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Michael Jon Sutton v. Iowa Trenchless

March 13, 2013


Appeal from the Iowa District Court for Guthrie County, Gary G. Kimes, Judge.

The opinion of the court was delivered by: Tabor, J.

Michael Sutton appeals and Iowa Trenchless cross-appeals a district court order awarding attorney fees and refusing to extend the restrictive covenant. AFFIRMED IN PART, REVERSED IN PART, AND REMANDED.

Heard by Vaitheswaran, P.J., and Tabor and Mullins, JJ.

This case returns to us after the remand hearing we ordered in Sutton v. Iowa Trenchless, L.C., 808 N.W.2d 744 (Iowa Ct. App. 2011). In the first appeal we decided Michael Sutton's covenant not to compete with Iowa Trenchless was enforceable, but Iowa Trenchless did not carry its burden to show damages. Sutton, 808 N.W.2d at 753. We held the contract entitled Iowa Trenchless to recover reasonable attorney fees, and remanded for the district court to determine the proper amount. Id.

In this second appeal, Sutton claims the district court erred in awarding $54,000 in attorney fees because Iowa Trenchless did not prove a violation of the covenant. He also claims Iowa Trenchless failed to comply with the attorney fee affidavit statute. On cross-appeal, Iowa Trenchless contends the amount of fees awarded was arbitrary and without factual support. The company also challenges the court's refusal to extend injunctive relief.

Under law-of-the-case principles, we decline to reconsider the company's entitlement to attorney fees for establishing the enforceability of the covenant. Assuming the company's original affidavit did not satisfy Iowa Code section 625.24 (2011), its amended affidavit removed any impediment to awarding attorney fees. We also uphold the district court's refusal to extend the duration of covenant. But we do find it necessary to remand the case to the district court so that it can provide findings of fact concerning the amount of attorney fees awarded. Without an explanation of what factors the court considered, we are unable to determine the reasonableness of the attorney fee award.

I. Background Facts and Proceedings

Iowa Trenchless, L.C. is in the business of laying cable and pipe by boring underground instead of digging open pits. The company was founded in 2002 by Jason Clark, Clark's father, and Michael Sutton. On August 20, 2005, Sutton sold his share in Iowa Trenchless and entered into a seven-year covenant not to compete within a 350-mile radius of Des Moines.

In August 2009, Sutton filed a declaratory judgment action seeking to prove the non-compete covenant was unconscionable, unenforceable, and void. Iowa Trenchless counterclaimed the agreement was enforceable and Sutton was in breach for working at a competitor of Iowa Trenchless, contacting Iowa Trenchless customers, and attempting to hire Iowa Trenchless employees. On November 24, 2010, the district court granted Sutton declaratory relief, striking further enforcement of the covenant not to compete and denying all claims raised by Iowa Trenchless. Iowa Trenchless appealed the decision.

We reversed and remanded the district court's decision on November 23, 2011. Sutton,808 N.W.2d at 753. We found the non-compete covenant to be valid and enforceable, but because Iowa Trenchless failed to prove damages, the company could not succeed in its counterclaim against Sutton for breach of contract. Id. at 752. Turning to the provision in the agreement authorizing attorney fees, we held Iowa Trenchless was not entitled to recover fees sustained in its breach-of-contract counterclaim, but that the company was "entitled to recover the attorney fees it incurred in establishing that the terms of the covenant are enforceable." Id. at 753. We sent the case back to district court for a hearing on the appropriate amount of attorney fees recoverable by Iowa Trenchless, declining to retain jurisdiction. Id. After the supreme court denied Sutton's petition for further review, the case returned to district court.

On February 15, 2012, the district court enjoined Sutton from competing with Iowa Trenchless until August 20, 2012, an order consistent with the terms of the contract clause.*fn1 Iowa Trenchless then submitted its motion seeking $114,097.49 in attorney fees and costs, along with a supporting affidavit. Sutton resisted and proposed the fees should not exceed $47,491.63. The district court ultimately awarded Iowa Trenchless $54,000 in attorney fees on April 9, 2012. On April 23, 2012, the court overruled Sutton's motion to amend and enlarge, and both parties appealed. During the attorney fee dispute, Iowa Trenchless also submitted a motion to extend the non-compete injunction. The court denied the motion to extend on August 9, 2012, which Iowa Trenchless separately appealed. On September 24, 2012, the supreme court consolidated the two appeals.

II. Scope and Standard of Review

We review Sutton's statutory challenges for correction of legal error. Van Sloun v. Agans Bros., Inc., 778 N.W.2d 174, 182 (Iowa 2010).

We review the award of attorney fees for an abuse of discretion. Boyle v. Alum-Line, Inc., 773 N.W.2d 829, 832 (Iowa 2009). We will reverse the court's award "only when the court rests its discretionary ruling on grounds that are clearly unreasonable or untenable." Id.

Because the case was tried as an action at law in the district court, our review of the court's denial of the request to extend the injunction is for correction of legal error. Sutton, 808 N.W.2d at 748--49.*fn2 Accordingly, we are bound by the district court's ...

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