MIDWEST MOTORSPORT S PARTNERSHIP, Plaintiff-Appellant, vs. HARDCORE RACING ENGINES, INC., KENT A. DAVENPORT, JEFFREY A. ROSS, RODNEY G. RICHARDS, SCOTT A. OLSON AND PATRICK GRAHAM, Defendants-Appellees.
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IN THE COURT OF APPEALS OF IOWA
No. 6-742 / 05-2113
Filed April 25, 2007
MIDWEST MOTORSPORTS PARTNERSHIP,
Plaintiff-Appellant,
vs.
HARDCORE RACING ENGINES, INC.,
KENT A. DAVENPORT, JEFFREY A. ROSS,
RODNEY G. RICHARDS, SCOTT A. OLSON
AND PATRICK GRAHAM,
Defendants-Appellees.
________________________________________________________________
Appeal from the Iowa District Court for Story County, Carl D. Baker,
Judge.
Midwest Motorsports Partnership appeals the denial of its motion for
directed verdict on multiple claims against HardCore Racing Engines, Inc. and
several individual defendants. AFFIRMED.
James H. Gilliam, Ann Holden Kendell, and Laura N. Martino of Brown,
Winick, Graves, Gross, Baskerville and Schoenbaum, P.L.C., Des Moines, for
appellant.
James A. Brewer and Angelina M. Thomas of Newbrough, Johnston,
Brewer, Maddux & Howell, L.L.P., Ames, for appellees.
Heard by Mahan, P.J., and Miller and Vaitheswaran, JJ.
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VAITHESWARAN, J.
Midwest Motorsports Partnership built race car engines and sold
component parts. Several former employees of Midwest formed a competitor
corporation, Hardcore Racing Engines, Inc.
Midwest responded by suing
Hardcore and the former employees.
Midwest alleged that Hardcore and Kent Davenport, Jeffrey Ross, Rodney
Richards, Scott Olson, and Patrick Graham (1) breached a duty of loyalty to
Midwest, (2) intentionally interfered with existing contractual relationships, (3)
intentionally interfered with prospective business advantage, (4) misappropriated
trade secrets, and (5) engaged in civil conspiracy.
The defendants
counterclaimed for abuse of process and unpaid wages. The counterclaims are
not at issue on appeal.
During trial, Midwest moved for a directed verdict on all its claims. The
district court denied the motion.
Later, at a conference on proposed jury
instructions, the district court decided not to submit to the jury Midwest’s claims
for breach of a duty of loyalty, intentional interference with existing contractual
relationships, and civil conspiracy. Midwest’s remaining two claims of intentional
interference with prospective business advantage and misappropriation of trade
secrets were submitted to the jury, which returned a verdict in favor of the
defendants. In a post-trial ruling, the court rejected Midwest’s contention that its
motion for directed verdict should have been granted. Midwest appealed.
I. Breach of Duty of Loyalty
Midwest contends “directed verdict was warranted against Davenport,
Ross, Richards, Graham and Olson on breach of the duty of loyalty or, at a
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minimum, the trial court erred by failing to submit plaintiff’s claim of breach of the
duty of loyalty to the jury.” Our review of this issue is on error. Bellville v. Farm
Bureau Mut. Ins. Co., 702 N.W.2d 468, 473 (Iowa 2005).
Midwest acknowledges that our highest court has not explicitly recognized
a separate cause of action by an employer against an employee for breach of a
duty of loyalty. See Condon Auto Sales & Service, Inc. v. Crick, 604 N.W.2d
587, 599-600 (Iowa 1999). Midwest argues, however, that the types of conduct
that have supported claims for breach of this duty in other jurisdictions are
present in this record. Our state has not recognized this cause of action and
Midwest did not provide the district court with a reasoned basis for moving in a
different direction.
Beyer v. Todd, 601 N.W.2d 35, 38 (Iowa 1999) (stating
requested instruction must “correctly state[ ] the law.”)
Midwest next argues that at least two of its former employees, Kent
Davenport and Patrick Graham, had managerial positions that subjected them to
a “fiduciary” duty of loyalty. Our highest court has recognized a cause of action
for breach of a fiduciary duty by a corporate officer and director. See Midwest
Janitorial Supply Corp. v. Greenwood, 629 N.W.2d 371, 375 (Iowa 2001).
However, this cause of action was neither pled nor tried here. Even if this claim
had been tried, there is no evidence that these two defendants were partners in
Midwest.
At best, there is evidence that Davenport was the shop manager,
although Davenport testified he primarily worked as a machinist. As for Graham,
the record reflects that he had a title of “sales manager” but performed a variety
of non-sales functions, including scheduling employees and undertaking special
projects. At all relevant times, he was a salaried employee of Midwest. Based
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on this record, we conclude that, even if the related claim of breach of a fiduciary
duty had been pled and tried, there was not substantial evidence to submit the
claim to the jury.
The district court did not err in denying Midwest’s motion for directed
verdict on the breach of duty of loyalty claim and in refusing to submit the breach
of duty of loyalty claim and the related breach of fiduciary duty claim to the jury.
II. Misappropriation of Trade Secrets
This claim is based on the defendants’ receipt of a Midwest customer list,
job tickets, and certain other Midwest property. The claim was submitted to the
jury, which determined Midwest was not entitled to damages. Midwest contends
it “was entitled to directed verdict on its claim of misappropriation of trade
secrets.” The company maintains “there was not sufficient evidence to generate
a jury question on this issue – defendants admitted the conduct and the case law
is clear that the information was trade secret information.”
Whether the challenged items were trade secrets was a question of fact
for the jury. See Economy Roofing & Insulating Co. v. Zumaris, 538 N.W.2d 641,
649 (Iowa 1995). Indeed, the jury was instructed that this was the first question it
would have to answer in resolving Midwest’s misappropriation of trade secrets
claim. The jury instruction was as follows:
1. Any of the following are trade secrets: a customer list and
purchasing history used by Defendants to obtain financing for the
competitive business; the work orders (job tickets) containing
customer information, parts used and labor performed; or the
research and development created by Plaintiff.
2. The Defendants misappropriated any of the trade secrets.
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3. The misappropriation [of] any of the trade secrets was a
proximate cause of damage to the Plaintiff.
4. The nature and extent of damage.
The district court also defined a trade secret for the jury, as follows:
A trade secret means any formula, pattern, compilation of
information, program, device, method, technique, or process which
1. Derives independent economic value, actual or potential,
from not being generally known to, and not being readily
ascertainable by proper means by persons other than
Plaintiff; and
2. Is the subject of efforts that are reasonable under the
circumstances to maintain its secrecy.
Reasonable minds could disagree on whether the customer list and other items
were “readily ascertainable by proper means by persons other than Plaintiff.” For
example, several of the defendants testified that they memorized their customers
and did not need the list to identify them. It is clear, therefore, that the trade
secrets element was disputed and the misappropriation claim could not be
decided as a matter of law. As the defendants presented substantial evidence
on this issue, we conclude the district court did not err in submitting the
misappropriation of trade secrets claim to the jury and in declining to decide the
issue in favor of Midwest as a matter of law. See McClure v. Walgreen Co., 613
N.W.2d 225, 230 (Iowa 2000).
III. Intentional Interference with Existing Contractual Relationships
Midwest next contends it “was entitled to directed verdict on its claim of
intentional interference with existing contractual relationships.”
This claim is
premised on Midwest’s allegation that the individual defendants delayed work to
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be performed prior to their departure from Midwest and directed the work to
Hardcore.
The elements of intentional interference with an existing contract are:
(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) damage to the plaintiff resulted.
Green v. Racing Ass’n of Cent. Iowa, 713 N.W.2d 234, 243 (Iowa 2006) (citations
omitted).
We are not convinced Midwest established as a matter of law that it had
contracts with third-parties. One individual, Carl Moyer, testified that, in the fall of
2003, he took two engines to Midwest for Davenport to “freshen.” He testified
there was no rush, as he only needed them by racing season, which was to
begin in the spring of 2004. Several months after he took the motors to Midwest,
he learned that Davenport was no longer working for the company. He contacted
Davenport and asked if he would work on the motors. Davenport agreed. Moyer
stated neither Davenport nor the other individual defendants told him they were
leaving Midwest and none solicited his business before they left. He additionally
testified that his loyalty was to Davenport, as the engine builder, rather than to
Midwest. We conclude the district court did not err in declining to decide as a
matter of law that a contract existed. See Molo Oil Co. v. River City Ford Truck
Sales, 578 N.W.2d 222, 224 (Iowa 1998) (“In a breach of contract claim, the
complaining party must prove: (1) the existence of a contract; (2) the terms and
conditions of the contract; (3) that it has performed all the terms and conditions
required under the contract; (4) the defendant’s breach of the contract in some
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particular way; and (5) that plaintiff has suffered damages as a result of the
breach.”).
With respect to Moyer’s situation, we also conclude the evidence was
insufficient to establish as a matter of law that Davenport caused Moyer not to
perform a contract with Midwest, if one existed. Gibson v. ITT Hartford Ins. Co.,
621 N.W.2d 388, 400 (Iowa 2001). Although there was evidence that one of
Moyer’s employees knew Davenport was unhappy and was considering leaving
Midwest and there was evidence that no work was performed on the engines for
several months after they were brought to Midwest, there was not evidence that
Davenport told Moyer to retrieve the engines from Midwest and bring them to
Hardcore.
Turning to the interference element, the actor’s motive is a key factor. Fin.
Mktg. Serv., Inc. v. Hawkeye Bank & Trust of Des Moines, 588 N.W.2d 450, 458
(Iowa 1999). The record cited by Midwest in support of its argument for reversal
reveals that two Midwest customers contacted Davenport and asked him about
rumors that he was leaving Midwest. In both cases, Davenport responded that
they were working on putting something else together. There is no indication that
Davenport was motivated to interfere or did interfere with contractual
relationships these customers might have had with Midwest. Similarly, Richards
testified that one customer contacted him while he was still at Midwest and asked
about rumors that he was leaving. Richard responded, “I don’t know what’s
going to be going on.” The customer asked if there was something going on,
could he get the same deal he was getting right now. Richard responded, “I can’t
see why not.”
Had there been substantial evidence of a contract between
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Midwest and this customer, this evidence might have generated a jury question
on the interference element. We are not convinced, however, that this evidence
revealed a motive to interfere that rose to the level of improper interference as a
matter of law. Finally, turning to Graham’s testimony, he did not recall telling a
Midwest customer about problems at Midwest, other than in generalities. While
he acknowledged telling the person for whom he raced cars that he was thinking
about leaving Midwest and he was thinking about starting his own business, this
testimony falls short of establishing as a matter of law that Graham had a motive
to interfere with Midwest contracts these customers may have had.
At a minimum, Midwest did not establish the first, third, and fourth
elements of this claim as a matter of law. Therefore, the district court did not err
in refusing the company’s request for a directed verdict.
IV. Intentional Interference with Prospective Business Advantage
Midwest contends it was entitled to a directed verdict on its claim of
intentional interference with prospective business advantage. The district court
submitted this claim to the jury, which returned a verdict in favor of the
defendants.
Midwest had to prove several elements including that the defendants
intentionally and improperly interfered with prospective business relationships.
Willey v. Riley, 541 N.W.2d 521, 527 (Iowa 1995). On this element, the jury was
instructed that the interference could take any of the following forms:
not completing work for the customers so that the work could be
completed at the competitive business and encouraging Plaintiff’s
customers to use the competitive business to complete the project
and use the competitive business for future projects; or by taking
Plaintiff’s invoices, research and development or work orders (job
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tickets) with customer information, including the parts and labor
performed for the customers, which impaired Plaintiff’s ability to
service customers.
This was not an element that could have been decided as a matter of law. As
noted in our discussion of the claim on improper interference with existing
contractual relationships, reasonable minds could have differed on whether the
defendants improperly interfered in these respects. Therefore, this claim was
properly submitted to the jury.
V. Civil Conspiracy
Midwest next contends it was entitled to a directed verdict on its claim of
civil conspiracy.
“For conspiracy, an agreement must exist between the two
persons to commit a wrong against another.” Ezzone v. Riccardi, 525 N.W.2d
388, 398 (Iowa 1994).
The wrong need not be intentional but must be
actionable. Wright v. Brooke Group Ltd., 652 N.W.2d 159, 174 (Iowa 2002). “If
the acts alleged to constitute the underlying wrong provide no cause of action,
then neither is there a cause of action for the conspiracy itself.”
Id. at 172
(quoting 16 Am. Jur. 2d Conspiracy § 50, at 275-76 (1998)). As Midwest was not
entitled to a directed verdict on its other claims, it also was not entitled to a
directed verdict on the conspiracy claim. Robert’s River Rides, Inc. v. Steamboat
Dev. Corp., 520 N.W.2d 294, 302 (Iowa 1994) (overruled on other grounds by
Barreca v. Nickolas, 683 N.W.2d 111 (Iowa 2004)).
AFFIRMED.
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