Engineered Sales, Co. v. Endress + Hauser, Inc.

Background

Engineered Sales, Co. (ESC) was a manufacturer’s representative and distributor for industrial instrumentation and controls. Endress + Hauser, Inc. (E+H) appointed ESC as its exclusive independent sales representative in specified territory under a 2001 agreement. The agreement described ESC as an independent contractor and allowed either party to terminate it, with or without cause, on 30 days’ written notice.

E+H later favored consolidating its sales representatives and supported a possible merger or acquisition involving ESC and Miller Mechanical Specialties, Inc. (MMS). During negotiations, ESC gave MMS sales information under a nondisclosure agreement. After ESC rejected MMS’s purchase offer, E+H terminated the sales-representative agreement effective July 17, 2015, and appointed MMS as its representative in ESC’s former territory. In January 2017, a manufacturer called MSA replaced ESC with MMS as its sales representative.

ESC initially asserted claims involving alleged misuse of confidential information, interference with prospective economic advantage, termination under the Minnesota Franchise Act (MFA), termination under the Minnesota Termination of Sales Representative Act (MTSRA), and unpaid commissions. ESC conceded that it had no damages, and therefore no claims, relating to E+H’s alleged interference with its negotiations with MMS or solicitation of ESC employees. The court did not address those issues.

Summary-Judgment Standard

The court applied Rule 56’s summary-judgment standard. Summary judgment is required when the record shows no genuine dispute about a material fact and the moving party is entitled to judgment as a matter of law. The court views the evidence and reasonable inferences in favor of the nonmoving party, but the nonmoving party must identify specific evidence supporting each essential element of its claims.

Breach of the Nondisclosure Agreement

ESC alleged that E+H and MMS used its confidential information to identify MSA as a valuable principal and induce MSA to leave ESC. The court held that ESC presented no evidence, beyond conjecture, that MMS used the sales data it received under the nondisclosure agreement. MSA was already known as a market leader and a desirable manufacturer to represent, so the relevant information was already in the public domain and excluded from the agreement’s definition of confidential information.

The court also held that the record did not establish that E+H breached the nondisclosure agreement. E+H’s possible interest in giving MMS a more diverse product portfolio did not show that E+H used ESC’s confidential information to identify MSA. The court therefore granted summary judgment to MMS and E+H on this claim.

Tortious Interference

ESC alleged that E+H and MMS interfered with its prospective economic advantage by targeting MSA and relying on ESC’s confidential information. Because ESC did not have a viable claim that either defendant improperly used that information, the court held that the tortious-interference claim failed as a matter of law.

Minnesota Franchise Act

ESC argued that it was an E+H franchisee and could be terminated only for good cause. Under the MFA, a franchise relationship requires a right to operate using the franchisor’s trade name or other commercial symbol, a community of interest in marketing goods or services, and payment of a franchise fee.

The court concluded that ESC established the community-of-interest element even though it represented itself to customers as ESC rather than E+H. But ESC did not establish the required franchise fee. ESC had paid $100,000 to acquire Control-Tec, but that transaction was separate from the agreement with E+H; E+H was not involved in the negotiations, was not a party to the transaction, and received no fee from it. The agreement also identified ESC as an independent sales representative and independent contractor and permitted termination on 30 days’ notice for any reason.

The court held that ESC and E+H did not have a franchise relationship. It granted E+H’s motion for summary judgment on the MFA claim and denied ESC’s motion for partial summary judgment on that claim.

Minnesota Termination of Sales Representative Act

ESC argued that E+H violated the MTSRA by terminating the agreement without good cause and with only 30 days’ notice. E+H argued that the agreement’s Indiana choice-of-law provision prevented application of the MTSRA.

A 2014 MTSRA amendment prohibited contractual provisions selecting another state’s law, but applied to sales-representative agreements entered into, renewed, or amended on or after August 1, 2014. The parties agreed that their agreement was not amended after that date. ESC argued that it had been renewed because it continued soliciting orders after August 1, 2014.

The court rejected that argument. It held that a 1991 statutory definition of “renewed” applied specifically to the 1991 amendments and did not extend to the 2014 amendment. Applying the ordinary meaning of “renew,” the court reasoned that the agreement had no expiration date and therefore could not have been renewed in the commonly understood sense. The court concluded that the 2014 amendment did not apply, the Indiana choice-of-law provision was enforceable, and E+H was entitled to summary judgment on the MTSRA claim.

Unpaid Commissions

ESC alleged that E+H failed to pay commissions required by Minnesota Statutes section 181.145. The court held that this claim depended on the MTSRA claim. Because ESC did not have a viable MTSRA claim, the unpaid-commissions claim also failed as a matter of law.

Disposition

The court ordered that MMS’s motion for summary judgment was granted; ESC’s motion for partial summary judgment was denied; E+H’s motion for summary judgment was granted; and the case was dismissed with prejudice. Judge David S. Doty signed the order on February 27, 2019.