Midwest Medical Solutions, LLC v. Exactech U.S., Inc. ( 2021 )

United States Court of Appeals
For the Eighth Circuit
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No. 21-1621
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Midwest Medical Solutions, LLC; Hugh Bradley
Plaintiffs - Appellants
v.
Exactech U.S., Inc.
Defendant - Appellee
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Appeal from United States District Court
for the District of Minnesota
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Submitted: October 21, 2021
Filed: December 29, 2021
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Before COLLOTON, SHEPHERD, and KELLY, Circuit Judges.
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KELLY, Circuit Judge.
Exactech U.S., Inc. terminated its Sales Agency Agreement (the Agreement)
with Midwest Medical Solutions, LLC and Hugh Bradley (collectively, Midwest),
after Midwest failed to meet its sales quota for two or more consecutive quarters.
Under the Agreement’s non-compete provision, Midwest was entitled to Restricted
Period Compensation (RPC) after termination. The parties dispute the amount of
RPC owed, and Midwest initiated an action in the District of Minnesota seeking,
among other things, a declaratory judgment as to the amount of RPC. Upon
Midwest’s motion for summary judgment, the district court concluded that the
Agreement limited RPC to a total of 7.5 percent of sales during the previous 12
months, divided into six monthly payments. Midwest appeals, arguing the district
court misconstrued the Agreement.
I.
Exactech, a manufacturer of orthopedic implants and surgical instruments for
hip, knee, and shoulder surgery, entered into an Agreement with Midwest, under
which Midwest was the exclusive sales representative for Exactech’s products in
Minnesota, North Dakota, South Dakota, and LaCrosse County, Wisconsin.
Exactech paid Midwest commission between 15 and 22 percent of invoiced sales,
depending on the product sold. Exactech could terminate the Agreement by
providing 30 days’ written notice if Midwest failed to meet the average quarterly
total of its quota plan for two consecutive quarters. After termination, Midwest
would be subject to a non-compete covenant for 12 months, during which time
Midwest could not solicit Exactech customers or employees. The Agreement
included an RPC provision, Paragraph 5.D.ii, that would apply during the non-
compete period:
In the event this Agreement is terminated or not renewed by Exactech,
then during each calendar month of the first six (6) months after such
termination, Exactech will pay [Midwest] an amount equal to seven and
one half percent (7.5%) of the total sales in the Territory during the
trailing twelve (12) months ending on such termination date (the
“Restricted Period Compensation”).
The Agreement contained an integration clause, specifying that it represented the
entire understanding between the parties and superseded all prior agreements or
understandings and that the Agreement could be modified only by written
agreement.
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By December 31, 2018, Midwest had missed its sales quota for two or more
consecutive quarters, and on February 5, 2019, Exactech notified Midwest that it
would terminate the Agreement, effective March 7, 2019. Through counsel,
Midwest and Exactech disputed the amount Midwest would be entitled to in RPC
per the Agreement terms. Both agreed that the total sales for the previous 12 months
were approximately $4 million. However, Midwest maintained it was entitled to 7.5
percent of that $4 million to be paid each month for six months, for a total RPC of
approximately $1.8 million. Exactech disagreed, contending Midwest was entitled
to 7.5 percent of the roughly $4 million in sales to be paid out in six monthly
installments, for a total RPC of approximately $300,000.
On March 15, 2019, Midwest brought claims against Exactech in the District
of Minnesota. 1 Relevant on appeal, Midwest sought a declaratory judgment that,
pursuant to Paragraph 5.D.ii of the Agreement, it was entitled to approximately $1.8
million in RPC. On June 13, 2019, the district court, applying Minnesota law as
agreed to by the parties, denied Midwest’s motion for summary judgment on the
declaratory judgment claim. The district court rejected Midwest’s proposed
interpretation of Paragraph 5.D.ii and agreed with Exactech’s. The district court did
not analyze the text of Paragraph 5.D.ii itself but considered other factors to
conclude:
There is no dispute that the purpose of the RPC is to compensate
Plaintiffs for a twelve-month non-compete covenant after termination.
Reading the sales agreement in this light, the Court finds that the
1
Exactech filed counterclaims against Midwest, including for reformation
based on mutual mistake and rescission based on mutual or unilateral mistake, both
with respect to Paragraph 5.D.ii. After the district court denied Midwest’s motion
for summary judgment on Midwest’s claim for declaratory judgment, Exactech
amended its answer and counterclaims, retaining only a counterclaim for breach of
confidentiality. At oral argument, however, counsel for Exactech expressed the view
that the reformation and rescission counterclaims are still in the case. We leave it to
the district court to determine the status of any remaining counterclaims upon
remand.
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agreement clearly and unambiguously limits RPC to 7.5% of the
preceding twelve-months sales. This amount bears a reasonable and
rational relationship to Plaintiffs’ actual fees and commissions under
the agreement . . . and the purpose of the compensation.
The parties later stipulated to entry of judgment against Exactech on
Midwest’s declaratory judgment claim pursuant to the district court’s interpretation
of Paragraph 5.D.ii. The district court entered judgment on March 1, 2021, ordering
Exactech to pay RPC to Midwest in the amount of $287,077.23, plus pre-judgment
interest in the amount of $47,128.51.
With a final judgment in hand, Midwest timely appealed, challenging the
district court’s interpretation of Paragraph 5.D.ii set forth in the summary judgment
order.
II.
A party is entitled to “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). In a case of contract interpretation,
construction of an unambiguous contract is a question of law that we review de novo,
but if the contract is ambiguous, its meaning is a question of fact, and summary
judgment is inappropriate unless evidence of the parties’ intent is conclusive.
Qwinstar Corp. v. Anthony, 882 F.3d 748, 752 (8th Cir. 2018) (quoting Swift & Co.
v. Elias Farms, Inc., 539 F.3d 849, 851 (8th Cir. 2008)).
For a contract to be deemed unambiguous, Minnesota law requires a court to
construe the contract as a whole to determine whether it is subject to only one
reasonable interpretation. See id. at 754. Where the parties to a contract “express
their intent in unambiguous words, those words are to be given their plain and
ordinary meaning.” Motorsports Racing Plus, Inc. v. Arctic Cat Sales, Inc., 666
N.W.2d 320, 323 (Minn. 2003). And “when a contractual provision is clear and
unambiguous, courts should not rewrite, modify, or limit its effect by a strained
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construction.” Travertine Corp. v. Lexington-Silverwood, 683 N.W.2d 267, 271
(Minn. 2004). Accordingly, we must first examine the text of Paragraph 5.D.ii to
determine whether that provision is unambiguous and, if so, assess the plain and
ordinary meaning of the words therein.
Although the parties advocate different interpretations of Paragraph 5.D.ii,
both argue on appeal that the provision is unambiguous. In relevant part, Paragraph
5.D.ii provides, “during each calendar month of the first six (6) months after such
termination, Exactech will pay [Midwest] an amount equal to seven and one half
percent (7.5%) of the total sales in the Territory during the trailing twelve (12)
months ending on such termination date.”
We agree with the parties and the district court that this provision is
unambiguous. The first phrase, “during each calendar month of the first six (6)
months after such termination,” sets the frequency and number of payments. The
second phrase, “Exactech will pay Agency an amount equal to seven and one half
percent (7.5%) of the total sales in the Territory during the trailing twelve (12)
months ending on such termination date,” sets the amount of each payment. Thus,
Exactech must make a payment of 7.5 percent of the total sales from the trailing 12-
month period to Midwest each month for six months. The plain and ordinary
meaning of Paragraph 5.D.ii aligns with Midwest’s, rather than Exactech’s,
interpretation.
To endorse Exactech’s contrary position—that RPC is limited to 7.5 percent
of sales during the preceding 12 months to be paid out in six monthly installments—
we would have to eliminate or read-in language. Either we would need to ignore the
first phrase—“during each calendar month of the first six (6) months after such
termination”—or we would need to insert or infer language about the total payment
being made through equal monthly installments. In other words, to read Paragraph
5.D.ii as Exactech advocates, we would have to rewrite or modify unambiguous
contract language, which Minnesota law prohibits, and which we decline to do.
Travertine Corp., 683 N.W.2d at 271; see also Am. Com. Ins. Brokers, Inc. v. Minn.
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Mut. Fire & Cas. Co., 551 N.W.2d 224, 227–228 (Minn. 1996) (“If no ambiguity
exists, there is no reason for construction, and the court is bound to attribute the usual
and accepted meaning to the phrase.”).
Nevertheless, Exactech argues that the court must construe Paragraph 5.D.ii
in light of the rest of the contract and should thus reject Midwest’s position because
it would lead to an unreasonable, harsh result for Exactech and a windfall for
Midwest. Exactech is correct that under Minnesota law, courts consider a relevant
contractual provision in the context of the entire contract and the parties’ positions
at the time of contract formation to determine “what they reasonably meant to
accomplish in view of the contract as a whole, its plain language, and the
surrounding circumstances.” Qwinstar, 882 F.3d at 754 (quoting Ecolab, Inc. v.
Gartland, 537 N.W.2d 291, 295 (Minn. Ct. App. 1995)). This includes reading a
contract so as to harmonize all clauses and avoid rendering a portion meaningless.
Id. at 754–55. Further, courts “read contract terms in the context of the entire
contract and will not construe the terms so as to lead to a harsh and absurd result.”
Brookfield Trade Ctr., Inc. v. Cnty. of Ramsey, 584 N.W.2d 390, 394 (Minn. 1998);
see also Am. Com. Ins. Brokers, 551 N.W.2d at 230 (interpreting insurance contract
as a whole to avoid “potentially unlimited windfall of recovery”).
Here, however, nothing in the remainder of the Agreement contradicts the
plain meaning of Paragraph 5.D.ii. No one disputes that the purpose of RPC is to
compensate Midwest during the non-compete period, but there is no evidence of the
parties’ intent with respect to the amount of RPC owed other than the unambiguous
language of the relevant provision itself. Indeed, there is no claim of unilateral or
mutual mistake presently before the court that would permit consideration of the
parties’ intent apart from the plain language of the Agreement. And though the plain
language may result in a large sum paid to Midwest by Exactech as RPC, there is no
evidence—other than the parties’ self-serving arguments—as to why this amount is
or is not an absurd result. As such, we are bound to give Paragraph 5.D.ii its plain
and ordinary meaning. See Motorsports Racing Plus, 666 N.W.2d at 323. To
conclude otherwise would be to substitute our views of the contract or our inferences
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about RPC for the parties’ intent as indicated by the clear and unambiguous language
of Paragraph 5.D.ii, terms that the parties negotiated and to which they ultimately
agreed.
III.
For the foregoing reasons, we conclude that the district court did not apply the
plain and ordinary meaning of Paragraph 5.D.ii as required by Minnesota law, and
we reverse and remand the case for further proceedings consistent with this opinion.
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