Eric N. Lucy v. Platinum Services, Inc., now known as Platinum Supplemental Insurance, Inc., and Wayne Briggs

IN THE COURT OF APPEALS OF IOWA
No. 17-1118
Filed November 7, 2018
ERIC N. LUCY,
Plaintiff-Appellee/Cross-Appellant,
vs.
PLATINUM SERVICES, INC., now known as PLATINUM SUPPLEMENTAL
INSURANCE, INC., and WAYNE BRIGGS,
Defendants-Appellants/Cross-Appellees.
________________________________________________________________
Appeal from the Iowa District Court for Dubuque County, Monica L. Wittig,
Judge.
Defendants appeal and plaintiff cross-appeals the district court’s ruling on
summary judgment. AFFIRMED ON APPEAL; REVERSED ON CROSS-
APPEAL.
Kevin J. Visser, Paul D. Gamez, and Thomas D. Wolle of Simmons Perrine
Moyer Bergman PLC, Cedar Rapids, for appellants.
Christopher C. Fry and McKenzie R. Hill of O’Connor & Thomas, P.C.,
Dubuque, for appellee.
Considered by Doyle, P.J., and Tabor and McDonald, JJ.
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McDONALD, Judge.
Eric Lucy filed this declaratory judgment action against his former employer,
Platinum Services, Inc., and Platinum’s majority shareholder, Wayne Briggs. Lucy
sought a declaration of his rights under two contracts—one between Lucy and
Platinum and one between Lucy and Briggs. At issue in the contract between Lucy
and Platinum was the enforceability of a seven-year covenant not to compete. At
issue in the contract between Lucy and Briggs was Lucy’s entitlement to payment
under the terms of a stock purchase agreement pursuant to which Lucy sold his
minority stake in Platinum to Briggs. Lucy filed a motion for summary judgment.
With respect to the first contract, the district court concluded the covenant not to
compete was “unreasonable and too restrictive as it is written” and “[t]he
acceptable period of restriction is therefore limited to the two-year period
subsequent to Lucy’s termination of employment.” With respect to the second
contract, the district court concluded Briggs was entitled to terminate payment in
the event Lucy violated the covenant not to compete contained in the first
agreement. Platinum and Briggs timely filed this appeal, challenging the district
court’s ruling on the covenant not to compete. Lucy timely filed this cross-appeal,
challenging the district court’s conclusion Briggs was entitled to terminate payment
under the stock purchase agreement in the event Lucy violated the terms of the
covenant not to compete.
The standard of review in a declaratory judgment action is dependent on
whether the action was brought in equity or at law. See Boelman v. Grinnell Mut.
Reinsurance Co., 826 N.W.2d 494, 500 n.1 (Iowa 2013). Because this dispute
was resolved on summary judgment, our review is for correction of errors at law.
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See id. at 500 & n.1. Summary judgment should be granted “if the pleadings,
depositions, answers to interrogatories, and admissions on file, together with the
affidavits, if any, show that there is no genuine issue as to any material fact and
that the moving party is entitled to a judgment as a matter of law.” Iowa R. Civ. P.
1.981(3). The party seeking summary judgment has the burden of establishing
that the facts are undisputed and that the “party is entitled to a judgment as a
matter of law.” See Estate of Harris v. Papa John’s Pizza, 679 N.W.2d 673, 677
(Iowa 2004) (quoting Iowa R. Civ. P. 1.981(3)). “When a motion for summary
judgment is made and [properly] supported . . . [the opposing] party may not rest
upon the mere allegations or denials of the pleadings.” Iowa R. Civ. P. 1.981(5);
Bitner v. Ottumwa Cmty. Sch. Dist., 549 N.W.2d 295, 299 (Iowa 1996). Instead,
the resisting party must set forth specific material facts, supported by competent
evidence, establishing the existence of a genuine issue for trial. See Iowa R. Civ.
P. 1.981(5); Bitner, 549 N.W.2d at 299. “A fact is material if it will affect the
outcome of the suit, given the applicable law.” Parish v. Jumpking, Inc., 719
N.W.2d 540, 543 (Iowa 2006). An issue of fact is “genuine” if the evidence would
allow “a reasonable jury [to] return a verdict for the nonmoving party.” Fees v.
Mutual Fire & Auto. Ins. Co., 490 N.W.2d 55, 57 (Iowa 1992). It is well established
that “[s]peculation is not sufficient to generate a genuine issue of fact.” Waddell v.
Univ. of Iowa Cmty. Med. Servs., Inc., No. 17-0716, 2018 WL 4638311, at *3 (Iowa
Ct. App. Sept. 26, 2018) (quoting Nelson v. Lindaman, 867 N.W.2d 1, 7 (Iowa
2015)). “[S]ummary judgment is correctly granted where the only issue to be
decided is what legal consequences follow from otherwise undisputed facts.”
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Budny v. MemberSelect Ins. Co., No. 16-1189, 2017 WL 104964, at *2 (Iowa Ct.
App. Jan. 11, 2017).
The summary judgment record reflects the following. Briggs formed
Platinum in 1995. Platinum sells supplemental health insurance. Lucy joined
Platinum in 1996 as a salesperson and ascended the company ladder over time.
In an effort to assure management and ownership continuity, on January 1, 2002,
Platinum granted Lucy stock in the company amounting to a ten percent interest
in Platinum.
In conjunction with the award of stock, Lucy and Platinum entered into a
Combined Cross-Purchase and Redemption Agreement (“Redemption
Agreement”). The agreement specified it was “entered into . . . by and among Eric
N. Lucy (”Lucy”), and Platinum Services, Inc., an Iowa business corporation . . . .”
The Redemption Agreement contained several terms dictating the terms and
conditions of any future sale of Lucy’s shares. Article two of the Redemption
Agreement required Lucy to give Platinum the right of first refusal should Lucy elect
to sell his shares. In the event Platinum declined to purchase Lucy’s shares, the
other shareholders were granted the right to purchase Lucy’s shares on a pro-rata
basis based on their share percentage ownership. Section 2.2,1 entitled “Rules
Governing Stock Purchases,” stated: “If any [s]hares are to be purchased by the
Corporation pursuant to this [a]rticle 2, the following rules will apply: . . . The
purchase price of each [s]hare will be paid in accordance with [section] 5.3 of this
1
The Redemption Agreement inadvertently has two sections numbered 2.2. This
opinion’s references to section 2.2 refer to the section entitled “Rules Governing Stock
Purchase.”
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[a]greement.” (Emphasis added.) Article five provided the manner for determining
a purchase price per share and the manner of payment. Section 5.3(a) required
“[t]wenty percent (20%) of the purchase price of [s]hares being purchased and sold
under this [a]greement will be paid in cash upon the effective date (the “Closing”)
of the purchase and sale.” Section 5.3(b) stated: “The unpaid balance of the
purchase price, if any, will be evidenced by a negotiable promissory note payable
in 60 consecutive equal monthly installments, with the first payment due one month
after the [c]losing. The note shall be made by the Corporation to the order of the
[s]eller . . . .”
The Redemption Agreement also contained a covenant against
competition. Section 9.2(a) stated:
During Lucy’s employment and continuing through the period
ending two years after the later to occur of (x) Lucy ceasing to be
employed by Corporation; or (y) after Lucy is paid in full for his shares
as provided in [a]rticle 5 (the “Restriction Period”), Lucy shall not,
directly or indirectly, compete with Corporation within the geographic
area described by a centering circle having a radius of 150 miles of:
(i) Corporation’s presently-existing offices, (i.e., Dubuque, Iowa); and
(ii) any other office or branch offices operated by Corporation. For
purposes of this paragraph, competition shall include . . . providing
services or engaging in business similar to Corporation’s business.
Section 9.8 conditioned Lucy’s right to installment payments, stating: “Lucy’s rights
to payments pursuant to [section] 5.3(b) above are contingent upon Lucy
complying with the covenants of this [a]rticle 9. A breach of [a]rticle 9 by Lucy will,
in addition to other remedies provided herein, cause payments owed pursuant to
[s]ection 5.3(b) to cease.”
Lucy continued to work for Platinum and was made vice president of sales
in 2004. In 2013, Lucy sought to sell his shares. Briggs agreed to purchase Lucy’s
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shares for $3 million, with an initial payment of $600,000 and the remaining $2.4
million to be paid in monthly installments over sixty months. To formalize and
execute the agreement, Lucy and Briggs entered into a Stock Purchase
Agreement (“SPA”) on June 28, 2013. The SPA specified it was “made and
entered into . . . by and between Eric N. Lucy and Wayne A. Briggs.” The terms
and conditions of payment set forth in the SPA regarding Briggs’ payment
obligations to Lucy were similar to the terms and conditions of payment set forth in
the Redemption Agreement regarding the corporation’s payment obligations to
Lucy in the event the corporation had purchased the shares. The SPA did not
expressly incorporate any terms of the Redemption Agreement. Although Lucy
sold his stock to Briggs, he continued to work for Platinum through December 31,
2014. Lucy filed his petition for declaratory judgment in August 2016 seeking to
determine his rights and obligations under the Redemption Agreement and SPA.
With that background, we turn to the merits of the issues presented. The
law regarding the interpretation and construction of contracts is well established.
When reviewing a contract, we must remember “[a] writing is interpreted as a
whole, and all writings that are part of the same transaction are interpreted
together.” Jeffries v. Gen. Cas. Ins. Cos., No. 14-0032, 2015 WL 1046170, at *2
(Iowa Ct. App. Mar. 11, 2015) (quoting Restatement (Second) of Contracts § 202
(Am. Law Inst. 1981)). “Generally, when we interpret contracts, we look to the
language contained within the four corners of the document.” DuTrac Cmty. Credit
Union v. Radiology Grp. Real Estate, L.C., 891 N.W.2d 210, 216 (Iowa 2017). “If
a contract is not ambiguous, it will be enforced as written.” Thornton v. Hubill, Inc.,
571 N.W.2d 30, 33 (Iowa Ct. App. 1997) (citing Spilman v. Bd. of Dirs., 253 N.W.2d
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593, 596 (Iowa 1977)). “If the language of the contract is ambiguous, then we
engage in interpretation in order to determine ‘the meanings attached by each
party at the time the contract was made.’” DuTrac Cmty. Credit Union, 891 N.W.2d
at 216 (quoting Clinton Physical Therapy Servs., P.C. v. John Deere Health Care,
Inc., 714 N.W.2d 603, 615 (Iowa 2006)). A contract is ambiguous if more than one
interpretation is reasonable. See Thornton, 571 N.W.2d at 33. “To the extent
necessary to reveal the parties’ intent, extrinsic evidence is admissible.” DuTrac
Cmty. Credit Union, 891 N.W.2d at 216.
“In the construction of written contracts, the cardinal principle is that the
intent of the parties must control, and except in cases of ambiguity, this is
determined by what the contract itself says.” Iowa R. App. P. 6.904(3)(n); Peak v.
Adams, 799 N.W.2d 535, 543 (Iowa 2011). Generally, “[t]he construction or legal
effect of a contract is always a matter of law to be decided by the court, as is the
interpretation or meaning of contractual words unless it depends on extrinsic
evidence or a choice among reasonable inferences from extrinsic evidence.”
Campbell v. Mid-Am. Constr. Co. of Iowa, 567 N.W.2d 667, 669-70 (Iowa Ct. App.
1997) (citing Connie’s Constr. v. Fireman’s Fund Ins., 227 N.W.2d 207, 210 (Iowa
1975)). “Our task is to determine the intent of the parties as evidenced by the
language of their agreement[s]” and to enforce the agreements as written. See
Thornton, 571 N.W.2d at 33. It is not our task to go beyond the plain language of
the agreements to construe them to mean something the parties wish they would
have said in hindsight.
We conclude the Redemption Agreement and the SPA are unambiguous
and the parties’ rights and obligations under the same can be declared as a matter
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of law. We first consider the issue of whether Lucy is entitled to continued payment
for his shares in the event he were to breach the terms and conditions of the
covenant not to compete. Platinum and Briggs argue Briggs’ obligation to continue
payment for Lucy’s shares is contingent upon Lucy’s compliance with the covenant
not to compete. In support of this argument, Platinum and Briggs rely on section
9.8 of the Redemption Agreement. That section provides “Lucy’s rights to
payments pursuant to [section] 5.3(b) above are contingent upon Lucy complying
with the covenants of this [a]rticle 9. A breach of [a]rticle 9 by Lucy will, in addition
to other remedies provided herein, cause payments owed pursuant to [s]ection
5.3(b) to cease.” Lucy argues this provision is inapplicable and his right to receive
continued payments from Briggs is not contingent upon compliance with the
restrictive covenant. We conclude Lucy has the better of the argument.
Under the plain language of the parties’ agreements, section 9.8 of the
Redemption Agreement is inapplicable here. First, the Redemption Agreement
and the SPA are separate and distinct agreements. The Redemption Agreement
does not incorporate by reference any future stock purchase agreements or
identify any person as an intended beneficiary of the agreement. The SPA does
not incorporate by reference the Redemption Agreement, nor does it identify
Platinum as an intended beneficiary of the SPA. We will not construe the
documents as part of a single transaction with cross-enforcement provisions when
the parties did not contract for the same. See Longfellow v. Sayler, 737 N.W.2d
148, 154 (Iowa 2007) (“The doctrine of incorporation requires the contract to make
a clear and specific reference to an extrinsic document to incorporate the
document into the contract.”).
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Second, the contracts were entered into by different parties. The
Redemption Agreement was entered into in 2002 between Lucy and Platinum.
Lucy and Briggs entered into the SPA in 2013. Platinum is a corporate entity
separate and distinct from Briggs. In the context of non-compete agreements, the
Iowa Supreme Court has paid particular attention to the actual parties to the
agreement. For example, in Casey’s General Stores, Inc. v. Campbell Oil Co., the
supreme court found that controlling shareholders of a corporation were not bound
by a non-compete agreement where the plain language of the non-compete
agreement applied only to the corporation they owned and not them personally.
See 441 N.W.2d 758, 762 (Iowa 1989) (“As Campbell Oil points out in its argument,
the relationship between itself, as a corporation, and Les and Norma Campbell
imposes no servitude on the Campbells as individuals. As controlling
shareholders, the Campbells control the actions of the corporation rather than the
corporation controlling them.”). The same principle is applicable here. In Casey’s,
the supreme court held the restriction on the corporation’s activities would not be
extended to the corporation’s principals when the contract did not so provide.
Similarly, in this case, the enforcement mechanism provided to the corporation to
cease payment in the event Lucy violated the terms of the covenant not to compete
should not be extended to Briggs when the contracts did not so provide.
Other courts have drawn similar distinctions in the enforcement of non-
competition agreements, drawing sharp distinctions between entities and their
principals based on the language of the contract at issue. See, e.g., Lee & Lee
Intern., Inc. v. Lee, 261 F. Supp. 2d 665, 674 (N.D. Tex. 2003) (“Nowhere in the
noncompete clause does it say that [d]efendant agrees that she will not set up a
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business selling Lee & Lee products. The [c]ontract in no way prohibits its
shareholders from selling Lee & Lee products in their individual capacity. While
[p]laintiffs may have intended for [d]efendant to be prohibited from setting up a
business selling identical Lee & Lee products, that was not the agreement set forth
in the [c]ontract.”); Otto v. Weber, 379 N.W.2d 692, 696 (Minn. Ct. App. 1986)
(“The non-compete clause in a contract for the sale of business assets between
corporations does not personally bind appellant, who signed the contract as
president of his corporation.”); Bernstein v. Warner, 185 A.2d 452, 455 (R.I. 1962)
(“In support of all of his contentions the complainant argues that, although the
noncompetitive agreement may technically bind the corporation, [it] . . . was
intended to bind the respondents individually. The agreement was drafted by the
complainant and he was apparently content to have it signed by the respondents
in their corporate capacities.”).
Third, and related, the plain language of the agreements does not condition
Briggs’ payment obligations on Lucy’s compliance with the covenant not to
compete. Section 9.8 of the Redemption Agreement applies only where the
payments for Lucy’s shares were made by Platinum “pursuant to section 5.3(b)” of
the Redemption Agreement. In this case, the payments are being made by Briggs
pursuant to section 2 of the SPA. While the SPA’s terms are consistent with the
terms set out in the Redemption Agreement, they are not one in the same. There
is no language in the SPA incorporating the restrictive covenant into the
agreement. Because Briggs’ installment payments for Lucy’s stock are not made
“pursuant to section 5.3(b)” of the Redemption Agreement, the contingency
regarding compliance with the terms of the covenant not to compete is inapplicable
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here. See Farm Sec. Admin. v. Harren, 165 F.2d 554, 562 (8th Cir. 1948) (noting
provisions of a contract between parties are controlling upon them).
Next, we review the duration of the covenant not to compete. Section 9.2(a)
prohibited Lucy’s participation in the relevant market “through the period ending
two years after the later to occur of (x) Lucy ceasing to be employed by
Corporation; or (y) after Lucy is paid in full for his shares as provided in [a]rticle 5.”
As discussed in the preceding paragraphs, Briggs’ payment to Lucy are made
pursuant to section 2 of the SPA and not article 5 of the Redemption Agreement.
Thus, provision (y) of section 9.2(a) is not implicated here. The duration of the
covenant not to compete is thus governed by provision (x). Like the district court,
we conclude the period of non-competition is limited to two years from Lucy’s
termination of employment, December 31, 2014. However, unlike the district court,
we reach this conclusion under the plain language of the agreement and not in
consideration of the reasonableness or restrictive nature of the covenant.
In sum, the terms and conditions of payment for Lucy’s shares are governed
by the SPA and not the Redemption Agreement. Nothing in the SPA permits
Briggs to terminate payment for Lucy’s shares upon a violation of the restrictive
covenant contained in the separate Redemption Agreement. Because the
payments for Lucy’s shares are made by Briggs pursuant to the SPA and not by
Platinum pursuant to the Redemption Agreement, the covenant not to compete
expires two years following the cessation of Lucy’s employment with Platinum. We
affirm the judgment of the district court on different grounds on appeal and reverse
the judgment of the district court on cross-appeal.
AFFIRMED ON APPEAL; REVERSED ON CROSS-APPEAL.