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Wallace Auto Supply, Inc. v. Sinn

Court of Appeals of Iowa

January 24, 2018

WALLACE AUTO SUPPLY, INC. d/b/a GREENFIELD TRUE VALUE, Plaintiff-Appellee/Cross Appellant,
KENT SINN and JULIANN SINN, Defendants-Appellants/Cross Appellees. KENT SINN and JULIANN SINN, Plaintiffs-Appellants/Cross Appellees
WALLACE AUTO SUPPLY, INC. d/b/a GREENFIELD TRUE VALUE, Defendants-Appellee/Cross Appellant

         Appeal from the Iowa District Court for Adair County, John D. Lloyd, Judge.

         The parties in a combined action for breach of contract and declaratory judgment appeal and cross-appeal the district court's ruling.

          Martin L. Fisher of Fisher, Fisher & Groetken, P.C., Adair, for Kent and Juliann Sinn.

          Matthew J. Hemphill of Bergkamp, Hemphill & McClure, P.C., Adel, for appellee.

          Heard by Vogel, P.J., and Potterfield and Bower, JJ.

          POTTERFIELD, Judge.

         The underlying proceedings are based on the purchase agreement entered into by Kent and Juliann Sinn and Wallace Auto Supply, Inc. whereby Wallace Auto would purchase the Sinns's Greenfield True Value store for $1 million. As part of the purchase agreement, the Sinns were to leave $618, 000 worth of certain inventory in the store. Additionally, the agreement included a non-compete provision that prevented the Sinns from "directly or indirectly" competing "within a ten mile radius of Greenfield, Iowa" for three years after the closing date.

         After the parties entered into the agreement, the Sinns filed a petition for declaratory judgment in June 2014, seeking to have the district court interpret the non-compete provision. In October 2015, Wallace Auto filed a petition at law, alleging the Sinns had breached the contract by violating the non-compete agreement and by leaving approximately $96, 000 less inventory in the store than the purchase agreement required. The two actions were later consolidated.

         Following a bench trial, the district court granted declaratory relief interpreting the non-compete agreement in favor of the Sinns. On Wallace Auto's breach-of-contract claim, the court found the Sinns had breached the contract by removing more inventory from Greenfield True Value than the purchase agreement allowed, but the court reduced the damages Wallace Auto requested by 30%.

         The Sinns appealed and Wallace Auto cross-appealed.

         On appeal, the Sinns maintain there was no reasonable basis from the evidentiary record from which the court could properly infer or approximate the damages awarded and the award of damages unjustly enriched Wallace Auto. In the alternative, the Sinns argue that if Wallace Auto is entitled to any damages, it should be only nominal damages for the Sinns's breach of contract. The Sinns request reasonable appellate attorney fees based on the language of the agreement. The Sinns failed to appear for oral argument.

         On cross-appeal, Wallace Auto asks us to affirm the district court's ruling the Sinns breached the contract by failing to have $618, 000 of inventory in the store and asks us to reverse the court's ruling reducing the amount of damages requested by 30%. Wallace Auto also challenges the district court's ruling determining the Sinns did not breach the non-compete provision of the contract. Wallace Auto also requests reasonable appellate attorney fees.

         I. Background Facts and Proceedings.

         The Sinns owned and operated the Greenfield True Value store from 1997 until 2014, when Wallace Auto purchased and took possession of the store. The purchase agreement provided that Wallace Auto would pay the Sinns $1 million total, with $618, 000 being allocated to inventory; $305, 000 for the real estate; $76, 500 for "all other assets" (fixtures and other non-merchandise in the store); and $500 for the non-compete clause.

         The agreement further specified the $618, 000 in inventory would not include "vehicles, new lawnmowers, new mower parts, major appliances, automotive parts, trailers, and rental equipment ('the inventory')." Because the Sinns usually kept more than $618, 000 inventory in the store, it was agreed they would remove any excess and place it in their True Value store in Creston.[1]

         The non-compete clause stated:

For the consideration set forth above, to be paid at closing, Seller and Kent Sinn and Juliann Sinn in their individual capacities, shall not directly or indirectly engage in, and shall have no Interest In any business, firm, person, partnership, or corporation, whether as an employee, officer, director, agent, security holder, creditor, consultant or otherwise, that engages In the sale of any types of items sold True Value stores within a ten (10) mile radius of Greenfield, Iowa at any time within three (3) years immediately following the closing date.

         The closing of the sale took place on February 7, 2014. Per the agreement, the Sinns had an additional thirty days "to remove the excepted items from the premises."

         Kent testified that as his employees removed items from the Greenfield store, they scanned them at the register as if they were being purchased in order to remove them from the store's inventory (and transfer them to the Creston store's inventory). A number of employees helped remove the items.

         During the negotiations, the parties discussed that the inventory in the store may include obsolete, unsellable items. As a result, they agreed that the nuts, bolts, and fasteners located in the Greenfield store would not be inventoried but would be transferred to Wallace Auto outside of the inventory to offset the obsolete items.

         However, the Sinns misunderstood the agreement, and, as a result, they removed approximately $32, 000 more in inventory than necessary to get the store to $618, 000. Kent realized the mistake while his employees were still removing items from the store-during the thirty days after closing-and he testified that he then told them to stop. According to Kent, at the time they ceased removing items, there was still a number of excluded items[2] in the store.

         Kent began returning items to Wallace Auto from the Creston True Value store as Wallace Auto requested them. As the relationship between the parties began to sour, the Sinns chose to pay Wallace Auto the balance of the outstanding $32, 000 and cut ties.

         During the same period, Wallace Auto continued to use the Sinns's inventory system for the Greenfield store.[3] The Sinns had used one software inventory system for both their Greenfield and Creston stores. The two stores' inventories were kept separately, so the person using the program had to enter information identifying which store was involved in the order or sale. Before Wallace Auto had their own system installed, some sales and orders were completed in the Greenfield store that ultimately showed up in the records of the Creston store.[4] Kent testified that once it became clear the errors were being made, the workers at the Greenfield True Value were told and the errors that had been made were corrected.

         In the year following the sale, a dispute arose over the interpretation of the non-compete provision in the contract. The Sinns filed a petition for declaratory judgment. In it, they advised the court the specific disputes were over the following: whether the Sinns could sell retail products, mowers, appliances, hardware, etc. to individuals who bought items in their True Value store in Creston but who live within the ten-mile radius of Wallace Auto's Greenfield True Value; whether the Sinns could deliver items purchased in their Creston store to individuals who lived within the ten-mile radius of the Greenfield store; and whether the Sinns could operate their company vehicles advertising the Creston True Value store within the ten-mile radius. In its response, Wallace Auto agreed with the Sinns's list of disputes and added others, including whether the Sinns could-in the ten-mile radius-advertise in newspapers; "pick up or ...

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