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

United States District Court, D. Minnesota

February 27, 2019

Engineered Sales, Co., a Minnesota corporation, Plaintiff,
Endress Hauser, Inc., an Indiana corporation, and Miller Mechanical Specialties, Inc., an Iowa corporation, Defendants.

          Steven C. Moore, Esq. and Watje & Moore, Ltd., counsel for plaintiff.

          Andrew M. McNeil, Esq. and Bose McKinney & Evans LLP, and Mark J. Carpenter, Esq. and Carpenter Law Firm PLLC, counsel for defendant Endress Hauser, Inc.

          Peter J. Gleekel, Esq. and Larson King, LLP, counsel for defendant Miller Mechanical Specialties, Inc.


          David S. Doty, Judge

         This matter is before the court upon the partial motion for summary judgment by plaintiff Engineered Sales Co. (ESC) and the motions for summary judgment by defendants Endress Hauser, Inc. (E) and Miller Mechanical Specialties, Inc. (MMS). Based on a review of the file, record, and proceedings herein, the court denies plaintiff's motion and grants defendants' motions.


         This business dispute arises out of E's termination of ESC's sales representative agreement.[1] E is an Indiana company that manufactures industrial instrumentation, including flow, level, pressure, temperature, and analytical products. E Answer ¶ 2. ESC is a manufacturer's representative and distributor for industrial instrumentation and controls based in Minnesota. Compl. ¶ 1; Engstrand Dep. at 27:14-16; Gleekel Decl. Ex. L at 1.

         In 2000, E contacted Dan Engstrand, president of ESC, about becoming a sales representative for its product line in Minnesota, North Dakota, South Dakota, and northwest Wisconsin. Engstrand Dep. at 40:11-41:8, 36:16-37:3. E had been working with another Minnesota company, Control-Tec, but wanted more sales coverage in the territory as its business expanded. Id. at 39:24-40:22. E encouraged ESC to effectively acquire Control-Tec and take over as the E representative in the territory. Id. at 40:23-42:3l 54:21-55:11. Over the course of several months, ESC and Control-Tec negotiated a deal under which ESC paid $100, 000 to acquire Control-Tec.[2] Id. at 51:10-53:25; 54:21-55:6. Engstrand initiated the discussion with Control-Tec, and E was not involved in the negotiations. Id. at 45:2-5, 71:20-72:4. ESC did not make any payment to E relating to its buy out of Control-Tec. Id. at 56:20-57:6.

         On January 1, 2001, ESC and E entered into an exclusive representative agreement (Agreement) under which E appointed ESC as its “independent sales representative to sell [E's] specified products” in Minnesota, North Dakota, South Dakota, and portions of Wisconsin. Gleekel Decl. Ex. J at 1, 15. The Agreement designates ESC as an “independent contractor” and provides that either party may terminate the agreement “with or without cause” with thirty days' written notice. Id. §§ 1(b), 13. The Agreement does not require ESC to pay E a royalty fee for becoming a sales representative, nor does it require ESC to pay a percentage of gross or net sales to E. See id.; Engstrand Dep. at 302:21-304:8.

         The Agreement prohibits ESC from selling competing products, but permits ESC to continue selling products for certain identified industrial process manufacturers, referred to as “principals.”[3]Gleekel Decl. Ex. J § 4; id. App'x C. Among those approved principals is Mine Safety Appliances (MSA). Id. App'x. C. The parties later modified certain aspects of the Agreement through several written addenda. See Lucey Decl. Ex. A. The last modification was in September 2010. Id. at 7.

         In approximately 2013, E began consolidating its representatives throughout the country. Engstrand Dep. at 80:18-81:3; 140:13-21. Engstrand agreed that consolidation, particularly in the Midwest, made sense and, in 2014, began discussions with defendant MMS, an E representative in Iowa, about the possibility of merging. Id. at 136:2-40:2, 158:14-59:18. Meanwhile, E had growing concerns about ESC's sales capacity in the Bakken Shale Region in North Dakota and its flat sales generally. Camin Dep. at 8:22-10:25. E was also concerned that ESC did not have a succession plan in place. Engstrand Dep. at 202:3-204:10; Lucey Dep. at 58:22-60:2. Given its concerns and its preference for consolidated sales representatives, E favored a merger between MMS and ESC. Camin Dep. at 11:1-8; Sauers Dep. at 7:14-8:11. E became involved in the discussions between ESC and MMS, even signing a non-disclosure agreement (NDA) to maintain the confidentiality of the information exchanged. Gleekel Decl. Ex. D. The NDA precludes the distribution, disclosure, or dissemination of confidential information exchanged under its terms. Id. § 3(b). Confidential information includes:

any information and data of a confidential nature, including but not limited to proprietary, developmental, technical, marketing, sales, operating, performance, cost, know-how, business and process information, computer programming techniques, and all record bearing media containing or disclosing such information and techniques ... disclosed pursuant to [the NDA].

Id. § 1. Confidential information does not include information “already in the public domain” or information “subsequently independently developed by the receiving party.” Id. §§ 4(a), (d). Under the NDA, ESC provided MMS with, among other things, sales data that included summaries of its business with principals other than E, including MSA. See P. Miller Dep. Ex. 100 at 5-7, 9. The data shows that two-thirds of ESC's revenue came from E and that MSA was its third highest revenue producing principal. See id.

         Apparently unbeknownst to ESC, E communicated regularly with MMS throughout its negotiations with ESC. Although E characterizes its role as one of an “interested observer, ” the record establishes otherwise. It appears that E ultimately determined that MMS should acquire, rather than merge with, ESC and that it directed negotiations accordingly. See Camin Dep. Exs. 60, 81, 82; Sauers Dep. Exs. 63, 77, 79. Throughout the negotiations, E told Engstrand that it may simply terminate the Agreement if ESC could not work out a deal with MMS. Camin Dep. at 95:7-24, 101:7-23.

         On June 5, 2015, after many months of negotiating, MMS offered to purchase ESC for $1.1 million. See P. Miller Dep. Ex. 99. On June 15, 2015, Engstrand declined the offer and countered with a proposed purchase price of $1.62 million based on undisclosed “independent appraisals.” Sauers Dep. Ex. 40 at 1, 2. MMS responded that it would keep its offer open until 12:01 a.m. on June 16, 2015. Id. at 1. E weighed in the evening of June 15, indicating that it would terminate ESC if it could not reach agreement with MMS. Camin Dep. Ex. 84. ESC did not agree to MMS's terms and, on June 16, 2015, E terminated the Agreement, effective July 17, 2015.[4] Sauers Dep. Ex. 86. E then appointed MMS as its sales representative in ESC's former territory. P. Miller Dep. at 111:11-12:25.

         E confirmed that, under the Agreement, it would pay ESC full commissions on outstanding quotes from July 16, 2015, to August 15, 2015, and fifty-percent commissions on verified outstanding quotes from August 16, 2015, to September 15, 2015. Engstrand Dep. Ex. 43 at 1, 4. E also confirmed that ESC would receive no commissions for orders received after September 16, 2015, or for orders shipped after July 15, 2016. Id. at 4. E requested that ESC provide any outstanding special project quotes that E did not have access to so that it could ensure full commission payment. Id. at 1. On July 16, Engstrand provided a list of quotes to E and noted that all of those quotes were already in the E database. Id. Ex. 45 at 1. Later that month, Engstrand accused E of withholding commissions due to ESC. Id. Ex. 46 at 2. E denied improperly withholding commissions and explained that ESC was not entitled to commissions on expired quotes. Id. at 1. In his deposition, Engstrand conceded that E paid all commissions due to ESC under the Agreement and was unable to identify additional commissions due and owing. Engstrand Dep. at 288:11-92:5.

         Soon after ESC's termination, MMS contacted MSA and began discussions about MMS becoming MSA's sales representative. P. Miller Dep. Ex. 108; P. Miller Dep. at 125:12-22. MMS was aware that MSA was a market leader in the gas-detection industry and knew that ESC was its current sales representative. P. Miller Dep. at 125:15-22, 127:10-28:18. Travis Sauers, a regional sales manager for E, had a friend who worked at MSA and knew that MSA had been unhappy with ESC for some time. Sauers Dep. at 6:9-15, 39:2-21. ESC was aware that MSA was concerned about ESC's sales volume. Engstrand Dep. at 327:17-22. ...

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