Midwest Medical Solutions, LLC v. Exactech U.S., Inc.

Background

Exactech manufactures orthopedic implants and surgical instruments. Under a Sales Agency Agreement effective January 1, 2015, Midwest Medical Solutions, LLC and Hugh Bradley served as Exactech’s exclusive sales representatives in specified parts of Minnesota, North Dakota, South Dakota, and Wisconsin. Exactech informed Midwest on February 5, 2019, that it would terminate the agreement.

The agreement required Midwest, for 12 months after termination, to refrain from soliciting Exactech’s customers or employees. In exchange, Exactech agreed to pay Restricted Period Compensation under Paragraph 5.D.ii. That paragraph required payment during each calendar month of the first six months after termination of 7.5% of total territory sales during the trailing 12 months ending on the termination date.

The parties agreed that the relevant 12-month territory sales totaled approximately $4 million but disagreed about the formula. Midwest argued that 7.5% was due each month for six months. Exactech argued that 7.5% of the total sales was owed, paid in six monthly installments.

Earlier proceedings

Midwest’s amended complaint included a declaratory-judgment claim seeking interpretation of Paragraph 5.D.ii. Exactech’s original counterclaim included claims for a declaration, reformation based on mutual mistake, and rescission based on mutual or unilateral mistake. Reformation is a request to change a written agreement to reflect the parties’ alleged actual agreement; rescission is a request to cancel the provision or agreement based on a legal ground such as mistake.

In June 2019, the court granted in part and denied in part Midwest’s motion for partial summary judgment. It ruled that Exactech owed Restricted Period Compensation but adopted Exactech’s interpretation of the formula. Exactech later filed an amended answer and counterclaim that omitted the reformation and rescission claims. The parties eventually stipulated to dismiss with prejudice all remaining claims and counterclaims except Midwest’s declaratory-judgment claim. The court entered judgment, but the Eighth Circuit reversed the contract interpretation and remanded for further proceedings.

The Eighth Circuit held that Paragraph 5.D.ii was unambiguous and that its plain meaning matched Midwest’s interpretation. It also stated that the district court should determine the status of any remaining counterclaims.

Exactech’s motion to amend

Exactech moved for leave to file a second amended answer and counterclaim to reassert the reformation and rescission claims. The court first ruled that those claims were not still part of the case. Exactech’s first amended counterclaim had superseded its original counterclaim, and the omitted claims therefore ceased to be part of the case when the amended pleading was filed.

The court also ruled that the parties’ stipulation did not preclude Exactech from trying to revive those claims because they were not part of the case when the parties agreed to dismiss the remaining claims and counterclaims with prejudice.

Even so, the court denied Exactech’s motion. The deadline for amending pleadings had passed, so Exactech had to show “good cause” under Federal Rule of Civil Procedure 16. The court explained that the main measure of good cause is the moving party’s diligence. Exactech argued that the Eighth Circuit’s decision created a change in law or circumstances. The court rejected that argument, stating that the Eighth Circuit had applied existing law rather than announced a new legal rule.

The court also found that Exactech voluntarily omitted the claims. The earlier partial-summary-judgment order was not final and therefore did not establish the controlling law of the case before the amendment deadline. Exactech could also have pleaded reformation and rescission in the alternative, as it had originally done. Because Exactech did not show diligence, it could not establish the good cause required for an untimely amendment. The court therefore denied Exactech’s Motion for Leave to File a Second Amended Answer and Counterclaim.

Midwest’s motion for judgment

Midwest moved for entry of judgment on its declaratory-judgment claim. Exactech argued that it should be allowed to conduct discovery concerning whether Midwest’s interpretation would produce a harsh or absurd result. The court rejected that request. Exactech had not sought relief under Rule 56(d), had not identified what discovery it needed, and had not explained how the proposed evidence could overcome the contract’s plain language. The court found no basis to reopen discovery.

Because the Eighth Circuit had held that Paragraph 5.D.ii was unambiguous and entitled to its plain meaning, the court entered a declaratory judgment consistent with Midwest’s interpretation. The required formula was six times 7.5% times the total territory sales during the 12 months immediately preceding termination.

The court calculated Restricted Period Compensation as $1,722,463.38. It awarded $518,862.61 in prejudgment interest. After subtracting a partial payment of $336,340.94 made on April 21, 2021, the court determined that Exactech owed Midwest $1,904,985.08 as of the judgment date.

Disposition

The court denied Exactech’s motion for leave to file a second amended pleading. It granted Midwest’s motion for entry of judgment to the extent consistent with the order, entered judgment against Exactech on Count III of Midwest’s First Amended Complaint, and awarded the plaintiffs $1,904,985.08.