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Boyd v. Tornier

June 12, 2009

GARRY BOYD, BOYD MEDICAL INC., CHARLES WETHERILL, AND ADDISON MEDICAL, INC., PLAINTIFFS,
v.
TORNIER, INC., AND NEXA ORTHOPEDICS, INC., DEFENDANTS.



The opinion of the court was delivered by: Reagan, District Judge

MEMORANDUM AND ORDER

A. Background and Introduction

Currently before the Court is Tornier's motion for summary judgment as to Boyd Medical and Garry Boyd (Doc. 98). Plaintiffs Boyd Medical and Addison Medical are distributors,*fn1 each of which contracted with Tornier to sell Tornier's orthopedic medical devices in certain regions of the United States. In 2003, the parties entered into separate contracts through which Boyd Medical became Tornier's exclusive distributor in Illinois, Missouri, and Kansas, and Addison Medical became Tornier's exclusive distributor in Iowa.*fn2 The agreement provided that it would last one year, and that either party could terminate the agreement at the end of the term by giving 30-days notice. If neither party terminated it by this method, the agreement would automatically renew for successive one-year terms. However, Tornier claims that it also had the right to terminate the agreement upon written notice at the end of any quarter in which a distributor failed to reach the projected sales quota, as set by Tornier.

In fact, Tornier terminated its agreements with Boyd Medical and Addison Medical in May 2007, on the grounds that each had failed to meet its first quarter quota that year. In 2007, Tornier also purchased Nexa Orthopedics, which develops and manufactures orthopedic devices. Tornier opted to use Nexa's distributors after terminating its agreements with Boyd Medical and Addison Medical.

On October 31, 2007, Plaintiffs filed this lawsuit against Tornier alleging Breach of Contract (Counts 1 and 5), Fraud in the Inducement (Counts 2 and 6), and Negligent Misrepresentation (Counts 3 and 7). Plaintiffs also sued Nexa for Tortious Interference with a Business Relationship (Counts 4 and 8).*fn3

Tornier moved for summary judgment against Garry Boyd and Boyd Medical on March 9, 2009 (Doc. 98). Plaintiffs submitted a response on April 3, 2009 (Doc. 108), and Tornier submitted a reply on April 10, 2009 (Doc. 110). Having fully reviewed the parties' filings, the Court hereby GRANTS IN PART AND DENIES IN PART Tornier's motion for summary judgment (Doc. 98).

B. Factual Background

Boyd Medical signed an Agency Agreement with Tornier on March 13, 2003, which granted Boyd Medical an exclusive distributorship to sell its products in the territory assigned to Boyd Medical (Doc. 95-2). Initially, this territory was made up of various counties in Missouri and Illinois, but later came to include Kansas as well. The Agreement provided two separate methods of termination. First, either party could terminate the Agreement "as of the end of the term upon not less than thirty (30) days prior written notice" (Doc. 95-2, Exh. A, ¶ 9.1). However, Section 9.3 of the Agreement also stated that Tornier "shall have the right to terminate this Agreement upon written notice to the Agency following the close of any quarter in which the projected minimum sales have not been attained by the Agent" (Doc. 95-2, Exh. A, ¶ 9.3). Despite this provision, the Tornier Agency Manual, which is expressly incorporated into the Agency Agreement (see Doc. 95-2, Exh. A, ¶ 1.6), states:

Sales performance for any given quarter that is more than 25% behind quota may result in immediate termination of the Agency Agreement.

When sales performance is less than 25% behind quota, the following steps may be initiated:

* First Warning -- this is a verbal warning that requires the Agent to improve performance and achieve quota levels within 30 to 60 days as specified by TORNIER, Inc.

* Second Warning -- this is a written communication between the Agent and TORNIER and it requries the Agent to meet quarterly sales objectives (quota) within 30 to 60 days as specified by TORNIER, Inc.

* Performance Improvement Plan or Written Probation -- this is a written set of requirements that must be attained (including but not limited to attainment of quota) for the Agency Agreement to remain in effect.

* Termination -- may occur when performance is not improved following the implementation of the three actions described immediately above (Doc. 95-2, Exh. B, p. 6).

Boyd Medical met all its yearly quotas through the end of 2006, and the Agency Agreement was renewed each year. During that period, it appears that Boyd Medical only missed a quarterly quota three times: fourth quarter 2005, first quarter 2006, and third quarter 2006. However, Boyd Medical was already ahead of pace for its yearly quota in each of these instances, except after the first quarter of 2006 when Boyd Medical only missed quota by approximately $560 (Doc. 64-6, App. 112).

During this period, Boyd Medical claims that Tornier's representatives indicated that if Boyd Medical made certain changes to its business model, Tornier would continue to renew Boyd Medical's distributorship from year to year. Specifically, Boyd Medical claims that it was continually asked to hire additional employees and avoid selling products from other lines so that Boyd Medical could concentrate on promoting Tornier's products. Boyd Medical claims that it did in fact hire additional employees and focused on selling Tornier's products. However, Tornier claims that it only informed its distributors that this was its preference and never promised any distributor, including Boyd Medical, that it would remain a Tornier distributor if it complied (Doc. 108-4, App. 117, Carrow Depo., pp. 49--50).

At the beginning of 2007, Boyd Medical received its quotas from Tornier. Boyd Medical's 2007 quota included a 56% increase over its 2006 quota (Doc. 108-4, App. 138, Boyd Depo., p. 59). Additionally, the monthly quotas were heavily increased towards the beginning of the year (Id.). The first quarter quota also included some products which Boyd Medical claims were not yet available or else had only limited availability (Doc. 108-4, App. 134, Boyd Depo., p. 45), though Tornier claims that all products were available for sale in 2007 (Doc. 108-2, App. 18--19, Sherburn Depo., pp. 190--96). Boyd Medical expressed its concerns about its ability to meet quota to Tornier, but Tornier refused to alter the quota (Doc. 108-4, App. 137--138, Boyd Depo., pp. 57--58).

At the end of the first quarter in 2007, Boyd Medical failed to meet its quota of $451,346 and sold only $379,147, which is approximately 84% of the quota (Doc. 64-6, App. 112). At some point in March 2007, Tornier decided to terminate Boyd Medical as a distributor and replace it with Archway Medical (Doc. 108-2, App. 23, Sherburn Depo., pp. 210--212). The termination of Boyd Medical's distributorship was confirmed by letter dated May 14, 2007, and became effective May 31, 2007 (Doc. 64-7, App. 189). Archway began work as a Tornier distributor in Boyd Medical's territory in June 2007 (Doc. 98-7, App. 569, O'Day Depo., p. 192).

C. Legal Standards Governing Summary Judgment Motions

Summary judgment is appropriate when there are no genuine issues of material fact, and the moving party is entitled to judgment as a matter of law. Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986). FEDERAL RULE OF CIVIL PROCEDURE 56(a) provides:

[Summary judgment] should be rendered if the pleadings, the discovery and disclosure materials on file and any affidavits show that there is no genuine issue as to any material fact that the movant is entitled to as a matter of law.

Because the primary purpose of summary judgment is to isolate and dispose of factually unsupported claims, the non-movant may not rest on the pleadings but must respond, with affidavits or otherwise, setting forth specific facts showing that there is a genuine issue for trial. Oest v. IDOC, 240 F.3d 605, 610 (7th Cir. 2001); Moore v. J.B. Hunt Transport, Inc., 221 F.3d 944, 950 (7th Cir. 2000). The "mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).

The burden is on the non-moving party to produce specific facts that show a genuine issue for trial. FED.R.CIV.P. 56(e); Moore, 221 F.3d at 950. "Conclusory allegations and self-serving affidavits, if not supported by the record, will not preclude summary judgment." Haywood v. North American Van Lines, Inc., 121 F.3d 1066, 1071 (7th Cir. 1997); see alsoFED.R.CIV.P. 56(e) ("an opposing party may not rely merely on allegations or denials in its own pleading").

In determining whether a genuine issue of material fact exists, the Court views the record in the light most favorable to-and draws all reasonable inferences in favor of-the non-moving party. Anderson, 477 U.S. at 255.

D. Boyd Medical's Breach of Contract Claims

1. Governing Law

As a federal court exercising diversity jurisdiction, this Court applies federal law in resolving procedural and evidentiary issues, and Illinois law with respect to substantive law. Bevolo v. Carter, 447 F.3d 979, 982 (7th Cir. 2006) (citing Colip v. Clare, 26 F.3d 712, 714 (7th Cir. 1994)). As such, this Court applies Illinois's choice-of-law rules to determine the applicable substantive law. See Hinc v. Lime-O-Sol Company, 382 F.3d 716, 719 (7th Cir. 2004); Kohler v. Leslie Hindman, Inc., 80 F.3d 1181, 1184 (7th Cir. 1996). Illinois follows theRESTATEMENT (SECOND) OF CONFLICT OF LAWS in making such decisions. Midwest Grain Products of Illinois, Inc. v. Productization, Inc., 228 F.3d 784, 787 (7th Cir. 2000).

For contracts claims, the Restatement and Illinois law respect a contract's choice-oflaw clause as long as the contract is valid. Kohler, 80 F.3d at 1185. In this case, the parties' contract includes a choice-of-law provision, which provides that the contracts "shall be construed and determined in accordance with the laws of the State of Texas." Doc. 95-2, ¶ 10.12; Doc. 28-3. As the parties do not contest the contracts' validity, the Court applies Texas law to Plaintiffs' breach of contract claims.

2. Termination of the Agency Agreement

It is well-settled under Texas law that the elements necessary to prove a claim for breach of contract are (1) the existence of a valid contract, (2) plaintiff's performance or tendered performance of the contract, (3) defendant's breach of the contract, and (4) plaintiff's damages. Lopez v. M.G. Bldg. Materials, Ltd., -- S.W.3d --, 2009 WL 1546145, *4 (Tex. App. June 3, 2009).

In Count 1, Boyd Medical and Garry Boyd claim that Tornier breached its Agreement by engaging in a wide variety of conduct, including setting unattainable quotas for the first quarter of 2007, developing these quotas without proper consideration of the Agency Manual's guidelines, failing to make adequate efforts to support Boyd Medical's sales efforts, terminating Boyd Medical's distributorship without implementing a Performance Improvement Plan, appointing another distributor in Boyd Medical's territory prior to the termination of Boyd Medical's exclusive distributorship, and terminating Boyd Medical for reasons other than its failure to meet its first quarter quota.*fn4 Tornier argues that all of Boyd Medical's breach of contract claims fail as a matter of law.

a. Tornier's Motivation for Terminating Boyd Medical

The Court begins with Boyd Medical's various claims that Tornier breached contract for terminating its distributorship for reasons other than its failure to meet quota. For instance, Boyd Medical claims it was terminated because it did not have a separate office or a specific number of salespeople. This claim misses the point. Boyd Medical's breach of contract claim depends on whether or not Tornier had the right to terminate its distributorship. Tornier concedes that the only valid basis it may have had to terminate the distributorship is Boyd Medical's undisputed failure to meet its first quarter quota in 2007. If Tornier had the right to terminate the Agreement at the end of that quarter, then there was no breach, regardless of whether Tornier may have had other reasons for the termination. Accordingly, Boyd Medical's breach of contract claims must be dismissed insofar as they rely on Tornier's ulterior motives for termination.

b. Interpreting the Contract's Termination Provisions

This brings the Court to the question of whether Tornier did in fact have the right to terminate Boyd Medical's distributorship due to its failure to meet quota. Boyd Medical claims that it could not be terminated without warning because it was within 75% of its first quarter quota. In making this claim, Boyd Medical argues that the inclusion of both Section 9.3 in the Agency Agreement and competing provisions in the Agency Manual create an ambiguity resulting in a fact question for the jury.

As noted above, Section 9.3 states that Tornier "shall have the right to terminate this Agreement... following the close any quarter in which the projected minimum sales have not been attained by the Agent" (Doc. 95-2, Exh. A, p. 4, ¶ 9.3). However, the Agency Agreement expressly incorporates the Agency Manual (see Doc. 95-2, Exh. A, ¶ 1.6) and provides that an agent's failure to come within 25% of quota "may result in immediate termination" (Doc. 95-2, Exh. B, p. 6). It goes on to state that where an agent is less than 25% under quota for a particular quota, certain other steps short of termination "may be initiated" (Doc. 95-2, Exh. B, p. 6).

The question is whether the Agency Manual's demarcation of a 25% threshold creates a safe haven within which Tornier must first give warnings so that an Agent can get back on track before terminating that Agent. Under Texas law, the Court may only find a contract's provisions ambiguous if it is susceptible to more than one reasonable interpretation.Frost Nat'l Bank v. L&F Distributors, 165 S.W.3d 310, 311 (Tex. 2005). Additionally, the Court must "consider the entire writing and attempt to harmonize and give effect to all the provisions of the contract by analyzing the provisions with reference to the whole agreement." Id. However, the Court "should not strain to find ambiguity in a contract if such an exercise would defeat the parties' probable intent." In re Credit Suisse First Boston Mortgage Capital, LLC, 257 S.W.3d 486, 490 (Tex. App. 2008).

Using these rules of construction, the Court finds that the contract's provisions are in fact ambiguous. At first glance, it would appear that the language of Section 9.3 provides Tornier with a right to terminate its distributors anytime they fail to meet a quarterly quota, regardless of how close that distributor may have been to its goal. However, when construing that provision alongside the Agency Manual, the waters are considerably muddied. One plausible interpretation of the Agency Manual is that Tornier merely reserved the right to take less drastic steps than termination where distributors were within 25% of their quarterly quota. In other words, the Agency Manual simply informs Tornier's agents that even though they can be terminated in such circumstances, Tornier may, in ...


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