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Lucy v. Platinum Services, Inc.

Court of Appeals of Iowa

November 7, 2018

ERIC N. LUCY, Plaintiff-Appellee/Cross-Appellant,
v.
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.

          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.

          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. 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." 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 [agreement." (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 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 ...


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