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

• Court: Court of Appeals of Iowa
• Decided: November 7, 2018
• Docket: 17-1118
• Status: Published

Opinion

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. 2

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. 3

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.” 4

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.” 5

[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 6

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 7

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 8

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.”). 9

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 10

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 11

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.