaintiffs' Motion for Summary Judgment 60 is GRANTED; and 3. Defendants' Counterclaims 15 are DISMISSED with prejudice. (Written Opinion) The Hon. Senior Judge Paul A. Magnuson on 6/22/2018. (LLM)

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UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
Jeffrey Riddle and RTM
Marketing Group, Inc.,

Civ. No. 17-623 (PAM/LIB)

Plaintiffs,
v.

MEMORANDUM AND ORDER

Geckobyte.com, Inc. and
R. Tiegen Fryberger,
Defendants.

This matter is before the Court on Plaintiffs’ Motion for Summary Judgment on
Defendants’ Counterclaims and Defendants’ Motion for Summary Judgment on
Plaintiffs’ Claims.

For the following reasons, Plaintiffs’ Motion is granted and

Defendants’ Motion is denied.
BACKGROUND
Plaintiff Jeffrey Riddle is a computer programmer who operated Plaintiff RTM
Marketing Group, Inc., a business that provides data and consulting services for the tire
and automotive industry.
In November 2010, Defendant R. Tiegen Fryberger, controlling principal of
Defendant Geckobyte.com, Inc., contacted Riddle about purchasing RTM. The two
businesses offered similar services and had common customers, and Fryberger was
primarily interested buying RTM so he could expand Geckobyte’s business with a
particular client, who worked with both businesses but did more business with RTM.
(See Morris Aff. (Docket No. 69-1) Ex. 1 (Fryberger Dep.) at 42.)

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Negotiations ensued and Riddle ultimately agreed to sell RTM to Geckobyte. The
parties memorialized that agreement in two separate contracts: the Asset Purchase
Agreement (APA) and the Employment Agreement (EA). In the APA, Geckobyte agreed
to pay RTM a $100,000 down payment, $6,605.84 in monthly installments for five years,
and an annual earn-out payment equivalent to 35% of RTM’s gross receipts. (Riddle Aff.
(Docket No. 68-1) Ex. 1 (APA) ¶¶ 2-3.) In the EA, Geckobyte agreed to pay Riddle
$150,000 per year until December 31, 2020. (Riddle Aff. (Docket No. 68-2) Ex. 2 (EA).)
Riddle began working for Geckobyte in January 2011, and Fryberger and Riddle
developed a process to handle payments under the APA and the EA. The relationship
between Fryberger and Riddle eventually deteriorated, and in 2013, Fryberger terminated
Riddle. Fryberger did not document any particular problems with Riddle’s employment;
he simply felt that Riddle did not “fit within the culture very well” and believed that “it
was time for a change.” (Fryberger Dep. at 122-23.) Fryberger gave Riddle $2,500 in
severance and stopped all payments under the APA and EA. (Id. at 130, 136.) Following
his termination, Riddle allegedly began communicating with Geckobyte’s clients.
The Amended Complaint claims that Defendants breached the APA and the EA,
and also includes causes of action for unjust enrichment, quantum meruit, conversion,
and misrepresentation. (Am. Compl. (Docket No. 40).) Defendants counterclaimed that
Plaintiffs breached the EA, violated the Uniform Trade Secrets Act, and tortiously
interfered with a contractual relationship and with Defendants’ prospective advantage.
(Answer & Countercl. (Docket No. 15).) Plaintiffs now move for summary judgment on

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Defendants’ counterclaims, and Defendants move for summary judgment on Plaintiffs’
claims.
Defendants contend that the EA established Riddle as an at-will employee who
could be fired without cause, that Riddle agreed to forfeit his right to payments under the
APA if he was terminated, and that Riddle violated the EA’s non-compete provision.
Plaintiffs argue that Riddle was not an at-will employee, the non-compete provision is
unenforceable, and the remainder of Defendants’ counterclaims are meritless.
DISCUSSION
A.

Standard of Review
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 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). 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. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). A party opposing
a properly supported motion for summary judgment may not rest on mere allegations or
denials, but must set forth specific facts in the record showing that there is a genuine
issue for trial. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256 (1986).

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A.

Plaintiffs’ Motion
1.

Breach of EA

Defendants allege that Riddle breached the EA’s non-compete provision by
communicating with Geckobyte customers and prospective customers after he was
terminated. Plaintiffs argue that the non-compete is not enforceable because it does not
protect any legitimate business interest, it is overbroad and unreasonable, and regardless,
Defendants’ contractual breaches preclude enforcement of the non-compete provision.
“[A] court may enforce a non-competition clause if it is necessary to protect
reasonable interests of an employer, and does not impose unreasonable restraints on the
rights of the employee.” Klick v. Crosstown State Bank of Ham Lake, Inc., 372 N.W.2d
85, 87 (Minn. Ct. App. 1985). Here, the non-compete prohibits Riddle from “engag[ing]
in any business or perform[ing] any service . . . or hav[ing] any interest . . . in any
enterprise that shall solicit, divert, or compete for . . . any client, or prospective client
who has been contracted with, contacted, solicited, or serviced by the Employer,” without
any geographic limitation, for a period of five years after his termination. (EA ¶ 14.4.)
Defendants assert that this non-compete protects its legitimate business interest in
the good will of its clientele. Although they may have a legitimate need to protect
Geckobyte by prohibiting “former employees from actively soliciting business from [its]
customers,” Davies & Davies Agency, Inc. v. Davies, 298 N.W.2d 127, 131 (Minn.
1980), Defendants have no legitimate interest in prohibiting former employees from
soliciting Geckobyte’s prospective clients. Moreover, as Plaintiffs suggest, compliance
with this non-compete is essentially impossible—Riddle has no way to know who
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Geckobyte considers a prospective client. Finally, the non-compete is not restricted to
customers who are related to Riddle’s employment with Geckobyte, which is significant
because Geckobyte’s business involves services in other industries. (See Fryberger Dep.
at 9-13.)
The non-compete is thus overbroad and unnecessary to protect Geckobyte’s
reasonable interests. But even if the non-compete did protect Geckobyte’s legitimate
business interests, it is still unreasonable.

Factors to consider in assessing the

reasonableness of a non-compete provision include “the nature and character of the
employment, the time for which the restriction is imposed, and the territorial extent of the
locality to which the prohibition extends.”

Davies, 298 N.W.2d at 131 (quotation

omitted).
Plaintiffs argue that the geographical boundary, which essentially covers the entire
United States, is unreasonable because it would inhibit Riddle’s ability to earn a
livelihood. See Jim W. Miller Constr., Inc. v. Schaefer, 298 N.W.2d 455, 458 (Minn.
1980) (stating that enforcement of non-compete provisions is disfavored because it
“restricts the covenantor’s right to work and his ability to earn a livelihood”). However,
a national boundary may be reasonable given the national nature of Geckobyte’s
business. See W. Publ’g Corp. v. Stanley, No. 03-cv-5832, 2004 WL 73590, at *10 (D.
Minn. Jan. 7, 2004) (Tunheim, J.) (concluding that no geographic limitation was
reasonable given the national and international nature of an internet business). There is
no evidence that Riddle’s work was restricted to a particular region or territory. On this
record, the Court cannot conclude that the geographical boundary is unreasonable.
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“The reasonableness of a temporal restriction depends on the nature of the job, the
amount of time necessary to find and train a replacement for the employee, and the
amount of time necessary for the employee’s customers to become accustomed to the
employee’s replacement.” Klick, 372 N.W.2d at 88. The temporal restriction here is five
years. (EA ¶ 14.4.) Defendants argue that five years is necessary because “it takes that
many years to establish good will and a legitimate following with specific clients.”
(Fryberger Aff. (Docket No. 72) ¶ 3.)

This assertion is unsupported by any other

evidence in the record and is thus too conclusory for the Court to rely on it. In any event,
this argument is disingenuous. Defendants produced no evidence that Riddle received
special training. And Minnesota courts have rejected similar temporal restrictions as
unreasonable. See, e.g., Davies, 298 N.W.2d at 131 (reducing a temporal restriction from
five years to one year because five years was improper); Klick, 372 N.W.2d at 88
(concluding that a three-year restriction was unreasonable where employee required no
special training). The non-compete provision is thus unreasonable and unenforceable.
Finally, even if it the non-compete was otherwise enforceable, Defendants are not
entitled to enforce the non-compete provision against Riddle. Generally, a party who
does not substantially perform on a contract cannot enforce its rights under that contract.
Material Movers, Inc. v. Hill, 316 N.W.2d 13, 18 (Minn. 1982). Here, the EA provided
for a $25,000 severance if Riddle was terminated without cause. (EA ¶ 10.5.) Fryberger
only gave Riddle $2,500. (Fryberger Dep. at 136.) Defendants do not dispute Plaintiffs’
contention that this breach is an independent justification that precludes Defendants from
enforcing the non-compete provision.
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Plaintiffs’ Motion on this Counterclaim is therefore granted.
2.

Uniform Trade Secrets Act

Defendants contend that Plaintiffs violated the Uniform Trade Secrets Act. The
Uniform Trade Secrets Act, Minn. Stat. §§ 325C.01-.08, protects proven trade secrets
through an action for misappropriation. Electro-Craft Corp. v. Controlled Motion, Inc.,
332 N.W.2d 890, 897 (Minn. 1983).

A “trade secret” includes information that

“(i) derives independent economic value . . . 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 (ii) is the subject of efforts that are reasonable under
the circumstances to maintain its secrecy.” Minn. Stat. § 325C.01, subd. 5. Here, the
counterclaim alleges that Geckobyte’s client list and related client information constitute
trade secrets. (Answer & Countercl. ¶ 23.)
Plaintiffs contend that Defendants have not identified any actual trade secret.
Defendants did not address this counterclaim in their opposition brief, apparently
conceding that no trade secret exists.

In any event, Geckobyte’s client list was

undoubtedly ascertainable to Plaintiffs because RTM had many customers in common
with Geckobyte before the sale, and there is no evidence that Defendants attempted to
keep Geckobyte’s client information a secret. Cf. Widmark v. Northrup King Co., 530
N.W.2d 588, 592 (Minn. Ct. App. 1995) (concluding that a customer list was not a trade
secret because the customers “were readily ascertainable” and there was no evidence of
efforts to keep customers’ identities a secret). This Counterclaim is therefore dismissed.

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3.

Tortious Interference and Prospective Advantage

Defendants assert that Riddle tortiously interfered with Geckobyte’s contractual
relationships and with its prospective advantage. Minnesota recognizes causes of action
“for wrongful interference with both present and prospective contractual relations.”
United Wild Rice, Inc. v. Nelson, 313 N.W.2d 628, 632 (Minn. 1982). “A cause of
action for tortious interference with contract has five elements: (1) the existence of a
contract; (2) the alleged wrongdoer’s knowledge of the contract; (3) intentional
procurement of its breach; (4) without justification; and (5) damages.” Sysdyne Corp. v.
Rousslang, 860 N.W.2d 347, 351 (Minn. 2015) (quotation omitted). Interference with
prospective economic advantage also requires intentional interference with a party’s
reasonable expectation of economic advantage that is “either independently tortious or in
violation of a state or federal statute or regulation.” Gieseke ex rel. Diversified Water
Diversion, Inc. v. IDCA, Inc., 844 N.W.2d 210, 219-20 (Minn. 2014).
Plaintiffs argue that Defendants have failed to allege or identify any contract of
which Riddle induced a breach, and that Defendants have presented no evidence of any
intentional or improper interference.

Because Defendants did not address these

counterclaims, they are also dismissed.
B.

Defendants’ Motion
1.

Employment Claims

Defendants argue that Riddle’s employment-related claims—breach of EA, unjust
enrichment, quantum meruit, and conversion—should be dismissed because they are
barred by the statute of limitations and because Riddle was an at-will employee.
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Minnesota courts apply a two-year statute of limitations if “the gravamen of the
action is the breach of an employment contract.” Park Nicollet Clinic v. Hamann, 808
N.W.2d 828, 832 (Minn. 2011) (quotation omitted); accord Minn. Stat. § 541.07(5)
(stating that a two-year limitations period applies to any action “for the recovery of
wages”). The gravamen of this action, however, is a business transaction to sell RTM to
Geckobyte—it is simply not the recovery of wages or the breach of an employment
contract. Thus, the two-year statute of limitations does not apply. Rather, Minnesota’s
six-year statute of limitations for breach of contract applies. See Minn. Stat. § 541.05,
subd. 1(1).
Thus, Riddle can maintain his claims unless he was an at-will employee. 1 “The
cardinal purpose of construing a contract is to give effect to the intention of the parties as
expressed in the language they used in drafting the whole contract.” Art Goebel, Inc. v.
N. Suburban Agencies, Inc., 567 N.W.2d 511, 515 (Minn. 1997). “The construction and
effect of a contract is . . . a question of law unless the contract is ambiguous.”
Denelsbeck v. Wells Fargo & Co., 666 N.W.2d 339, 346 (Minn. 2003). A contract is
ambiguous if it is “reasonably susceptible of more than one meaning.” Qwinstar Corp. v.
Anthony, 882 F.3d 748, 754 (8th Cir. 2018) (quotation omitted).
At-will employment means that an employee can be terminated “for any reason or
no reason, and that the employee . . . is under no obligation to remain on the job.” Pine
River State Bank v. Mettille, 333 N.W.2d 622, 627 (Minn. 1983). Here, the EA includes

1

Defendants’ contention on this issue is conclusory and does not address any of
Plaintiffs’ arguments in opposition.
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several provisions suggesting that Riddle was an at-will employee. It provides that
Riddle’s “employment with Employer is as an ‘at will’ Employee.” (EA ¶ 2.) And it
also states that the “[e]mployer may terminate [Riddle]’s employment at any time for
Cause or without Cause.” (Id. ¶ 10.3.) Finally, it permitted Riddle to “terminate his
employment with Employer at any time upon sixty (60) days prior written notice.” (Id.
¶ 10.1.)
But, the EA also includes provisions that support Plaintiffs’ contention that
Riddle’s employment was not at-will, because the term of employment was definite and
the EA contains termination conditions. See Kvidera v. Rotation Eng’g & Mfg. Co., 705
N.W.2d 416, 421 (Minn. Ct. App. 2005) (emphasis omitted) (“[A]n employment
agreement may supersede the at-will doctrine if it contains either termination conditions
or a specified duration.”). Specifically, the EA stated that Riddle’s employment “shall
commence [on] the date hereof and continue until December 31, 2020.” (EA ¶ 2.) It also
provides numerous definitions and examples of what constitutes cause to terminate
Riddle, which are presumably unnecessary if Riddle could be terminated for any reason
or no reason. (See id. ¶ 10.3.1 through 10.3.6.)
The Court must “construe a contract as a whole,” Chergosky v. Crosstown Bell,
Inc., 463 N.W.2d 522, 525 (Minn. 1990), and if an apparent conflict exists between two
clauses in a contract, the Court has a “duty to find harmony between them and to
reconcile them if possible.” Anthony, 882 F.3d at 755 (quotation omitted). The Court
cannot, however, harmonize these conflicting provisions regarding Riddle’s employment
status and thus the EA is ambiguous regarding Riddle’s employment status.
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Consequently, “parol evidence may be considered to determine the intent of the parties.”
Caldas v. Affordable Granite & Stone, Inc., 820 N.W.2d 826, 832 (Minn. 2012).
Plaintiffs produced an earlier draft version of the EA containing the following
termination provision: “Either party hereto shall have the right to terminate the
employment of Employee upon thirty (30) days prior written notice of the other party.
Notwithstanding the foregoing sentence the employment of Employee is and is intended
to be as an ‘at will employee.’” (Riddle Aff. (Docket No. 68-3) Ex. 3 (Draft EA).)
Riddle crossed out that language, stating that he understood that this “provision will be
eliminated” and replaced with a “provision entitling the employer to terminate for
‘cause.’” (Id. ¶ 10.) But the earlier version also provided that Riddle’s “employment
with Employer is as an ‘at will’ Employee” in another provision, and there was no
annotation to change that provision. (Id. ¶ 2.)
“[A]mbiguous contract terms must be construed against the drafter,” Hilligoss v.
Cargill, Inc., 649 N.W.2d 142, 148 (Minn. 2002), but a reasonable juror could
nevertheless conclude that the parties intended Riddle to be an at-will employee in the
final version of the EA. Riddle’s employment status is a question of fact that precludes
summary judgment because the EA is reasonably susceptible to more than one
interpretation. The Motion on this basis is denied.
Finally, Defendants argue that RTM’s claims should also be dismissed because the
APA states that RTM forfeits any right to receive payments if Riddle is terminated
pursuant to the EA. (See APA ¶ 9.10.) But whether Riddle was terminated pursuant to
the EA is a question of fact, so the Court cannot grant Defendants’ Motion against RTM.
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2.

Fraudulent Inducement

Defendants argue that the fraudulent inducement claim is barred because it stems
from the same operative facts that give rise to Plaintiffs’ breach of contract claims.
Whether Plaintiffs’ breach of contract claims precludes their fraudulent inducement claim
“turns on whether the contract and fraud claims represent one cause of action with
multiple theories of recovery or two distinct causes of action.” McDonald v. Johnson &
Johnson, 776 F.2d 767, 769 (8th Cir. 1985). But “courts agree that fraud in inducing a
contract and a later breach of that contract represent two distinct causes of action under
Minnesota law.” McDonald, 776 F.2d at 770.
Here, Plaintiffs claim that Fryberger fraudulently induced Riddle to enter into the
APA and the EA, because Fryberger never intended to pay Riddle. Thus, like McDonald,
Plaintiffs’ fraudulent inducement claim “arose when [Defendants] first made the
promises, without intending to honor them, that allegedly induced [P]laintiffs to enter
into the [APA and the EA]; [P]laintiffs’ breach of contract claim[s] arose only after
[Defendants] later failed to fulfill those promises.” Id. Defendants’ argument on this
basis is rejected.
3.

Remaining Arguments

Finally, Defendants argue in two footnotes at the end of their brief that the unjust
enrichment and quantum meruit claims should be dismissed because the existence of
express contracts precludes recovery on quasi-contract claims, and that the conversion
claim should be dismissed because there was no property interest involved. The Court
need not address these arguments because they are “in a conclusory fashion and without
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supporting affidavits, or testimony, or argument.” See Brodsky v. Brodsky, 733 N.W.2d
471, 478 (Minn. Ct. App. 2007). In any event, Defendants’ argument on the quasicontract claims is meritless because Plaintiffs may assert alternative claims even if those
claims are inconsistent; “[c]ourts . . . routinely permit the assertion of contract and quasicontract claims together.” Cummins Law Office, P.A. v. Norman Graphic Printing Co.,
826 F. Supp. 2d 1127, 1130 (D. Minn. 2011) (Kyle, J.). Plaintiffs’ conversion claim
references “the assets of RTM” as the property interest. (Am. Compl. ¶ 58.) Defendants
do not explain why these assets are not an enforceable property interest. Defendants’
arguments as to these claims are without merit.
CONCLUSION
The non-compete provision is unenforceable, and sufficient evidence exists to
present a question of fact regarding Riddle’s employment status. Accordingly, IT IS
HEREBY ORDERED that:
1.

Defendants’ Motion for Summary Judgment (Docket No. 54) is DENIED;

2.

Plaintiffs’ Motion for Summary Judgment (Docket No. 60) is GRANTED;
and

3.

Defendants’ Counterclaims (Docket No. 15) are DISMISSED with
prejudice.

Dated: June 22, 2018

s/ Paul A. Magnuson
Paul A. Magnuson
United States District Court Judge

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