IN THE COURT OF APPEALS OF IOWA
No. 13-1777 Filed February 11, 2015
SENECA WASTE SOLUTIONS, INC., Plaintiff-Appellant,
vs.
D & K MANAGING CONSULTANTS, LLC d/b/a MOTOR CITY PLANT SERVICES, KEITH KOSKELA, and MPS GROUP, INC., Defendants-Appellees. ________________________________________________________________
Appeal from the Iowa District Court for Polk County, Douglas F. Staskal,
Judge.
A company appeals the district court’s ruling following trial. AFFIRMED IN
PART, REVERSED IN PART, AND REMANDED.
Brenda L. Myers-Maas of Myers-Maas Law, P.L.C., West Des Moines, for
appellant.
Brian S. McCormac and Brant D. Kahler of Brown, Winick, Graves, Gross,
Baskerville & Schoenebaum, P.L.C., Des Moines, for appellees D & K Managing
Consultants and Keith Koskela.
Jesse Linebaugh, Angela Morales, and Christina Lesko of Faegre, Baker,
Daniels, L.L.P., Des Moines, for appellee MPS Group, Inc.
Heard by Vogel, P.J., and Vaitheswaran and Potterfield, JJ. 2
VAITHESWARAN, J.
A company faced with competition from a former subcontractor, former
employees, and the former employees’ new employer sued for breach of
contract, intentional interference with prospective business advantage, and
intentional interference with contract. The district court considered and rejected
the claims following trial. On appeal, the company challenges the court’s
treatment of certain default admissions and the court’s conclusions on the merits.
I. Background Facts and Proceedings
Seneca Waste Solutions, Inc. is in the business of cleaning ethanol
manufacturing plants. Seneca subcontracted work to D & K Managing
Consultants, L.L.C., owned by David Koskela. David signed a “vendor supplier
confidentiality agreement.” The agreement defined “confidential information” of
Seneca as “any non-public proprietary information or technology used in
[Seneca’s] business, and any materials evidencing the same.” The agreement
prohibited D & K from allowing access to the confidential information.
Seneca also required D & K employees to sign a “subcontractor
confidentiality and non-compete agreement.” This agreement, effective for three
years, precluded the signatories from “directly or indirectly, solicit[ing] or
attempt[ing] to solicit business from or perform any services or work similar to the
services or work contracted for herein for any customers of Seneca Waste
Solutions, Inc. within a seven (7) state marketing area including Iowa.” The
agreement also prohibited the unauthorized disclosure of confidential
information. 3
The district court found that David Koskela’s son, Keith, who worked for D
& K and provided services to Seneca, signed a subcontractor confidentiality and
non-compete agreement.1 Another employee of D & K, Shawn Mullihan, did not
sign an agreement.
Eventually, Seneca and D & K parted ways. D & K sold its equipment and
assets to MPS Group, Inc., a company looking to enter the ethanol cleaning
industry. The sale followed on the heels of a marketing presentation D & K
made, which characterized Seneca as a competitor and included information
about Seneca’s operational expenses.
MPS hired Keith Koskela and Mullihan to assist in starting the new
venture. MPS foresaw Mullihan as being the “lead operations person
responsible for project delivery.” He would be involved in the “initial planning and
selling activities” because he had “good client contacts and brings instant
credibility in the ethanol market to our efforts.” Keith Koskela would provide “on-
site supervision” and “administrative and management support to Shawn’s team
through completion of purchase orders, daily job report submittal, margin
management and other management support functions.”
When Seneca learned of these hires, company manager Alan Charles
articulated the threat to its business as follows:
In the marketplace, Mullihan has our customer contact list derived from his use of his personal Blackberry while at Seneca. (he was promoted to lead but not allowed a Blackberry so he used his own.) He is showing customers tools, pump literature, specs, etc. to prove he has the exact same equipment that we do at half the price.
1 Keith vehemently denied signing the agreement and asserted his claimed signature was a forgery. The district court found otherwise. The validity of his signature is not an issue on appeal. 4
Customers are talking about this to our field people and its shaking them up. Your call what to do about it but I suggest you confer with all your Supervisors to confirm what I’m saying and formulate a response. We’ve heard a lot about Mullihan being busy chasing ethanol plants and gaining a couple customers but so far nothing about Keith Koskela and the industrial work. i.e. John Deere, Pella, Vermeer, etc. However, I’m certain he’s on it. As I said before, I’m not concerned about Keith getting into my book of business. He’s weak in ethanol and he has Mullihan to handle that. To be safe, I would assume that Keith is working aggressively to secure industrial work. Unfortunately, I’m afraid you may have to mount another mini-PR campaign similar to the anti-union effort.
Seneca’s attorney proceeded to inform MPS of Keith Koskela’s non-compete
agreement. Several months after receiving the notice and investigating the
issue, MPS pulled Koskela out of Iowa.
In time, Seneca sued D & K, Keith Koskela, and MPS for anti-competitive
practices and disclosure of confidential information. Seneca specifically alleged
Keith Koskela breached his contract with Seneca by “using confidential
information belonging to Seneca to solicit work from Seneca’s customers.”
Seneca further alleged D & K breached its contract with Seneca by failing to
abide by the terms of its vendor supplier confidentiality agreement and by
“allowing its employee, Keith Koskela, to use confidential information belonging
to Seneca to solicit work from Seneca’s customers.” Finally, Seneca alleged all
the defendants intentionally interfered with prospective business advantage and
intentionally interfered with contract.
Seneca moved for summary judgment. The district court granted the
motion as to Keith Koskela, relying on Seneca’s requests for admissions to him,
which were deemed admitted based on his failure to submit timely responses.
The court stated, “[t]his proves Seneca’s breach of contract claim except for the 5
amount, if any, of its damages.” The court granted injunctive relief against
Koskela and denied the summary judgment motion as to the remaining
defendants.
The case proceeded to trial. The district court rejected all the claims,
including those against Koskela. In large part, the court concluded Seneca failed
to establish that the defendants were the cause of Seneca’s damages. Seneca
appealed following the denial of posttrial motions.
II. Scope of Review
As a preliminary matter, the parties disagree on whether our scope of
review is de novo or on error. Seneca argues in favor of de novo review while
MPS contends the case was tried as a law action, signaling review for errors of
law.
An action based on a contract is normally treated as one at law. Van
Sloun v. Agans Bros., Inc., 778 N.W.2d 174, 178-79 (Iowa 2010). If the petition
seeks both legal and equitable relief, the action is ordinarily classified according
to what appears to be its primary purpose or its controlling issue. Id. (citing
Mosebach v. Blythe, 282 N.W.2d 755, 758 (Iowa Ct. App. 1979)).
This action has indicia of both a law and equity action. The petition
contained a damage request, the district court ruled on objections, and the
district court filed a document styled “findings, conclusions of law and judgment”
rather than a “decree,” all hallmarks of a law action. Van Sloun, 778 N.W.2d at
178. At the same time, the court granted injunctive relief against Koskela and
reserved ruling or took answers subject to the objection, both hallmarks of an
equity action. Passehl Estate v. Passehl, 712 N.W.2d 408, 413-14 (Iowa 2006). 6
Because the result we reach would be the same whether we review the action in
law or equity, we will treat the action as one in equity and review the record de
novo. See Klein v. City of Keokuk, 438 N.W.2d 22, 23 (Iowa Ct. App. 1989).
This type of review is feasible because no one disputes the completeness of the
record. See Howard v. Schildberg Const. Co., Inc., 528 N.W.2d 550, 552-53
(Iowa 1995); Sille v. Shaffer, 297 N.W.2d 379, 381 (Iowa 1980).
III. Analysis
Seneca raises the following issues on appeal: (A) whether the district
court gave proper effect to Keith Koskela’s default admissions; (B) whether the
district court gave proper effect to its summary judgment ruling; (C) whether
D & K breached its non-disclosure agreement; (D) whether the defendants
interfered with Seneca’s prospective business advantages; (E) whether the
defendants interfered with Seneca’s contractual relations; (F) whether MPS is
jointly and severally liable for Koskela’s conduct; (G) whether MPS is vicariously
liable for Koskela’s conduct; and (H) whether Seneca is entitled to punitive
damages. For reasons that will become apparent, we find it unnecessary to
address issues (B), (F), (G), and (H).
A. Default Admissions
As noted, Seneca moved for summary judgment, relying in part on Keith
Koskela’s default admissions. The following request for admission is the most
pertinent:
Keith Koskela submitted a bid to Biofuel Energy Corp., Buffalo Lake Facility, in Fairmont, MN, knowing that Biofuel Energy Corp. was a Seneca customer and Seneca had already submitted a bid for that same work, causing Biofuel Energy to cancel its purchase order with Seneca and to award the work to MPS. 7
In granting the motion as to Koskela, the district court reasoned as follows:
It is self-evident that Keith’s admissions and the matters included in Seneca’s supplemental submission in support of its motion establish that Keith is a party to the non-compete agreement and that Keith breached the terms of that agreement by soliciting business competitive with Seneca’s business and by using Seneca’s confidential information. This proves Seneca’s breach of contract claim except for the amount, if any, of its damages. . . . Seneca does not adequately argue how the facts it has established support its other claims against Keith. The court does not expect to have to determine the elements of a claim and then argue how the undisputed facts established by a party support that claim. To the extent the establishment of the breach of contract claim supports elements of the other claims, those elements are established. Any party may pursue any further dispositive motion if deemed appropriate. No money judgment will be entered against Keith on the breach of contract claim or for costs or attorney fees until the entire case is ready for disposition and the amounts of damages to which Seneca is entitled, if any, are established.
After trial, the district court addressed its summary judgment ruling as follows:
As noted, the court has entered summary judgment against Keith on the contract claim, reserving for trial the issue of damages. While the court’s summary judgment may not make it clear that causation—not merely the amount—of damages remained undecided, that was the court’s intent and that is only fair. Summary judgment was entered solely on the basis of Keith’s admissions, by operation of law. None of those admissions would suffice as proof, or support the legal conclusion, that Keith’s violations of the terms of the non-compete agreement caused the damages about which Seneca complains.
The district court went on to find as follows:
There is no evidence that MPS (or even Keith) knew of the existence of this purchase order. Moreover, even if MPS knew of the existence of the purchase order, this element could not be established without also establishing that MPS knew (or, at least, had reason to know) that the purchase order was a contract. The evidence in this record does not justify such a conclusion. There is no evidence that MPS knew the specific history of Seneca’s contact with the customer in relation to this purchase order, including the absence of any evidence that the customer gave MPS a reason to know that it did not have the right to unilaterally cancel the order. In 8
sum, neither the direct nor the circumstantial evidence establish a reason why MPS must have known that the purchase order existed or, if it did know that, that it knew the purchase order was bonding on the customer.
Seneca argues the district court’s finding in its trial ruling was “directly
contrary to the preclusive default admissions.” Additionally, Seneca contends the
district court should not have permitted Koskela and MPS to present evidence
contradicting the admissions.
Iowa Rule of Civil Procedure 1.510 governs admissions. The rule states:
A party may serve upon any other party a written request for the admission, for purposes of the pending action only, of the truth of any matters within the scope of rule 1.503 set forth in the request that relate to statements or opinions of fact or of the application of law to fact, including the genuineness of any documents described in the request.
Iowa R. Civ. P. 1.510(1). Rule 1.511 prescribes the effect of an admission as
follows: “Any matter admitted under rule 1.510 is conclusively established in the
pending action unless the court on motion permits withdrawal or amendment of
the admission.” Iowa R. Civ. P. 1.511; Uthe v. Time-Out Family Amusement
Ctrs., 475 N.W.2d 635, 638 (Iowa Ct. App. 1991). Because both rules are
modeled on Federal Rules of Civil Procedure 36(a) and (b), we may look to
federal case law in construing them. Compare Iowa R. Civ. P. 1.510, 1.511 with
Fed. R. Civ. P. 36; see generally City of Davenport v. Newcomb, 820 N.W.2d
882, 890 (Iowa Ct. App. 2012) (holding “[w]here an Iowa rule of civil procedure is
patterned after a federal rule, interpretations of the federal rule are persuasive.”).
As noted, the district court’s summary judgment ruling stated the elements
of Seneca’s breach-of-contract claim against Keith Koskela were “conclusively
established” but for “the amount, if any” of damages. In the order portion of the 9
ruling, the court reiterated, “it is established for all purposes of this litigation, that
the defendant Keith Koskela is a party to the written agreement . . . and that the
defendant Keith Koskela breached that agreement by soliciting business and
using confidential information in violation of its terms.” (Emphasis added.) The
court had authority to bind Keith Koskela to these ultimate facts. See Allied Gas
& Chem. Co. Inc. v. Federated Mut. Ins. Co., 332 N.W.2d 877, 880 (Iowa 1983)
(noting an admission may relate “to an ultimate fact or to an issue that is
dispositive of a case”). Koskela requested that the court reconsider its ruling on
his admissions, but the court rejected the request, stating:
Koskela offers this analogy to explain his argument: A simple analogy involves a traffic accident. If one party fails to timely deny a request for admission, stating that the light was red when he crossed the intersection, it is not established as undisputed as a matter of law if multiple other parties witnessing the accident answered the exact same request for admission by properly denying the light was red. (bold italics in original) The court does not think this is a very good analogy in the first place since the truth of the fact at issue here is uniquely within the scope of the knowledge of one human being. The better analogy would ask whether a person could be absolved of an admission that he was driving the car when it went through the red light when others denied that fact. One would want some explanation of why the person who admitted driving the car couldn’t know whether he was driving the car or not, or why he would lie about it, before rationally concluding there was a genuine fact issue as to whether he was driving the car. But this whole argument misses the point. This is not a dispute about whether Koskela actually signed the contract. And, contrary to the language of the analogy, it is not merely that Koskela “failed to timely deny” that he signed the contract. As discussed below, whether he actually signed it may be disputed by others who did not make the admission if that is a relevant fact affecting their legal rights. But, as for Koskela, the fact that he signed the contract is, under Iowa R. Civ. P. 1.511, “conclusively established.” There is no support (and none is cited) for Koskela’s statement that a fact “is not established as undisputed as a matter 10
of law” as to the party making the admission if other parties dispute it.
Accordingly, the admissions—including the admission quoted above—were
binding on Keith Koskela with respect to Seneca’s breach-of-contract claim
against him.
To hold otherwise would be to ignore the language and import of rule
1.511. See United States v. Kasuboski, 834 F.2d 1345, 1350 (7th Cir. 1987)
(“Rule 36 allows parties to narrow the issues to be resolved at trial by effectively
identifying and eliminating those matters on which the parties agree. This
function would be lost if parties were permitted to contest under Rule 56 a matter
concluded under Rule 36.”); Hardwick v. John and Mary E. Kirby Hosp., 860 F.
Supp. 2d 641, 649-50 (C.D. Ill. 2012) (“[A]dmissions, including default
admissions, must be treated as conclusively established for purposes of
summary judgment, and it is error for a district court judge not to give an
admission such effect.”); 8B Charles A. Wright & Arthur R. Miller, Federal
Practice and Procedure § 2264 (3d ed. 2010) (“The salutary function of Rule 36
in limiting the proof would be defeated if the party were free to deny at the trial
what he or she has admitted before trial”). As the advisory committee for the
federal rules has observed, “[u]nless the party securing an admission can
depend on its binding effect, he [or she] cannot safely avoid the expense of
preparing to prove the very matters on which he [or she] has secured the
admission, and the purpose of the rule is defeated.” Fed. R. Civ. P. 36 advisory
committee’s note. 11
Additionally, the prejudice to Seneca of holding otherwise is apparent.
Allied Gas & Chem., 332 N.W.2d at 880 (“Other courts have found prejudice
where a party is suddenly required to prove matters otherwise admitted.”).
Seneca reasonably could have expected it would not have to prove anything
other than the “amount of damages, if any,” on its breach-of-contract claim
against Koskela. See id. (“Plaintiff had every right to assume that when denials
were not forthcoming to his Request for Admissions within 30 days of September
22, 1981, that they involved matters he would not be called upon to prove.”).
This expectation was frustrated.
As relief, Seneca requests reversal and a judgment award on its “breach
of contract and intentional interference with contract claim in the amount of
$957,076 as established by the default admissions and damage evidence
presented at trial.” This request reaches well beyond the parameters of the
conclusively-established admissions. First, the court’s summary judgment ruling
made clear the admissions were not binding on Seneca’s remaining claims
against Koskela except “[t]o the extent the establishment of the breach of
contract claim supports elements of the other claims.” Second, Seneca’s proof of
the amount of damages was hotly contested. With respect to D & K, a failure of
proof on this element is dispositive, as discussed below. Finally, in a ruling on a
motion for reconsideration of the summary judgment ruling, the court clarified that
the admissions held no more than “evidentiary value” against MPS. This ruling
was correct; the admissions could not bind either MPS or D & K. See Becerra v.
Asher, 105 F.3d 1042, 1048 (5th Cir. 1997); Alipour v. State Auto. Mut. Ins. Co.,
131 F.R.D. 213, 215-16 (N.D. Ga. 1990); Kittrick v. GAF Corp., 125 F.R.D. 103, 12
106 (M.D. Pa. 1989); Alba v. Hayden, 237 P.3d 767, 770-71 (N.M. Ct. App.
2010); Darnall v. Petersen, 592 N.W.2d 505, 510-11 (Neb. Ct. App. 1999); 8B
Charles A. Wright & Arthur R. Miller, Federal Practice and Procedure § 2265
n.37, at 400-01 (3d ed. 2010) (stating “[t]he admission does not bind the party
who requested it. . . . Nor do the admissions of a party bind a coparty.”); 32
C.J.S. Evidence § 561 (noting “[d]eclarations of a defaulted defendant are
generally inadmissible against his co-defendant”). See also Poulsen v. Russell,
300 N.W.2d 289, 298 (Iowa 1981) (declining to bind requesting party to
admissions). In short, the default admissions did not mandate entry of a money
judgment against Koskela and the remaining defendants on all the claims.
At most, Seneca was entitled to an order foreclosing Koskela from
contradicting his binding admissions at trial. See Iowa R. Civ. P. 1.511 (noting
admission is “conclusively established”); Pflepsen v. Univ. of Osteopathic Med.,
519 N.W.2d 390, 392 (Iowa 1994) (concluding admission, although “improvident,”
bound university); Double D Land & Cattle Co., Inc. v. Brown, 541 N.W.2d 547,
552 (Iowa Ct. App. 1995) (concluding affidavits could not refute admissions in
summary judgment ruling). The district court permitted contradictory testimony
from Koskela. On our de novo review, we ignore the contradictory testimony.
This leaves us with the district court’s conclusion that the “amount, if any”
of damages against Koskela was zero because Koskela was not the cause of
damages to Seneca. Generally, the plaintiff has the burden of proving damages.
Data Documents, Inc. v. Pottawattamie Cnty, 604 N.W.2d 611, 616-17 (Iowa
2000). If the record is uncertain and speculative as to whether a party has
sustained damages, the factfinder must deny recovery. Id. “But if the uncertainty 13
is only in the amount of damages, the fact finder may allow recovery provided
there is a reasonable basis in the evidence from which the fact finder can infer or
approximate the damage.” Sun Valley Iowa Lake Ass’n v. Anderson, 551
N.W.2d 621, 641 (Iowa 1996).
The admission quoted above establishes Keith “caus[ed]” Biofuel Energy
(BFE) to cancel its purchase order with Seneca and to award the work to MPS.
The undisputed amount of the cancelled purchase order was $285,000.
Accordingly, Seneca was entitled to a damage award of $285,000 against Keith
Koskela on the breach-of-contract claim against him.
With respect to the remaining claims against Koskela, we find the
evidentiary value of the admission also is dispositive of the intentional
interference with contract claim. We will address that claim in more detail below.
The evidentiary value of the admission is not dispositive of the claims against the
remaining defendants, as will be explained below.
B. Inconsistency With Summary Judgment Ruling
Our resolution of the admissions question also resolves Seneca’s second
issue: whether the district court gave proper effect to its own summary judgment
ruling. As noted, we agree the court did not.
C. Whether D & K breached its non-disclosure agreement2
To prevail on its breach-of-contract claim against D & K, Seneca must
prove the following elements: (1) the existence of a contract, (2) the terms and
conditions of the contract, (3) performance of all the terms and conditions
2 D & K raises an error preservation concern with this argument which we find unpersuasive. 14
required under the contract (or excuse from such performance), (4) the
defendant’s breach of the contract in some particular way, and (5) damage as a
result of the breach. Royal Indem. Co. v. Factory Mut. Ins. Co., 786 N.W.2d 839,
846 (Iowa 2010).
The first three elements are not at issue. The focus is on the fourth
element—whether D & K breached the “vendor supplier confidentiality
agreement” by disclosing confidential information. Seneca contends D & K
“clearly breached the confidentiality agreement in its marketing presentation to
MPS, which included Seneca’s gross profit margins.”3
The marketing presentation materials included a standard rate sheet for
Seneca Waste Solutions.4 The sheet listed labor and overtime charges for
various positions, equipment charges, and incidental charges. David Koskela
testified these were the rates D & K charged Seneca and he was unaware of the
rates Seneca passed on to its customers. He “assumed” Seneca’s pricing, rate
sheets, and gross profit margin information would be confidential. Another
individual who attended the presentation, Darrin Stafford, recalled requesting and
receiving data on profit margins MPS could expect. He conceded this
information would be confidential.
On our de novo review, we conclude the standard rate sheet included with
the marketing presentation materials was confidential even though the sheet did
not refer to Seneca’s customer-pricing data. The vendor supplier confidentiality
3 Seneca preliminarily claims it is entitled to a default judgment against D & K based on D & K’s failure to obtain counsel. Suffice it to say the default was cured prior to trial. 4 While the chief executive officer of MPS disputed the rate sheet was attached, the trial exhibit included it. 15
agreement’s definition of “confidential information” broadly referred to “any non-
public proprietary information or technology used in [Seneca’s] business, and any
materials evidencing the same.” The rate sheet fell within this definition. As for
information concerning the profits MPS could expect, there can be no question
this information—to the extent it was based on Seneca’s profits—was
confidential. Having concluded the contested information was confidential, we
further conclude D & K breached the agreement by disclosing confidential
information.
This brings us to the fifth element: damage as a result of the breach.
Damages for breach of contract are limited to “those injuries which may
reasonably be considered as arising naturally from the breach of contract itself,
or such as may reasonably be supposed to have been in the contemplation of
the parties, at the time of contracting, as a probable result of the breach.” R.E.T.
Corp. v. Frank Paxton Co., Inc., 329 N.W.2d 416, 420 (Iowa 1983) (citing Meyer
v. Nottger, 241 N.W.2d 911, 920 (Iowa 1976)); see also Vogan v. Hayes
Appraisal Assoc., Inc., 588 N.W.2d 420, 425 (Iowa 1999) (stating damages for
breach of contract are those either arising naturally from such breach or those
that may reasonably be supposed to have been in the contemplation of both
parties at the time they made the contract, as the probable result of the breach).
“The damages claimed must be the certain result of the alleged breach on which
the injured party relied.” City of Corning v. Iowa-Nebraska Light & Power Co.,
282 N.W. 791, 796 (Iowa 1938).
The district court found a failure of proof on this element. On our de novo
review, we agree with the district court. Seneca’s damages were premised on 16
lost revenues from lost customers. But those customers were not lost as a result
of D & K’s disclosure of confidential information to MPS but (1) as a result of
Mullihan’s significant efforts on behalf of MPS, efforts he made without the
constraints of a confidentiality agreement and (2), in the case of BFE, Keith
Koskela’s breach of the non-compete agreement. Seneca executive Alan
Charles conceded Mullihan’s significant role, stating in an internal e-mail,
“Mullihan has our customer contact list derived from his use of his personal
Blackberry while at Seneca. . . . He is showing customers tools, pump literature,
specs, etc. to prove he has the exact same equipment that we do at half the
price.” Similarly, Seneca branch operations manager, Shawn Von Stein,
explained that Mullihan knew more than Keith Koskela about the ethanol
cleaning business because “he went to more plants than Keith would have.”
Mullihan began his efforts to undercut Seneca’s business long before he
joined MPS. While working for Seneca as an employee of D & K, Seneca cited
him for referring one of its customers to a competitor. There was also evidence
Mullihan asked a Seneca employee to break into an office and pilfer proprietary
information on behalf of D & K.
When Mullihan arrived at MPS, he became the “lead guy” who “had the
relationships,” according to MPS employee Darrin Stafford. Stafford stated, “the
content of the proposals was—the genesis was from Shawn Mullihan and he had
input on all of it.” In fact, after MPS decided to pull Keith Koskela from Iowa,
Stafford testified there was no disruption to MPS’s marketing efforts in Iowa
because Mullihan had already “asserted himself as the leader and quite frankly
could do that on his own without Keith.” As the district court stated, Mullihan’s 17
“knowledge of the business and his connections with the customers” was “[w]hat
enabled” MPS “to immediately step in and start to compete with Seneca.”
Seneca presented scant if any evidence to tie Mullihan’s marketing efforts
in Iowa to the information D & K disclosed during the marketing presentation—a
presentation Mullihan did not attend. The cancellation of the purchase order with
BFE Fairmont is a case in point. While Seneca lays the cancellation at D & K’s
doorstep, the record reflects D & K’s owner, David Koskela, had no knowledge of
what Seneca charged its customers and no involvement with this purchase order.
As for Keith Koskela’s actions, he had no role in D & K at the time of his
solicitation of BFE’s business.
Because Seneca failed to prove the damage element, we affirm the district
court’s denial of Seneca’s claim for breach of contract against D & K.
D. Interference with Seneca’s Prospective Business Advantage
Next, Seneca contends the district court should have found each of the
defendants liable for intentional interference with prospective business
advantage. Intentional interference with a prospective business advantage
requires the plaintiff to prove (1) the plaintiff had a prospective business
relationship; (2) the defendant knew of the prospective relationship; (3) the
defendant intentionally and improperly interfered with the prospective
relationship; (4) the interference caused the third party not to enter or continue
the relationship; and (5) the amount of damages. Nesler v. Fisher and Co., Inc.,
452 N.W.2d 191, 196-99 (Iowa 1990); see also Jones v. Univ. of Iowa, 836
N.W.2d 127, 151 (Iowa 2013) (stating “[t]he tort of intentional interference with
prospective business advantage imposes liability on a person who intentionally 18
and improperly interferes with the claimant’s business expectancies ‘whether the
interference consists of (a) inducing or otherwise causing a third person not to
enter into or continue the prospective relation or (b) preventing the other from
acquiring or continuing the prospective relation.’”). This tort is also referred to as
“intentional interference with prospective contractual relation.” See Restatement
(Second) of Torts § 766B (1979); see also Tredrea v. Anesthesia & Analgesia,
P.C., 584 N.W.2d 276, 283 (Iowa 1998) (referring to tort as “interference with a
prospective contract”); Burke v. Hawkeye Nat. Life Ins. Co., 474 N.W.2d 110, 114
(Iowa 1991) (referring to tort as intentional interference with prospective contract
or business relationship).
(1) Keith Koskela
As noted, the summary judgment ruling against Keith Koskela and the
admissions we have found to bind him on the breach-of-contract claim against
him are not dispositive of this claim, although they may have evidentiary value.
Accordingly, we consider the elements of the cause of action.
There is no question Seneca had a business relationship with the
customers alleged to have been targeted—BFE, Green Plains Energy (GPRE),
and Plymouth Energy. This relationship met the definition of prospective
business advantage. See Restatement (Second) of Torts § 766B, cmt. c (1979)
(stating “the relations protected . . . include any prospective contractual relations
. . . if the potential contract would be of pecuniary value to the plaintiff.”).
The second element—whether Koskela knew of the ongoing
relationships—is established by Koskela’s default admission concerning his
knowledge of Seneca’s purchase order with BFE at the time a bid was submitted 19
and BFE’s subsequent cancelation of the purchase order with Seneca.
Additionally, Mullihan was known to have Seneca’s customer list and it is clear
Mullihan and Keith Koskela worked together. This element was proven.
We turn to the third element—whether Koskela intentionally and
improperly interfered with Seneca’s prospective business advantage. Seneca is
“held to a strict standard of substantial proof ‘that the defendant acted with a
predominantly improper purpose.’” Tredrea, 584 N.W.2d at 287 (quoting Hoefer
v. Wisconsin Educ. Ass’n Ins. Trust, 470 N.W.2d 336, 341 (Iowa 1991)).
Improper purpose is a desire to “injure or financially destroy the plaintiff.”
Compiano v. Hawkeye Bank & Trust of Des Moines, 588 N.W.2d 462, 464 (Iowa
1999).
Seneca did not satisfy this strict standard. Certainly, Koskela wished to
compete with Seneca and took action to solicit business from customers he knew
to have worked with Seneca. But, even considering the evidentiary value of his
default admissions, we are hard-pressed to find that his predominant purpose
was to financially injure or destroy Seneca. Because this element was not
satisfied, we agree with the district court’s denial of the claim. We find it
unnecessary to address the final two elements.
(2) D & K
In support of its contention that D & K should be held liable for interference
with prospective business advantage, Seneca asserts “MPS acted in concert with
Keith Koskela and D & K to solicit work away from Seneca’s customers knowing
that Koskela was in breach of his duties under the non-compete agreement.” 20
This assertion does not speak to the elements of the cause of action for
intentional interference with prospective business advantage.
Our de novo review reveals the following pertinent facts. By the time Keith
Koskela and Mullihan began soliciting business in Iowa on behalf of MPS, D & K
was a shell, with no ethanol cleaning equipment and no employees. Keith
Koskela and Mullihan had been laid off before David Koskela made the
marketing presentation to MPS, and David Koskela took no part in MPS’s
subsequent marketing efforts. Even if D & K could be charged with knowledge of
Seneca’s prospective business relationships based on its past dealings with the
company, there is simply no evidence to establish D & K intentionally and
improperly interfered with the prospective relationship, the interference caused
Seneca not to enter or continue the relationship, and damages resulted from the
interference. The district court appropriately denied this claim.
(3) MPS
We are left with Seneca’s claim against MPS. As with the other
defendants, this claim fails on the third element—intentional and improper
interference with the prospective business relationship.
First, the marketing materials Seneca cites, which indeed referred to
Seneca as a competitor, were not generated by MPS but by D & K. Second,
MPS did not take the presentation as a call to injure or financially destroy
Seneca. To the contrary, the chief executive officer of MPS, Ed Schwartz,
disavowed counsel’s characterization of the materials as a direct target of
Seneca’s ethanol customers. He viewed D & K’s offer of access to Seneca’s
ethanol customers as “salesmen talk.” Schwartz was simply looking for 21
verification of D & K’s assets, which he ultimately purchased, together with a
three-year non-compete agreement signed by David Koskela. Third, to the
extent Seneca relies on MPS’s hiring of Keith Koskela, Schwartz testified he “had
no idea there was a non-compete” agreement between Keith Koskela and
Seneca. Notably, MPS pulled Keith Koskela from the Iowa market after
investigating Seneca’s request to abide by the agreement. The district court
appropriately denied this claim.
E. Interference with Seneca’s contracts
Seneca next challenges the district court’s denial of its claims for
interference with its contractual relationships. A successful claim for intentional
interference with a contract requires proof that (1) plaintiff had a contract with a
third party; (2) defendant knew of the contract; (3) defendant intentionally and
improperly interfered with the contract; (4) the interference caused the third party
not to perform, or made performance more burdensome or expensive; and
(5) the amount of damage. Nesler, 452 N.W.2d at 199. The first two elements
are satisfied with respect to all the defendants.
The third element requires application of a different standard from the
standard for interference with prospective business advantage. Id. When
dealing with existing contracts, a purpose to injure or destroy the plaintiff is not
essential. Id. (citing Farmers Co-op Elevator, Inc., Duncombe v. The State Bank,
236 N.W.2d 674, 679 (Iowa 1979)). The following factors are relevant to
deciding whether the conduct was improper:
(a) the nature of the actor’s conduct, (b) the actor’s motive, 22
(c) the interests of the other with which the actor’s conduct interferes, (d) the interests sought to be advanced by the actor, (e) the social interests in protecting the freedom of action of the actor and the contractual interests of the other, (f) the proximity or remoteness of the actor’s conduct to the interference, and (g) the relations between the parties.
Kern v. Palmer Coll. of Chiropractic, 757 N.W.2d 651, 662 (Iowa 2008). We find
it unnecessary to separately address each of the factors with respect to each of
the defendants. Instead, we will summarize the pertinent evidence relating to
each defendant. If necessary, we will then proceed to analyze the fourth and fifth
elements.
With respect to Keith Koskela, the default admissions and specifically the
admission relating to his contact with BFE establishes improper conduct. 5 We
proceed to the fourth element—whether the interference caused the third-party
not to perform. The admission also establishes this element as to BFE, and
Seneca’s damages at trial were shown to be $285,000. As discussed
extensively, Mullihan’s involvement precludes a finding that Keith Koskela’s
improper interference resulted in the loss of Seneca’s contracts with the
remaining specified customers. Accordingly, Seneca’s claim against Keith
Koskela for intentional interference with contract as to those customers fails.
5 Quoted above, the pertinent admission read: Keith Koskela submitted a bid to Biofuel Energy Corp., Buffalo Lake Facility, in Fairmont, MN, knowing that Biofuel Energy Corp. was a Seneca customer and Seneca had already submitted a bid for that same work, causing Biofuel Energy to cancel its purchase order with Seneca and to award the work to MPS. 23
D & K’s disclosure of confidential information in violation of the vendor
agreement establishes improper conduct. But, as with the improper interference
with prospective business advantage claim, there is no evidence to establish
D & K interfered with Seneca’s customer contracts. Accordingly, this claim fails.
This brings us to MPS. Seneca contends it had exclusive contracts with
(1) BFE Fairmont, (2) BFE Woodriver, (3) GPRE, and (4) Plymouth Energy. In its
view, Keith Koskela “directly solicited work from each of these customers lost to
MPS.”
All involved conceded MPS competed with Seneca for ethanol cleaning
business. But competition for competition’s sake generally is not improper. See
Restatement (Second) of Torts § 768 (1979); see also Edward Vantine Studios,
Inc. v. Fraternal Composite Serv., Inc., 373 N.W.2d 512, 515 (Iowa Ct. App.
1985) (holding promise to indemnify customer was tortious but “[i]f the contracts
had been terminated by reason of better price, better service, or better quality
alone, . . . the Court would not have determined there was a tortious interference
with the contracts.”). As discussed in other sections, all these customers were
solicited in part by Mullihan, who was not subject to a non-compete agreement
with Seneca. His efforts on behalf of MPS were in in no way improper.6
6 Keith Koskela’s default admission establishes that his involvement in soliciting business from BFE Fairmont was improper but, as noted at the outset, the admission cannot bind MPS. Additionally, we are not persuaded by Seneca’s contention that MPS “acted in concert with Keith Koskela . . . to solicit work away from Seneca’s customers, knowing that Keith Koskela was in breach of his duties under the non-compete agreement.” As noted, MPS did not know Keith Koskela had a non-compete agreement. 24
Because he was the primary face of MPS in soliciting business and he acted
appropriately, our analysis of the third element could end here. However, we
elect to delve a little deeper.
First, with respect to BFE Fairmont, two contracts are at issue: (1) the
purchase order and (2) the original contract for services with Seneca. Beginning
with the purchase order, there is no question Keith Koskela (and Mullihan)
solicited business from BFE Fairmont. There is also no question—based on
Keith Koskela’s default admission—that, as a result, BFE Fairmont canceled a
purchase order with Seneca. We have found Keith Koskela liable for
interference with this purchase order contract. But we cannot find Keith Koskela
or MPS liable for interference with the second contract because this contract had
expired at the time Keith Koskela and Mullihan began soliciting business from
BFE Fairmont.
Second, with respect to BFE Woodriver, Seneca claimed interference with
work performed in April 2011 but, again, the service contract had expired a
month earlier.
Turning to GPRE, the company had a number of branches and many were
not encompassed by Keith Koskela’s non-compete agreement, the primary if not
sole hook with which Seneca attempts to reel in MPS for improper interference
with its contracts. GPRE Superior, Iowa, however, was subject to the non-
compete agreement and additionally had a service contract with Seneca that had
yet to expire when MPS solicited its business. At first blush, MPS’s written offer
This fact disposes of Seneca’s “joint and several liability” and “vicarious liability” claims against MPS based on Koskela’s conduct. 25
of services would appear problematic. See Restatement (Second) of Torts § 768
cmt. a (1979) (“[A]n existing contract, if not terminable at will, involves
established interests that are not subject to interference on the basis of
competition alone. However, the fact that the actor is not justified on the basis of
competition is not conclusive of his liability. His action may be justified for other
reasons.”). But MPS’s offer was just that—an estimate for work MPS was willing
to perform for GPRE Superior—unsupported by an acceptance and listing the
projected start date as “to be determined.” Given the open start date, the offer
could have been construed as a request to obtain GPRE Superior’s business
upon the expiration of Superior’s contract with Seneca. As for Seneca’s
assertion that MPS interfered with contracts at the Shenandoah and Central City
facilities, Seneca furnished no separate contracts with these facilities for 2012,
when MPS performed work.
We are left with Plymouth Energy. MPS attempted to solicit business from
Plymouth but was informed Plymouth still had contractual obligations with
Seneca. MPS performed no work for Plymouth during the contract period.
Based on this evidence, in addition to the evidence of Mullihan’s
appropriate contacts on behalf of MPS, we conclude MPS did not improperly
interfere with Seneca’s contracts. Because this element is unsatisfied, we need
not address the final two elements as they relate to MPS.
IV. Disposition
We affirm the dismissal of the breach-of-contract claim against D & K, the
dismissal of the tortious interference with prospective business advantage claims
against all the defendants, and the tortious interference with contract claims 26
against D & K and MPS. We reverse the dismissal of the breach-of-contract
claim and the tortious interference with contract claim against Keith Koskela and
remand for entry of a single judgment against him in the amount of $285,000.
See Revere Transducers, Inc. v. Deere & Co., 595 N.W.2d 751, 770 (Iowa 1999)
(“A successful plaintiff is entitled to one, but only one, full recovery, no matter
how many theories support entitlement.” (citing 205 Corp. v. Brandow, 517
N.W.2d 548, 551 (Iowa 1994)) (internal quotation marks omitted)); Team Central,
Inc. v. Teamco, Inc., 271 N.W.2d 914, 924-26 (Iowa 1978).
AFFIRMED IN PART, REVERSED IN PART, AND REMANDED.