Annie Lukes v. The Blue Iris, LLC., and Julie Winter-Havel

IN THE COURT OF APPEALS OF IOWA
No. 22-1807
Filed January 24, 2024
ANNIE LUKES,
Plaintiff-Appellee,
vs.
THE BLUE IRIS, LLC., and JULIE WINTER-HAVEL,
Defendants-Appellants.
________________________________________________________________
Appeal from the Iowa District Court for Chickasaw County, John J. Sullivan,
Judge.
A retailer appeals the district court’s decision finding she breached a
noncompete agreement and awarding damages. AFFIRMED.
Laura L. Folkerts and Jackson C. Blais of Shuttleworth & Ingersoll, Cedar
Rapids, for appellants.
Jeremy L. Thompson of Putnam, Thompson & Casper, P.L.L.C., Decorah,
for appellee.
Considered by Tabor, P.J., Buller, J., and Gamble, S.J.*
*Senior judge assigned by order pursuant to Iowa Code section 602.9206
(2024).
2
TABOR, Presiding Judge.
Once business associates, Julie Winter-Havel and Annie Lukes had a falling
out. Lukes bought retail assets from Winter-Havel, and Winter-Havel agreed not
to sell clothes in Chickasaw County for three years. But Lukes later discovered
that Winter-Havel was helping a competitor sell clothing. When Winter-Havel
ignored Lukes’s cease-and-desist letters, Lukes sued for injunctive relief. Lukes
then amended her petition to seek damages. The court found that Winter-Havel,
and her business, The Blue Iris, LLC, breached the noncompete clause and
awarded $26,625.49 in damages and attorney fees to Lukes.
Winter-Havel appeals arguing that the court erred first in finding she
breached the agreement, and second in calculating damages.1 Lukes asks for
appellate attorney fees. Because the district court properly found a breach of the
noncompete clause and its damage assessment was sound, we affirm. We also
award Lukes reasonable appellate attorney fees.
I. Facts and Prior Proceedings
In 2012, Winter-Havel premiered The Bluetique—the only women’s clothing
store in New Hampton. Winter-Havel had been in the retail business for over
twenty years and also owned a floral and gift shop called The Blue Iris.2 The two
stores were just one block apart. In 2015, Winter-Havel hired Lukes to manage
The Bluetique. Lukes accepted the job intending to eventually buy the boutique.
1 We will use the name Winter-Havel when referring to the defendants-appellants.
2 Winter-Havel is the sole owner of The Blue Iris, LLC, under which both her
businesses were organized.
3
As manager, Lukes received advice from Winter-Havel on how to choose inventory
by “going to market” several times a year.3
In 2018, Lukes realized her goal, purchasing The Bluetique from Winter-
Havel for $49,500. Lukes renamed the store Threads. Under their purchase
agreement, Lukes took ownership of all business assets except an iPad and
laptop. The current inventory stayed, with Winter-Havel receiving eighty percent
of the price for each item sold while Lukes kept twenty percent. The agreement
also included a noncompete clause, which restricted Winter-Havel from marketing
women’s clothing in Chickasaw County for three years starting October 1, 2018.4
Lukes and Winter-Havel worked amicably under this arrangement until
2020. That spring their business relationship deteriorated. In May 2020, Winter-
Havel let Lukes know that she would not be buying any new merchandise for the
store. Winter-Havel also told Lukes that Cindy Kotz, a local cosmetologist, wanted
to sell women’s clothing from her New Hampton salon and that “there was a few
lines that were being carried in Threads that [Kotz] was interested in.”5
3 At trial, Winter-Havel described different out-of-town markets where retailers
could buy gifts and clothing in a convention-like setting.
4 The full article states:
Seller shall not, directly or indirectly, engage in any business which
manufactures, distributes or markets women’s clothing in Chickasaw
County. Seller agrees that in the event of the breach or imminent
breach of this Section 8.1 by Seller, the Buyer will have no adequate
remedy at law. Seller therefore agrees that Buyer’s remedies upon
a breach or imminent breach of this section 8.1 by Seller include, but
are not limited to, preliminary and permanent injunctive relief
restraining Seller from any further breach of this section as well as
an equitable accounting of all profits or benefits arising out of such
breach, in addition to any other remedies available to Buyer at law or
in equity.
5 Winter-Havel and Kotz were long-time close friends.
4
Lukes inquired whether Kotz asked Winter-Havel for help with the new
business venture. Winter-Havel said “yes” but told Lukes that “morally and legally
I can’t do that.” Yet by July, Lukes discovered promotions on Facebook for clothing
lines previously carried by Threads that were being sold at Expressions—Kotz’s
hair salon. Winter-Havel claimed that she bought $18,000 worth of clothing
inventory for delivery in 2020 and—after ending her consignments at Threads—
gave it to Kotz.
Lukes sent Winter-Havel a cease-and-desist letter. It did no good. Soon
Lukes again saw social media advertisements for Expressions showcasing Winter-
Havel’s inventory. Lukes sent another cease-and-desist letter. Winter-Havel
called her, and they had a “sit-down conversation” in which Winter-Havel denied
any involvement in Kotz’s salon. But when Lukes realized that Winter-Havel
continued to help Kotz sell the clothing lines, Lukes petitioned the district court for
injunctive relief. Lukes later moved to amend her petition to conform to the
evidence, seeking damages for Winter-Havel’s breach of the noncompete clause.
The court granted the motion.
At trial, Winter-Havel admitted buying inventory and passing the invoices to
Kotz to pay. Still, Winter-Havel insisted that she did not violate the noncompete
clause because she did not profit from the sale of the inventory at Expressions.
She also testified that she followed the advice of her attorney. Both Winter-Havel
and Kotz denied that Winter-Havel helped Kotz enter the clothing business. But
the court did not find them to be credible witnesses.
The court found that Winter-Havel’s actions “violated both the spirit and
letter of the parties’ non-competition clause.” It held that Winter-Havel “directly and
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indirectly distributed or marketed women’s clothing in Chickasaw County, Iowa,
through receiving new inventory at Blue Iris for [Kotz], for participating in paying
for shoes and clothing for [Kotz], for permitting her inventory to be marketed by
Expressions on social media,” and “for permitting the inventory to be sold at
Expressions Salon.” It awarded damages to Lukes in the amount of $5752.79 for
lost profits (the twenty percent Lukes could have made on the inventory Winter-
Havel removed in July 2020); $15,872.70 for loss of revenue, loss of potential
business, and loss of the benefit of the bargain (for the remaining fifteen months
of their noncompete); and $5000 in trial attorney fees. Winter-Havel appeals.
II. Scope and Standard of Review
The parties disagree on the standard of review. Winter-Havel contends that
this case was tried in equity and thus review is de novo. Lukes argues the case
was tried at law and review is for error correction. We agree with Lukes. This
action stems from the breach of a noncompete clause in a contract. We review
contract actions for the correction of legal error. Iowa Mortg. Ctr., L.L.C. v.
Baccam, 841 N.W.2d 107, 110 (Iowa 2013). “We are bound by the district court’s
findings of fact if they are supported by substantial evidence.” Sutton v. Iowa
Trenchless, L.C., 808 N.W.2d 744, 749 (Iowa Ct. App. 2011).
III. Analysis
A. Did Winter-Havel breach the noncompete clause?
Winter-Havel contends that she did not violate the noncompete clause
because the items she ordered for delivery in 2020 were not ordered for Kotz.
Winter-Havel also claims that, contrary to the district court’s findings, she did not
buy shoes and clothing for Kotz to sell. Rather, Kotz paid the vendor directly.
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Winter-Havel insists that the “the District Court’s finding of key facts is wholly
unsupported by the evidence presented at trial.”
To show that Winter-Havel breached their noncompete clause, Lukes had
to prove: (1) a contract existed, (2) non-competition was a condition of the contract,
(3) Lukes performed all conditions of the contract, (4) Winter-Havel breached the
noncompete clause, and (5) Lukes suffered damages from Winter-Havel’s breach.
See Sutton, 808 N.W.2d at 753. Winter-Havel insists that Lukes did not prove the
last two elements because Winter-Havel did not profit from the sale of her inventory
at Expressions.
In ruling against Winter-Havel, the district court relied on Uptown Food
Store, Inc. v. Ginsberg for the proposition that a party breaches a noncompete
agreement despite not deriving profit from the competing business. 123 N.W.2d
59, 65−66 (Iowa 1963). On appeal, Winter-Havel tries to distinguish Uptown,
where a father helped his son open a supermarket in violation of a negative
covenant in a lease. In that case, the court found that the elder Ginsberg, on top
of financing the operation, “performed substantially all of the services of a manager
or owner on a daily basis” at his son’s grocery business. Id. at 66. Winter-Havel
contends that unlike Ginsberg, she was not involved in financing or managing
Kotz’s business. Instead, Winter-Havel claims that she “simply gave her leftover
inventory” to Kotz.
Winter-Havel insists that the facts of Thomas v. Thomas Truck & Caster
Co., 228 N.W.2d 52 (Iowa 1975), are more analogous. There, a company’s
founder agreed “not to engage as consultant or otherwise to any competitor” of the
company. See Thomas, 228 N.W.2d at 54. The founder then loaned his son, the
7
vice president of a direct competitor, money knowing the son would use it to
advance that business. See id. The court found that the language of the covenant
lent “no direct support to the theory Thomas contracted away his right to make
loans or gifts to his son.” Id. at 56.
We believe that the district court properly relied on Uptown for the
proposition that Winter-Havel could breach the noncompete clause without proof
that she directly profited from Kotz’s sale of the merchandise at Expressions.
Substantial evidence supported the district court’s finding that Winter-Havel
permitted her inventory to be sold by Kotz. And whether Winter-Havel profited
from that arrangement was not relevant to the question of breach. As the court
explained in Uptown, the test for violating a noncompete clause “is mischief.” Id.
at 66 (citation omitted). And the mischief begins when the party’s conduct
interferes with the business that is the subject of the contract. See id. The
reasonable and probable result of Winter-Havel’s actions was to take business
away from Lukes. By her efforts, Winter-Havel increased Threads’s competition,
which is what she agreed not to do. See id. Thomas does not stand for an opposite
proposition; it interprets a narrower noncompete clause. See Thomas, 228 N.W.2d
at 56.
True, Winter-Havel may not have ordered the clothing inventory with Kotz
in mind. But facilitating Kotz’s access to the same product lines sold by Lukes—
knowing Kotz would sell them—counted as distributing or marketing women’s
clothing in Chickasaw County in violation of the noncompete clause. The court
also found Winter-Havel and Kotz were not credible witnesses. We are bound by
such findings. See Van Sloun v. Agans Bros., Inc., 778 N.W.2d 174, 182 (Iowa
8
2010). Thus, we find no error in the court’s decision finding Winter-Havel breached
the noncompete clause.
B. Did the court properly calculate damages?
Expecting that we might uphold the district court’s finding of breach, Winter-
Havel argues in the alternative that the court’s damage award is not supported by
the evidence. She claims that Lukes did not offer proof that her business suffered
because of the breach. Winter-Havel next contests the court’s computation of
Lukes’s lost consignment income without any discount for out-of-date or unsold
inventory. Winter-Havel also accuses the court of awarding “duplicative
damages”—compensating Lukes twice for the inventory in stock.
Lukes counters that Winter-Havel’s inventory was not an “excluded asset”
in the purchase contract, and Lukes had a reasonable expectation that the
inventory would continue to be sold at Threads. She maintains that the district
court’s computation was within the range of evidence presented at trial.
We find no error in the court’s award of damages. As a guiding principle,
we recognize “a distinction between proof of the fact that damages have been
sustained and proof of the amount of those damages.” Olson v. Nieman’s, Ltd.,
579 N.W.2d 299, 309 (Iowa 1998). “If the uncertainty lies only in the amount of
damages, recovery may be had if there is proof of a reasonable basis from which
the amount can be inferred or approximated.” Orkin Exterminating Co. v. Burnett,
160 N.W.2d 427, 430 (Iowa 1968). “While the measure of damages in an action
for the breach of an agreement by the seller not to re-enter business in competition
with the buyer is usually difficult of exact computation, [she] who is damaged will
not be precluded from recovering because of that fact.” Id. (citation omitted). The
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Orkin court explained that “[t]he measure of the damages resulting from the
wrongful breach of an agreement not to compete is the loss naturally resulting from
the breach, including loss of profits.” Id. at 429.
The district court found that the value of the inventory Winter-Havel
removed from Threads in July 2020 was $28,763.95. It awarded $5752.79 in lost
profits based on the twenty percent Lukes could have earned if the inventory were
sold from Threads. It also found that Lukes should recover the loss of revenue,
potential business, and loss of benefit of the bargain. The court arrived at that
figure based—not on the value of the inventory removed—but on the average total
sales that Lukes made each month when Winter-Havel’s inventory was in the
store. Multiplying that number ($1058.18) by the fifteen-month (July 2020 through
September 2021) duration of the noncompete clause, the court calculated those
lost-opportunity damages at $15,872.70. Because those amounts cover different
losses, we see no duplication.
Damages of this nature are difficult to calculate. Van Oort Constr. Co. v.
Nuckoll’s Concrete Serv., Inc., 599 N.W.2d 684, 693 (Iowa 1999). And the court
as fact finder has flexibility and considerable discretion when determining damages
“based upon a fair and impartial consideration of all the evidence.” Glascock v.
Covenant Med. Ctr., Inc., No. 21-0870, 2022 WL 2824734, at *4 (Iowa Ct. App.
July 20, 2022) (citation omitted). The district court made a thoughtful calculation
of Lukes’s losses based on the record before it. Thus, we find substantial evidence
supporting the damage award.
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C. Is Lukes entitled to appellate attorney fees?
Lastly, Lukes requests appellate attorney fees under Iowa Code section
625.22 (2023). That section provides, “When judgment is recovered upon a written
contract containing an agreement to pay an attorney fee, the court shall allow and
a tax as part of the costs a reasonable attorney fee to be determined by the court.”
Iowa Code § 625.22(1); see Bankers Tr. Co. v. Woltz, 326 N.W.2d 274, 278 (Iowa
1982) (noting statute that justifies awarding attorney fees in the trial court also
justifies awarding attorney fees on appeal).
Winter-Havel agrees that if she violated the noncompete clause, Lukes is
entitled to reasonable appellate attorney fees under their contract. Counsel for
Lukes submitted an affidavit asserting that his post-trial and appeal fees add up to
$5175. Finding that amount reasonable, we order Winter-Havel to pay Lukes for
those appellate attorney fees.
AFFIRMED.