Engineered Sales, Co. v. Endress + Hauser, Inc., et al
Filing
99
ORDER granting 28 Motion for Summary Judgment; denying 30 Motion for Partial Summary Judgment; granting 32 Motion for Summary Judgment(Written Opinion) Signed by Senior Judge David S. Doty on 2/27/2019. (DLO)
UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
Civil No. 17-3456 (DSD/ECW)
Engineered Sales, Co.,
a Minnesota corporation,
Plaintiff,
v.
ORDER
Endress + Hauser, Inc.,
an Indiana corporation,
and
Miller Mechanical Specialties, Inc.,
an Iowa corporation,
Defendants.
Steven C. Moore, Esq. and Watje & Moore, Ltd., 7900 Xerxes
Avenue South, Suite 2000, Bloomington, MN 55431, counsel for
plaintiff.
Andrew M. McNeil, Esq. and Bose McKinney & Evans LLP, 111
Monument Circle, Suite 2700, Indianapolis, IN 46204 and Mark
J. Carpenter, Esq. and Carpenter Law Firm PLLC, 5200 Willson
Road, Suite 150, Edina, MN 55424, counsel for defendant
Endress + Hauser, Inc.
Peter J. Gleekel, Esq. and Larson King, LLP, 30 East 7th
Street, Suite 2800, St. Paul, MN 55101, counsel for defendant
Miller Mechanical Specialties, Inc.
This matter is before the court upon the partial motion for
summary judgment by plaintiff Engineered Sales Co. (ESC) and the
motions for summary judgment by defendants Endress + Hauser, Inc.
(E+H) and Miller Mechanical Specialties, Inc. (MMS).
Based on a
review of the file, record, and proceedings herein, the court
denies plaintiff’s motion and grants defendants’ motions.
BACKGROUND
This business dispute arises out of E+H’s termination of ESC’s
sales representative agreement.1
E+H is an Indiana company that
manufactures industrial instrumentation, including flow, level,
pressure, temperature, and analytical products.
ESC
is
a
manufacturer’s
representative
and
E+H Answer ¶ 2.
distributor
for
industrial instrumentation and controls based in Minnesota. Compl.
¶ 1; Engstrand Dep. at 27:14-16; Gleekel Decl. Ex. L at 1.
In 2000, E+H contacted Dan Engstrand, president of ESC, about
becoming a sales representative for its product line in Minnesota,
North Dakota, South Dakota, and northwest Wisconsin.
Dep. at 40:11-41:8, 36:16-37:3.
Engstrand
E+H had been working with another
Minnesota company, Control-Tec, but wanted more sales coverage in
the territory as its business expanded.
Id. at 39:24-40:22.
E+H
encouraged ESC to effectively acquire Control-Tec and take over as
the E+H representative in the territory. Id. at 40:23-42:3l 54:2155:11.
Over the course of several months, ESC and Control-Tec
negotiated a deal under which ESC paid $100,000 to acquire ControlTec.2
Id. at 51:10-53:25; 54:21-55:6.
Engstrand initiated the
1
After full briefing of the pending motions, ESC conceded
that certain of its claims are no longer viable. The court will
discuss only those facts relevant to the remaining claims.
2
Engstrand sold ESC’s competing product lines to a third
party. Engstrand Dep. at 45:21-49:23. The court will not discuss
that transaction in detail because it is irrelevant to the issues
presented.
2
discussion with Control-Tec, and E+H was not involved in the
negotiations.
Id. at 45:2-5, 71:20-72:4.
ESC did not make any
payment to E+H relating to its buy out of Control-Tec.
Id. at
56:20-57:6.
On January 1, 2001, ESC and E+H entered into an exclusive
representative agreement (Agreement) under which E+H appointed ESC
as its “independent sales representative to sell [E+H’s] specified
products” in Minnesota, North Dakota, South Dakota, and portions of
Wisconsin. Gleekel Decl. Ex. J at 1, 15. The Agreement designates
ESC as an “independent contractor” and provides that either party
may terminate the agreement “with or without cause” with thirty
days’ written notice.
require
ESC
to
pay
Id. §§ 1(b), 13.
E+H
a
royalty
fee
The Agreement does not
for
becoming
a
sales
representative, nor does it require ESC to pay a percentage of
gross or net sales to E+H.
See id.; Engstrand Dep. at 302:21-
304:8.
The Agreement prohibits ESC from selling competing products,
but permits ESC to continue selling products for certain identified
industrial process manufacturers, referred to as “principals.”3
Gleekel Decl. Ex. J § 4; id. App’x C.
principals is Mine Safety Appliances (MSA).
Among those approved
Id. App’x. C.
The
parties later modified certain aspects of the Agreement through
3
ESC also represented manufacturers in the HVAC and water
and wastewater industries. Gleekel Decl. Ex. L at 17-21.
3
several written addenda.
See Lucey Decl. Ex. A.
modification was in September 2010.
In
approximately
2013,
The last
Id. at 7.
E+H
began
representatives throughout the country.
consolidating
its
Engstrand Dep. at 80:18-
81:3; 140:13-21. Engstrand agreed that consolidation, particularly
in the Midwest, made sense and, in 2014, began discussions with
defendant MMS, an E+H representative in Iowa, about the possibility
of merging.
Id. at 136:2-40:2, 158:14-59:18.
Meanwhile, E+H had
growing concerns about ESC’s sales capacity in the Bakken Shale
Region in North Dakota and its flat sales generally. Camin Dep. at
8:22-10:25.
E+H was also concerned that ESC did not have a
succession plan in place.
Dep. at 58:22-60:2.
Engstrand Dep. at 202:3-204:10; Lucey
Given its concerns and its preference for
consolidated sales representatives, E+H favored a merger between
MMS and ESC.
Camin Dep. at 11:1-8; Sauers Dep. at 7:14-8:11.
E+H
became involved in the discussions between ESC and MMS, even
signing
a
non-disclosure
agreement
(NDA)
to
maintain
the
confidentiality of the information exchanged. Gleekel Decl. Ex. D.
The NDA precludes the distribution, disclosure, or dissemination of
confidential information exchanged under its terms.
Id. § 3(b).
Confidential information includes:
any information and data of a confidential nature,
including but not limited to proprietary, developmental,
technical, marketing, sales, operating, performance,
cost, know-how, business and process information,
computer programming techniques, and all record bearing
media containing or disclosing such information and
4
techniques ... disclosed pursuant to [the NDA].
Id. § 1.
“already
Confidential information does not include information
in
the
public
domain”
or
information
“subsequently
independently developed by the receiving party.” Id. §§ 4(a), (d).
Under the NDA, ESC provided MMS with, among other things, sales
data that included summaries of its business with principals other
than E+H, including MSA.
See P. Miller Dep. Ex. 100 at 5-7, 9.
The data shows that two-thirds of ESC’s revenue came from E+H and
that MSA was its third highest revenue producing principal.
See
id.
Apparently unbeknownst to ESC, E+H communicated regularly with
MMS
throughout
its
negotiations
with
ESC.
Although
E+H
characterizes its role as one of an “interested observer,” the
record establishes otherwise.
It appears that E+H ultimately
determined that MMS should acquire, rather than merge with, ESC and
that it directed negotiations accordingly. See Camin Dep. Exs. 60,
81, 82; Sauers Dep. Exs. 63, 77, 79.
Throughout the negotiations,
E+H told Engstrand that it may simply terminate the Agreement if
ESC could not work out a deal with MMS.
Camin Dep. at 95:7-24,
101:7-23.
On June 5, 2015, after many months of negotiating, MMS offered
to purchase ESC for $1.1 million.
See P. Miller Dep. Ex. 99.
On
June 15, 2015, Engstrand declined the offer and countered with a
proposed purchase price of $1.62 million based on undisclosed
5
“independent
appraisals.”
Sauers
Dep.
Ex.
40
at
1,
2.
MMS
responded that it would keep its offer open until 12:01 a.m. on
June 16, 2015.
Id. at 1.
E+H weighed in the evening of June 15,
indicating that it would terminate ESC if it could not reach
agreement with MMS.
terms
and,
on
June
Camin Dep. Ex. 84.
16,
effective July 17, 2015.4
2015,
E+H
ESC did not agree to MMS’s
terminated
Sauers Dep. Ex. 86.
the
Agreement,
E+H then appointed
MMS as its sales representative in ESC’s former territory.
P.
Miller Dep. at 111:11-12:25.
E+H confirmed that, under the Agreement, it would pay ESC full
commissions on outstanding quotes from July 16, 2015, to August 15,
2015, and fifty-percent commissions on verified outstanding quotes
from August 16, 2015, to September 15, 2015. Engstrand Dep. Ex. 43
at 1, 4.
E+H also confirmed that ESC would receive no commissions
for orders received after September 16, 2015, or for orders shipped
after July 15, 2016.
Id. at 4.
E+H requested that ESC provide any
outstanding special project quotes that E+H did not have access to
so that it could ensure full commission payment.
Id. at 1.
On
July 16, Engstrand provided a list of quotes to E+H and noted that
all of those quotes were already in the E+H database.
at 1.
Id. Ex. 45
Later that month, Engstrand accused E+H of withholding
commissions due to ESC.
Id. Ex. 46 at 2.
4
E+H denied improperly
E+H also terminated the parties’ outsourcing agreement,
which is not at issue. See Sauers Dep. Ex. 86.
6
withholding commissions and explained that ESC was not entitled to
commissions on expired quotes.
Id. at 1.
In his deposition,
Engstrand conceded that E+H paid all commissions due to ESC under
the Agreement and was unable to identify additional commissions due
and owing.
Engstrand Dep. at 288:11-92:5.
Soon after ESC’s termination, MMS contacted MSA and began
discussions about MMS becoming MSA’s sales representative.
Miller Dep. Ex. 108; P. Miller Dep. at 125:12-22.
P.
MMS was aware
that MSA was a market leader in the gas-detection industry and knew
that ESC was its current sales representative.
125:15-22, 127:10-28:18.
P. Miller Dep. at
Travis Sauers, a regional sales manager
for E+H, had a friend who worked at MSA and knew that MSA had been
unhappy with ESC for some time.
Sauers Dep. at 6:9-15, 39:2-21.
ESC was aware that MSA was concerned about ESC’s sales volume.
Engstrand Dep. at 327:17-22.
Sauers denies encouraging MSA to
terminate its relationship with ESC in favor of MMS and also denies
providing MMS with MSA sales data.
Sauers Dep. at 39:6-40:9.
In January 2017, eighteen months after E+H terminated ESC, MSA
replaced ESC with MMS as its sales representative.
P. Miller Dep.
at 130:22-31:1; Engstrand Dep. at 297:18-22.
On July 12, 2017, ESC commenced this action in Hennepin County
District Court raising the following six claims:
(1) E+H and MMS
breached the NDA by using ESC’s confidential information to solicit
ESC employees and principals; (2) E+H and MMS tortiously interfered
7
with
ESC’s
prospective
economic
advantage
by
using
ESC’s
confidential information to induce ESC employees and principals to
terminate
their
relationships
with
ESC;
(3)
E+H
tortiously
interfered with ESC’s prospective economic advantage by interfering
with ESC’s negotiations with MMS; (4) E+H violated the Minnesota
Franchise Act (MFA), Minn. Stat. § 80C.01, et seq., by terminating
its relationship with ESC without good cause; and (5) E+H violated
the Minnesota Termination of Sales Representative Act (MTSRA),
Minn. Stat. § 325E.37, by terminating its relationship with ESC
without good cause; and (6) E+H violated Minn. Stat. § 181.145 by
failing to promptly pay ESC earned commissions.
removed and now move for summary judgment.5
Defendants timely
ESC moves for partial
summary judgment on its MFA claim against E+H.
DISCUSSION
I.
Summary Judgment Standard
“The court shall 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 Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986).
A fact is material only when its resolution affects the outcome of
5
ESC has since conceded that is has no damages, and thus no
claims, relating to E+H’s alleged interference with ESC’s
negotiations with MMS and with respect to solicitation of ESC
employees. ECF Nos. 65 at 19 n.15, 66 at 8 n.3. Therefore, the
court will not address those issues.
8
the case.
(1986).
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248
A dispute is genuine if the evidence is such that it could
cause a reasonable jury to return a verdict for either party.
Id.
at 252.
On a motion for summary judgment, the court views all evidence
and inferences in a light most favorable to the nonmoving party.
Id. at 255.
The nonmoving party, however, may not rest on mere
denials or allegations in the pleadings but must set forth specific
facts sufficient to raise a genuine issue for trial.
U.S. at 324.
Celotex, 477
A party asserting that a genuine dispute exists - or
cannot exist - about a material fact must cite “particular parts of
materials in the record.”
Fed. R. Civ. P. 56(c)(1)(A).
If a
plaintiff cannot support each essential element of a claim, the
court must grant summary judgment because a complete failure of
proof regarding an essential element necessarily renders all other
facts immaterial.
II.
Celotex, 477 U.S. at 322-23.
Breach of Contract
ESC alleges that E+H and MMS breached the NDA by using ESC’s
confidential information to identify MSA as a valuable principal
and to ultimately lure MSA away from ESC.
ESC bases this claim on
the fact that it shared projected gross profits for its top
manufacturers - including MSA - under the NDA and because MMS only
approached MSA after receiving that information.
ESC also argues
that E+H helped MMS pursue MSA after becoming privy to its sales
9
data because it wanted MMS to represent other product lines.
But ESC has failed to cite to any actual facts in support of
its contention that MMS breached the NDA.
based on pure conjecture.
Instead, ESC’s claim is
ESC ignores the fact that MSA was known
as a market leader before the parties signed the NDA, and thus was
a desirable manufacturer to represent.
299:20-300:4.
See Engstrand Dep. at
In other words, the information at issue was
“already in the public domain” and thus not covered by the NDA.
See Gleekel Decl. Ex. D § 4(a).
Further, Engstrand admits that he
and MMS discussed keeping MSA in lieu of a competitor in the event
of a merger.
Engstrand Dep. at 321:8-23:11.
He does not allege
that those discussions were covered by the NDA.
Absent some
evidence that MMS used the sales data provided by ESC to target
MSA, the court must find in favor or MMS on this claim.6
See
Sip-Top, Inc. v. Ekco Group, Inc., 86 F.3d 827, 830 (8th Cir. 1996)
(“When the record contains no proof beyond speculation to support
the verdict, judgment as a matter of law is appropriate.”).
The record is equally devoid of any facts to establish that
E+H breached the NDA.
The fact that E+H may have wanted MMS to
have a more diverse product portfolio does not establish that E+H
6
The court is unpersuaded by MMS’s argument that the sales
data was not properly marked as confidential as required by the
NDA. The enclosure letter makes clear that Engstrand intended the
documents to be kept confidential and he was not required to mark
each page as confidential to effectuate that intent. See P. Miller
Dep. Ex. 100 at 1.
10
used ESC’s confidential information to identify MSA as a possible
principal for MMS.
Indeed, as noted, MSA was a well-known market
leader in the gas-detection industry and its value to E+H and MMS
was evident even without ESC’s sales data.
Based on the record,
the court cannot conclude that E+H breached the NDA as alleged.
III. Tortious Interference
ESC alleges that E+H and MMS tortiously interfered with its
economic advantage by targeting MSA.
ESC pins this claim on E+H’s
and MMS’s use of its confidential information.
7.
See ECF No. 66 at
As discussed above, ESC does not have a viable claim that
either E+H or MMS improperly used ESC’s confidential information.
As a result, ESC’s claim for tortious interference also fails as
matter of law.
IV.
Violation of the Minnesota Franchise Act
ESC argues that it was an E+H franchisee and that, as a
result, it could only be terminated for good cause under the MFA.
See Minn. Stat. § 80C.14, subdiv. 3(b).
E+H denies that ESC was a
franchisee and argues that it was entitled to terminate ESC with
thirty days’ notice for any reason under the Agreement.
Under the MFA, a plaintiff claiming a franchise relationship
must prove:
(1) a right granted in the franchisee to engage in the
business of offering or distributing goods using the franchisor’s
trade name, trademark, advertising or other commercial symbol, (2)
a “community of interest” in the marketing of goods or services
11
between the franchisee and franchisor, and (3) the franchisee paid,
directly or indirectly, a “franchise fee.”
Minn. Stat. § 80C.01,
subdiv. 4; Martin Investors, Inc. v. Vander Bie, 269 N.W.2d 868,
874 (Minn. 1978).
E+H argues that ESC has failed to establish the
second and third elements.
With respect to “community of interest,” E+H denies that ESC
sold goods under E+H’s trade name. Rather, when ESC sold products,
it represented itself to customers as ESC, not E+H. Engstrand Dep.
at 302:21-25.
But the statute does not require that the alleged
franchisee operate under the franchisor’s name; it merely requires
a common interest in the marketing of goods and services.
Minn.
Stat. § 80C.01, subdiv. 4(ii). The court is satisfied that ESC has
established this element.
As to the required franchise fee, ESC argues that the $100,000
it paid to acquire Control-Tec constituted a franchise fee.
A
“franchise fee” is any fee or charge that a franchisee is required
to pay “for the right to enter into a business or to continue a
business under a franchise agreement.”
subdiv. 9.
Minn. Stat. § 80C.01,
A franchise fee can include, but is not limited to,
initial capital investment fees, fees based on a percentage of
gross or net sales, payments for goods or services, and training
fees or charges.
Id.
There is no real dispute that ESC did not pay a direct
franchise fee to E+H.
That is, ESC did not pay E+H for the right
12
to become its sales representative. The parties disagree, however,
as to whether the ESC’s acquisition of Control-Tec was an indirect
franchise payment.
The court finds that it did not.
ESC paid
Control-Tec to acquire its assets in an agreement separate and
distinct from its agreement with E+H.
E+H was not involved in the
negotiations, was not a party to the agreement, and received no
fee, directly or indirectly, from the transaction.
Moreover, the Agreement establishes that parties did not
intend to have franchisee/franchisor relationship.
The Agreement
identifies ESC as its “independent sales representative” and an
“independent contractor” rather than a franchisee.
Ex. J §§ 1(a), (b).
Gleekel Decl.
And, in contrast with the MFA, the Agreement
specifically provides that either party may terminate the agreement
for any reason with thirty days’ written notice.
Id. § 13.
Had
the parties wanted to create a franchise relationship, they could
have easily done so.
Because ESC and E+H did not have a franchise relationship, ESC
cannot maintain its claim under the MFA.
As a result, the court
must grant E+H’s motion for summary judgment on this claim and deny
ESC’s motion for partial summary judgment.
V.
Violation of the Minnesota Termination of Sales Representative
Act
The MTSRA prohibits a manufacturer from terminating a sales
representative
agreement
§ 325E.37, subdiv. 2(a).
absent
“good
cause.”
Minn.
Stat.
The manufacturer is required to give
13
ninety days’ written notice setting forth the reason for the
termination, and the recipient then has sixty days to correct the
stated reason for termination.
Id.
ESC argues that E+H violated the MTSRA by terminating the
Agreement
without
cause
and
with
only
thirty
days’
notice.
According to E+H, the MTSRA does not apply because the Agreement
expressly states that it is governed by Indiana law.
Decl. Ex. J § 15(a).
See Gleekel
In 2014, however, the Minnesota legislature
amended the MTSRA to prohibit choice-of-law provisions providing
for the application of the laws of other states.
§ 325E.37, subdiv. 7.
Minn. Stat.
The question is whether that amendment
applies to the Agreement and renders the parties’ choice-of-law
provision unenforceable.
The 2014 amendment to the MTSRA became effective on August 1,
2014, as to “sales representative agreements entered into, renewed
or amended on or after that date.”
Apex Tech. Sales, Inc. v.
Leviton Mfg., Inc., No. 17-2019, 2017 WL 2731312, at *4 (D. Minn.
June 26, 2017) (quoting 2014 Minn. Sess. Law Serv. Ch. 165 (S.F.
2108)). Here, the parties agree that the Agreement was not amended
on or after August 1, 2014.
ESC argues, however, that the
Agreement was “renewed” because ESC solicited orders on E+H’s
behalf after that date.
ESC relies on a 1991 amendment to the MTSRA which defines the
term “renewed” in the context of establishing whether revisions
14
made to the MTSRA in 1991 applied to existing sales representative
agreements.
See 1991 Minn. Sess. Law Serv. Ch. 190 (H.F. 786) §§
1, 2(a)(2).
The legislature provided that the revisions made to
section 1 of the MTSRA applied to sales representative agreements
“entered into or renewed on or after the effective date of t[he]
act.”
Id. § 2(a).
The legislature further provided that a sales
representative agreement is “renewed” in this context if “the
agreement is for an indefinite period, and with the principal’s
consent or acquiescence, the sales representative solicits order on
or after the effective date of section 1.”
Id. § 2(a)(2).
According to ESC, this definition of “renewed” should also be
applied to the 2014 amendment.
The court disagrees.
The 1991
amendment applies specifically to the revisions to section 1 of the
MTSRA, and the court is unpersuaded that the legislature intended
for it to broadly apply to all provisions of the MTSRA, including
subsequent amendments relating to other aspects of the act.
The
2014 amendment does not incorporate the earlier amendment, nor does
it independently define “renew.”
The court must therefore look to the plain meaning of “renew”
in interpreting the 2014 amendment.
N.W.2d 289, 292 (Minn. 2016).
Shire v. Rosemount, Inc., 875
Black’s Law Dictionary defines
“renew” as “the act of restoring or reestablishing.”
Black’s Law. Dict.
at 1410 (9th ed. 2009).
likewise defines “renew” as “to make like new.”
15
Garner,
Merriam-Webster
Merriam-Webster
Collegiate Dictionary 990 (10th ed. 1993).
Because the Agreement
did not contain an expiration date, it is not possible for it to be
“renewed” as that term is commonly understood.
As a result, the court concludes that the 2014 amendment does
not
apply
and
enforceable.
VI.
that
the
parties’
choice-of-law
provision
is
E+H is entitled to summary judgment on this claim.
Unpaid Commissions
ESC argues that E+H failed to pay it commissions as required
under Minn. Stat. § 181.145. This claim is premised on application
of the MTSRA.
Because the court has concluded that ESC does not
have a viable claim under the MTSRA, this claim also fails as a
matter of law.
CONCLUSION
Accordingly, based on the above, IT IS HEREBY ORDERED that
1.
Defendant Miller Mechanical Specialties, Inc.’s motion
for summary judgment [ECF No. 28] is granted;
2.
Plaintiff’s motion for partial summary judgment [ECF No.
30] is denied;
3.
Defendant Endress + Hauser, Inc.’s motion for summary
judgment [ECF No. 32] is granted; and
16
4.
The case is dismissed with prejudice.
LET JUDGMENT BE ENTERED ACCORDINGLY.
Dated: February 27, 2019
s/David S. Doty
David S. Doty, Judge
United States District Court
17
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