Curry's Transportation Services, Inc. v. Mike Dotson, Eric Ryner, Justin Craig Shafer, and Ryner Transportation, Inc. ( 2014 )

IN THE COURT OF APPEALS OF IOWA
No. 13-1555
Filed December 24, 2014
CURRY’S TRANSPORTATION SERVICES,
INC.,
Plaintiff-Appellant,
vs.
MIKE DOTSON, ERIC RYNER, JUSTIN
CRAIG SHAFER, and RYNER
TRANSPORTATION, INC.,
Defendants-Appellees.
________________________________________________________________
Appeal from the Iowa District Court for Muscatine County, Joel W.
Barrows, Judge.
Curry’s Transportation Services, Inc. appeals from the judgment
dismissing its claims of civil conspiracy, breach of contract, and intentional
interference with business relationships. AFFIRMED.
Thomas E. Maxwell and Michael J. Harris of Leff Law Firm, L.L.P., Iowa
City, for appellant.
Jason J. O’Rourke and Benhamin J. Patterson of Lane & Waterman,
L.L.P., Davenport, for appellees.
Heard by Mullins, P.J., and Bower and McDonald, JJ.
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MCDONALD, J.
This case involves a dispute between a trucking company, Curry’s
Transportation Services, Inc. (hereinafter “CTS”), and three of its former
employees/contractors who left CTS’s service and started competing in the
industry. Following a bench trial, the district court dismissed CTS’s claims for
breach of contract, intentional interference with business relationships, and civil
conspiracy.
I.
CTS is a trucking company based in eastern Iowa. It has approximately
125 employees, 90 of which are drivers. In addition to its employee drivers,
CTS’s fleet includes independent owner/operators who lease their respective
trucks to CTS for CTS’s use. Approximately eighty percent of the independent
owner/operators operate under CTS’s authority and Department of
Transportation (hereinafter “DOT”) number while twenty percent operate under
their own authority and DOT number. Jason Curry (“Curry”) is an owner of CTS
and has served as the vice-president of operations since the company’s
inception.
Eric Ryner worked at CTS as an employee driver from 2002 through 2003
and from 2006 through 2008. In September 2008, Ryner purchased his own
truck and formed Ryner Transportation, Inc. (hereinafter “RT”). Ryner and RT
entered into an “independent contractor operating agreement” with CTS and
leased the truck to CTS as an owner/operator under CTS’s authority and DOT
number. Several months later, in December 2008, Ryner and RT signed a new
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operating agreement with CTS that contained certain restrictive covenants,
including the non-compete provision at issue in this proceeding. In December
2009, RT began operating under its own authority and DOT number but still
hauled freight solely for CTS. Ryner and RT were not asked to sign a new
operating agreement at this time. However, as will be discussed below in more
detail, CTS, Ryner, and RT started operating under new terms. Ryner and RT
discontinued hauling for CTS on August 9, 2012.
After Ryner left CTS, he began hauling for some companies he had
previously hauled for while at CTS. This included Winegard, a satellite antenna
manufacturing company, which paid a very profitable rate due to the time-
sensitive nature of its operations. Before Ryner and RT left CTS, RT used to
receive the majority of the Winegard routes at the request of Winegard. Soon
after Ryner and RT left CTS, Winegard discontinued all shipping with CTS and
transferred most of that shipping business to RT.
Mike Dotson worked for CTS for seven years—six of those as operations
manager and Curry’s “right hand man.” As the operations manager, Dotson
procured new customers for CTS and managed CTS’s existing customer
relationships. He also worked on pricing strategies with Curry and helped
negotiate rates with customers. On August 25, 2008, Dotson signed a
confidentiality agreement with CTS that contained non-compete and non-
solicitation provisions. Dotson testified that nothing about his job changed after
signing this agreement. Before he had signed the agreement, the record showed
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nothing would have prevented Dotson from working for a new company and
disclosing CTS’s customer and pricing information.
Dotson notified CTS in late July 2012 that he was leaving its employment;
he took a job as a dispatcher with RT beginning in August 2012. On the day
Dotson left CTS, Dotson signed a resignation letter presented to him by Curry in
which Dotson agreed “not to accept any employment where I will compete
directly or indirectly for the next year with [CTS].” Dotson did not receive any
compensation or other benefit for signing the resignation letter. On the day
Dotson left CTS, he called four CTS customers, including Winegard, to tell them
he was leaving CTS’s employment. Of the four customers, Dotson told only
Winegard that he was going to work for RT. Dotson testified Winegard was the
only customer who asked about Dotson’s employment plans.
Justin Craig Shafer worked for CTS as a dispatcher from 2006 through
2008 and later rejoined CTS in the same role in late 2010. During his first
employment with CTS, Shafer was not subject to any restrictive covenants. In
2010, Curry offered to rehire Shafer on the condition Shafer sign a confidentiality
and non-compete agreement. Shafer refused to do so, but Curry hired him
anyway. At trial, CTS contended Shafer had in fact signed such an agreement,
but no such agreement was offered into evidence. During his second
employment with CTS, Shafer had access to the same customer and pricing
information he previously had. Shafer quit CTS without notice on August 9,
2012, and began working at RT as a dispatcher on August 13, 2012. Four
months later, Shafer became RT’s operations manager.
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Ryner, Dotson, and Shafer agree they met at a Perkins restaurant in April
2012 at Shafer’s invitation. The purpose of the meeting was to discuss Shafer’s
unhappiness at CTS and his desire for him and Ryner to “go out on their own.”
Dotson was invited to join them because Shafer knew Dotson was unhappy at
CTS. While no firm agreement was made during that initial meeting, the parties
stayed in contact during the next several months during which Ryner obtained
financing to run his own company.
CTS filed suit against Ryner, RT, Dotson, and Shafer, asserting claims for
conspiracy, breach of contract, and intentional interference with business
relationships. On the breach of contract claims, the district court found and
concluded as follows: (1) CTS and Shafer did not enter into any non-competition
or non-solicitation agreement; (2) CTS, Ryner, and RT abandoned the 2008
independent contractor agreement that contained the restrictive covenants at
issue; (3) Dotson was subject to restrictive covenants; and (4) any restrictive
covenants were unenforceable because they were not reasonably necessary to
protect CTS’s business. On the interference with existing business relationship
claims, the district court found and concluded that CTS failed to establish it had
contractual relations with its customers and that the appellees interfered with
each other’s agreements. On the interference with prospective business
relationships claims, the district court found and concluded that CTS failed to
prove an intentional and improper interference with any of CTS’s customers.
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II.
The parties contest the applicable standard of review. CTS argues de
novo review is required because the action was tried in equity, as evidenced by
CTS’s request for injunctive relief. See East Oaks Dev., Inc. v. Iowa Dep’t of
Transp., 603 N.W.2d 566, 567 (Iowa 1999) (finding “[a] request for injunctive
relief invokes the court’s equitable jurisdiction” and review is thus de novo). The
appellees argue the action was tried at law, and the required standard of review
is for corrections of errors at law.
“‘The essential character of the cause of action and the remedy or relief it
seeks, as shown by the allegations of the complaint, determine whether a
particular action is at law or in equity.’” Mosebach v. Blythe, 282 N.W.2d 755,
758 (Iowa Ct. App. 1979) (citation omitted). Where “both legal and equitable
relief are demanded, the action is ordinarily classified according to what appears
to be its primary purpose or its controlling issue.” Id. A request for injunctive
relief is not dispositive of the issue because injunctive relief is available in equity
and available as an auxiliary remedy at law. See Harrington v. Univ. of N. Iowa,
726 N.W.2d 363, 365 (Iowa 2007) (stating “‘the fact that injunctive relief was
sought is not dispositive of whether an action is at law or in equity, as an
injunction may issue in any action’” (citation omitted)).
It is clear the essential character of the present action is at law and that
the action was actually tried at law. CTS’s petition was filed at law. CTS’s
primary claim was an action on contract seeking monetary relief. See Mosebach,
282 N.W.2d at 758. (“[W]here the primary right of the plaintiff arises from the
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nonperformance of a contract, where the remedy is monetary in nature, and
where monetary damages are full and certain, remedies are usually provided by
actions at law and equity has no jurisdiction.”). The district court tried the action
at law, ruling on all evidentiary objections made during the course of trial. See
Sutton v. Iowa Trenchless, L.C., 808 N.W.2d 744, 748 (Iowa Ct. App. 2011)
(noting that, in determining whether a declaratory judgment action was tried at
law or equity, “[w]hether the court ruled on evidentiary objections is also an
important consideration, though it is not dispositive”).
Because CTS’s claims were tried at law, our review is for correction of
errors at law. “‘The trial court’s findings have the effect of a special verdict and
are binding if supported by substantial evidence.’” Arnevik v. Univ. of Minn. Bd.
of Regents, 642 N.W.2d 315, 318 (Iowa 2002) (citation omitted). “‘Evidence is
substantial when a reasonable mind would accept it as adequate to reach a
conclusion.’” Id. (citation omitted). “In determining whether substantial evidence
exists, we view the evidence in the light most favorable to the district court’s
judgment.” Chrysler Fin. Co. v. Bergstrom, 703 N.W.2d 415, 418 (Iowa 2005).
III.
A.
The trial court found the 2008 operating agreement between CTS, Ryner,
and RT was abandoned in December 2009 when Ryner began operating under
his own authority. CTS challenges this finding. “Abandonment of a valid contract
may be accomplished by express agreement of the parties, or the parties, by
conduct inconsistent with the continued existence of the original contract, may
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estop themselves from asserting any right thereunder.” Iowa Glass Depot, Inc. v.
Jindrich, 338 N.W.2d 376, 380 (Iowa 1983). Because there was no express
agreement to abandon or terminate the contract, “we must examine both the acts
of the parties and the contract itself to determine whether the parties
unequivocally and decisively relinquished their rights under the covenant.” Id.
“Whether or not there was an abandonment or mutual rescission of the contract
between the parties is wholly a question of fact.” Perrin v. Chidester, 139 N.W.
930, 932 (Iowa 1913).
When viewed in the light most favorable to the district court’s judgment,
there is substantial evidence CTS, Ryner, and RT abandoned the December
2008 operating agreement when Ryner began operating under his own authority
in December 2009. There were numerous substantive changes made to the
parties’ relationship. See, e.g., Honda v. Reed, 319 P.2d 728, 731 (Cal. Ct. App.
1958) (“Abandonment of a contract may be implied from the acts of the parties in
negotiating for a new and different contract concerning the same property or
subject matter.”). For example: Ryner operated under his own DOT number, not
CTS’s; Ryner became responsible for obtaining fuel permits and reporting fuel
tax to state taxing authorities; CTS placards and DOT numbers were no longer
attached to RT’s trucks; Ryner no longer had to turn log books into CTS; Ryner
became responsible for providing his own liability insurance; Ryner’s rate of pay
for CTS loads increased from 75% to 80%; and compensation to Ryner had to be
paid within thirty days as opposed to fifteen. Regarding the change in the timing
of the payout of compensation, the district court correctly noted CTS was
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required to pay Ryner within fifteen days if the two parties were governed under a
leasing agreement. See 49 C.F.R. § 376.12(f)).
In addition, the December 2008 operating agreement applied to only one
truck. At the time Ryner and RT ceased business with CTS, Ryner had five
trucks in operation subject to the new terms discussed in the preceding
paragraph. See, e.g., Interior/Exterior Specialist Co. v. Devon Indus. Grp., LLC,
No. 276620, 2009 WL 49616, at *6 (Mich. Ct. App. Jan. 8, 2009) (holding
substantial evidence supported finding abandonment of contract where parties
performed work outside the scope of the original contract and generally acted
inconsistently with the terms of the original contract). As further evidence of the
intent to abandon the prior agreement, Curry admitted CTS does not require
owner/operators working under their own authority to sign an operating
agreement similar to the 2008 agreement Ryner signed when operating under
CTS’s authority.
The applicable standard of review is largely dispositive of CTS’s claim.
“‘Evidence is not insubstantial merely because we may draw different
conclusions from it; the ultimate question is whether it supports the finding
actually made, not whether the evidence would support a different finding.’”
Bergstrom, 703 N.W.2d at 418 (citation omitted). “It is a question of fact whether
a contract has been abandoned.” Iowa Chem. Corp. v. W.R. Grace & Co., 715
F.2d 393, 396-97 (8th Cir. 1983) (finding both parties “simply ignored the[ir]
contract” when neither party “actively exercised any of their respective rights nor
performed any of their respective obligations” under the original contract).
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When viewed in this light, the record supports the district court’s finding of
abandonment.
B.
The district court also concluded the restrictive covenants, assuming they
were in force, were unenforceable as not reasonably necessary to protect CTS’s
business. CTS challenges this determination. In deciding whether to enforce
restrictive covenants, courts apply a three-part test:
1) “Is the restriction reasonably necessary for the protection of the
employer’s business;
2) Is it unreasonably restrictive of the employee’s rights; and
3) Is it prejudicial to the public interest?”
Revere Transducers, Inc. v. Deere & Co., 595 N.W.2d 751, 761 (Iowa 1999)
(citation omitted). “The burden of proving reasonableness is upon the employer
who seeks to enforce such a covenant.” Jindrich, 338 N.W.2d at 381. “Factors
we consider in determining the enforceability of a noncompete agreement include
the employee’s close proximity to customers, the nature of the business,
accessibility to information peculiar to the employer’s business, and the nature of
the occupation which is restrained.” Revere, 595 N.W.2d at 761.
CTS’s custom and practice with respect to its driving force is evidence that
restrictive covenants are unnecessary to protect the business. See, e.g., Am.
Equity Mortg., Inc. v. First Option Mortg. LLC, No. 4:06CV1167 CDP, 2006 WL
3032417, at *5 (E.D. Mo. Oct. 23, 2006) (noting that employer’s past practice of
not protecting business through enforcement of non-competition agreements is
evidence such agreements are not necessary to protect the business). Curry
testified he does not require employee drivers to sign restrictive covenants.
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Curry testified he does not require other owner/operators working under their
own authority to sign restrictive covenants. Curry admitted he has nothing in
place to prevent employee drivers or owner/operators working under their own
authority from leaving CTS and going to work for a competitor.
The record also shows that the nature of CTS’s information does not
require protection. See Jindrich, 338 N.W.2d at 382 (noting a restrictive
covenant would be justified when the employee gained “peculiar knowledge” of
the employer’s business). Curry testified that the identity of CTS customers is
not a secret. He testified CTS does not have a confidential or proprietary pricing
formula. Instead, many different factors are relevant to pricing, including CTS’s
overhead, the origination and destination point of any particular load, the value of
the load, the size and type of load, fuel costs, the urgency of the delivery, etc.
Other than the specific cost of CTS’s overhead, which would be irrelevant to
CTS’s competitors, these are the same factors used by every other trucking
company in pricing decisions. Most important, Curry also noted pricing is often
determined by the customer. Often a customer will call and ask CTS if it can
deliver a load for “x” amount of dollars. Often, a request for work will be posted
electronically on a website or disseminated by a broker. Several witnesses
testified that rates are generally standard across the trucking industry and widely
known.
In sum, the evidence showed the trucking industry is a largely
commoditized industry. Customers typically use multiple trucking companies in
non-exclusive relationships for their freight and logistics needs. Business is price
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and time sensitive and not dependent upon personal contacts and relationships
or confidential information. Customer information, including CTS’s customer
information, is widely known. Pricing information, including CTS’s pricing
information, is widely known. Moreover, pricing is largely standardized. Further,
CTS has a custom and practice of not requiring restrictive covenants to protect
its business. Substantial evidence supports the trial court’s decision. See, e.g.,
Instant Tech., LLC v. DeFazio, No. 12 C 491, 2014 WL 1759184, at *15 (N.D. Ill.
May 2, 2014) (holding non-solicitation provision unenforceable where employer
had non-exclusive relationship with its customers and industry was largely
commoditized); Brown v. Rollet Bros. Trucking Co., 291 S.W.3d 766, 774-79
(Mo. Ct. App. 2009) (finding trucking company’s use of restrictive covenants to
prevent disclosure of customer list and pricing information was not reasonably
necessary to protect business).
C.
We next address CTS’s claim for intentional interference with business
relationships. At trial, CTS asserted claims for intentional interference with
existing and prospective business relationships. On appeal, CTS challenges
only the district court’s findings and conclusions regarding CTS’s claim for
interference with the appellees’ restrictive covenants. As to that claim, the district
court found and concluded the claim failed because CTS failed to establish
enforceable contracts or wrongful interference. On substantial evidence review,
we agree that CTS failed to establish an interference with existing contracts. See
Kern v. Palmer Coll. of Chiropractic, 757 N.W.2d 651, 662 (Iowa 2008) (stating to
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recover for intentional interference with an existing contract, the plaintiff must
show the plaintiff had a contract with a third-party).
D.
We turn now to CTS’s claims for civil conspiracy.1 “‘[A] conspiracy is a
combination of two or more persons by concerted action to accomplish an
unlawful purpose, or to accomplish by unlawful means some purpose not in itself
unlawful.’” Wright v. Brooke Grp. Ltd., 652 N.W.2d 159, 171 (Iowa 2002) (citation
omitted). Mere preparation to form a competing business organization is not
actionable “unless it is shown that something in the preparation to compete
produced a discrete harm to the former business beyond the eventual
competition that results from the preparation.” Midwest Janitorial Supply Corp. v.
Greenwood, 629 N.W.2d 371, 376 (Iowa 2001).
We conclude the judgment is supported by substantial evidence. First,
CTS is unable to show the appellees sought to accomplish an unlawful purpose.
The district court found none of the parties had enforceable restrictive covenants.
Therefore, nothing prohibited them from leaving to work for another company or
from leaving to start their own operation. Second, CTS was unable to show a
discrete harm to CTS from Dotson, Ryner, RT, or Shafer’s conduct. While it is
true CTS lost Winegard as a client following the appellees’ departure, there was
no evidence regarding how and why Winegard ceased using CTS. CTS did not
1
CTS argues on appeal that appellees conspired, in part, to breach fiduciary duties
owed by Dotson and Shafer to CTS. This is not an argument CTS made before the
district court, and we will not address it on appeal. See State v. Rutledge, 600 N.W.2d
324, 325 (Iowa 1999) (“Nothing is more basic in the law of appeal and error than the
axiom that a party cannot sing a song to us that was not first sung in trial court.”).
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call any representative of Winegard as a witness. The record only showed that
Winegard showed a strong preference for using RT when Ryner was with CTS
and that Winegard continued that relationship. There is no showing of discrete
harm beyond the competitive harm.
IV.
We have considered each of the parties’ respective arguments, whether
set forth explicitly herein. The standard of review is largely dispositive of this
appeal; the district court’s judgment is supported by substantial evidence and
must be affirmed.
AFFIRMED.