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Feed Management Systems, Inc. v. Comco Systems, Inc.

United States District Court, D. Minnesota

March 18, 2015

Feed Management Systems, Inc., Plaintiff,
v.
Comco Systems, Inc. and Comco Manufacturing, Ltd., Defendants.

Richard G. Morgan, Esq., Steven L. Reitenour, Esq. and Bowman & Brooke, LLP, counsel for plaintiff.

C. Bradford Marsh, Esq. and Swift, Currie, McGhee & Hiers LLP, and Stephen P. Laitinen, Esq. and Larson King, LLP, counsel for defendants.

ORDER

DAVID S. DOTY, District Judge.

This matter is before the court upon the cross-motions for summary judgment by plaintiff Feed Management Systems, Inc. (FMS) and defendants Comco Systems, Inc. and Comco Manufacturing, Ltd. (collectively, Comco). Based on a review of the file, record, and proceedings herein, and for the following reasons, the court grants both motions in part.

BACKGROUND

This contract dispute arises out of the 2008 Management Agreement between FMS and Comco. FMS seeks reimbursement of attorney's fees and other expenses it incurred during a lawsuit involving non-parties Brilliant Alternatives, Inc. and Robert Brill (collectively, Brill).

I. Comco-Brill Agreement

The relationship between FMS and Comco began in 2008, when Comco entered into a contract with Brill (Comco-Brill Agreement), to acquire Brill's rights to certain software products and to an international network of software distributors. Reitenour Decl. Ex. B §§ 2.1-2.3. In return, Comco agreed to market and distribute the products and to pay Brill royalties and a monthly contractor fee. Id . §§ 4.4, 8.1, art. 7.

The Comco-Brill Agreement also granted Comco control over Brill's involvement in an ongoing lawsuit against FMS (FMS Litigation), which arose out of a 1999 distribution agreement with FMS. Id . § 5.2; see id. Ex. A, at 1-2. Pursuant to the Comco-Brill Agreement, Comco participated in settlement negotiations on Brill's behalf. Reddekopp Aff. ¶ 4. During the negotiations, FMS and Comco discussed the potential for a business relationship regarding the Brill Products and Distribution Network. Id . ¶ 5, 7. Those discussions led to the Management Agreement, which FMS and Comco executed in July 2008. Id . ¶ 8-14.

II. Management Agreement

The Management Agreement granted FMS managerial control over Comco's rights and duties under the Comco-Brill Agreement. Id . ¶ 10. Specifically, FMS was required to "manage administration, operations and marketing in connection" with the products and distribution network. Reitenour Decl. Ex. E., at 1. To fulfill its obligations under the Management Agreement, FMS agreed to perform a number of "Services, " which included (1) "billing, collecting, and paying the agents which comprise the Distribution Network, " and (2) "providing work direction to Brill... in order to enable Brill to fulfill his obligations under the [Comco-Brill] Agreement." Id . § 2(a).

The Management Agreement contained a provision requiring Comco to indemnify FMS

from and against any and all losses, costs, expenses, claims, damages and liabilities whatsoever... to which [FMS] may become subject under any applicable law, or any claim made by any third party, or otherwise, to the extent they relate to or arise out of or in connection with the performance of the Services contemplated by this Agreement or the engagement of FMS pursuant to, and the performance by FMS of the Services contemplated by, this Agreement.

Id. § 5. Comco agreed to reimburse FMS for "all reasonable costs and expenses... including reasonable attorneys' fees and expenses... incurred in connection with the investigation of, preparation for or defense of any pending or threatened claim for which [FMS] would be entitled to indemnification... or any action or proceeding arising therefrom...." Id.

Comco was also required to secure a release of FMS when settling certain actions:

[Comco] agrees that it will not, without the prior written consent of [FMS], settle, compromise or consent to the entry of any judgment in any pending or threatened claim, action or proceeding relating to the matters contemplated hereby (if [FMS] is a party thereto or has been actually threatened to be made a party thereto) unless such settlement, compromise or consent includes an unconditional release of [FMS]....

Id. The parties agreed that these provisions would survive the termination of the Management Agreement. Id . § 6. FMS terminated the agreement ...


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