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Note: D.J.’s Lawn Service, Inc. (Buyer), a Michigan-based landscaping business, provided year-round services to its customers, including snow and ice management. Buyer approached Mid-American Salt, LLC (Seller) regarding a bulk purchase of rock salt. Seller was in the business of buying bulk orders of salt from various suppliers as an intermediary and selling it to its customers. Before agreeing to specific purchase terms, Buyer requested that Seller introduce Buyer to Seller’s supplier in order to inspect the salt stockpile. While travelling to Seller’s supplier, Chemical Equipment Labs, Inc. (Supplier), based in Wilmington, Delaware, Seller requested that Buyer sign a “Mutual Non-Disclosure Non Circumvent Agreement” (NDA) which stated, among other terms, that Buyer would not circumvent Seller and purchase rock salt directly from its “confidential source”. The NDA defined “Confidential Information” broadly but excluded from that definition “information which…is already in the public domain or becomes available to the public through no breach of this Agreement”. Buyer signed the NDA.

After meeting Supplier and inspecting the salt, Seller presented Buyer with a “Bulk Rock Salt Sales Agreement” (BRSSA). Under the BRSSA, Seller would sell Buyer approximately 27,500 tons of rock salt for USD 2,585,000. Buyer was to pay Seller a USD 1,551,000 down payment and another USD 1,034,000 upon arrival of the vessel in Michigan. After executing the BRSSA, however, Buyer had trouble in financing the “unusually large” transaction and requested an extension from Seller regarding the down payment date. Seller agreed. Failing to timely obtain financing, Buyer requested another extension. Although a representative of Seller granted the brief extension, the president of Seller, with whom Buyer had been dealing, subsequently sent Buyer a message purporting to cancel the BRSSA alleging breach of the agreement by Buyer. Unable to reach a new agreement, Buyer and Seller, through their attorneys, tentatively agreed to release each other from all claims, although no proof showed that the releases were executed.

Later, when Seller attempted to find a replacement buyer, Supplier informed Seller that the shipment was “unavailable.” Seller later discovered that Supplier and Buyer had entered into a separate agreement for the sale of the same amount of rock salt under the BRSSA to be delivered to the same port in Michigan; that agreement, however, was amended to state that the buyer was Grand Ridge Enterprises, LLC (Grand Ridge), owned and operated by the same individual as Buyer (the Grand Ridge Agreement). Under that Agreement, Grand Ridge promised to obtain a USD 2,345,000 letter of credit in favor of Supplier representing 110% of the contract value. There was evidence, however, that Buyer, not Grand Ridge, issued three wire payments to Supplier and that Supplier made multiple deliveries of salt to Buyer. Subsequently, Seller sued Buyer for breach of the NDA and BRSSA. Buyer counterclaimed. Both parties moved for summary judgment. The United States District Court for the Northern District of Indiana, Lee, J., granted partial summary judgment in favor of Buyer.

Although Seller sued Buyer for breach of both the NDA and BRSSA, Seller moved for summary judgment only on the issue of whether “the facts create[d] an absence of a genuine issue showing that [Buyer] breached the terms and spirit of the [NDA].” Buyer sought summary judgment on both claims brought by Seller but not its own counterclaim. Accordingly, in reviewing the terms of the NDA, the Judge noted that “the sole party to whom the agreement appli[ed] [was] [Buyer] – not [Buyer] and its related entities or anyone else.” While not addressed in its complaint, Seller argued in its motion that Buyer breached the NDA through the “joint action” of Buyer and Grand Ridge. The Judge noted, however, that Seller’s motion failed to cite a “single case” in support of its joint action theory and the facts on which it based the theory were disputed by Buyer. Although enough to deny summary judgment in favor of Seller, the Judge turned to Buyer’s motion for summary judgment noting that Buyer “ignore[d] the joint action theory” in its motion and instead argued that there was no breach of the NDA because (1) Supplier’s existence was a matter within the public domain, i.e., outside the confidentiality provisions of the NDA; and (2) because the NDA’s non-circumvention restrictions were overly broad and thus per se unenforceable. Seller argued that there was no basis for analyzing the NDA in the same way as an employer-employee covenant not to compete. While the Judge noted that Buyer failed to cite any Indiana case “applying the principles of covenants not to compete in the employer/employee context to non-circumvention agreements between sophisticated business entities”, the district court, sitting in diversity, had to determine how the Supreme Court of Indiana would decide the issue were the case before it. The Judge noted that prior decisions under Indiana law “held that noncompetition agreements ancillary to the sale of a business are not as ‘ill-favored at law’ as employee covenants, but these agreements still must contain an element of reasonableness.” Whether such an agreement is reasonable depends on the relative bargaining power of the parties, temporal and geographic limitations, as well as a balancing of the public interest. There was evidence that at the time Seller and Buyer were negotiating the BRSSA, Midwestern U.S. states were experiencing a salt shortage. In reviewing its terms, the Judge concluded that the NDA was “unreasonable on its face” as it stated no geographic or temporal limitation on when Buyer could contract with Supplier. In granting summary judgment on the issue in favor of Buyer, the Judge declined to render any judgment on whether the confidentiality provisions of the NDA had been breached noting that there were genuine issues requiring a fact-finder, especially as to what constituted the undefined term of “public domain.”

The Judge then turned to Buyer’s motion for summary judgment regarding the breach of contract claim brought by Seller on the BRSSA. Seller made numerous arguments in opposition to summary judgment but both parties acknowledged the existence and enforceability of the BRSSA. Nevertheless, the Judge noted that the parties disputed “virtually everything that occurred after the signing of the BRSSA and before performance was due on either side.” Given the genuine issues regarding modification of payment deadlines as well as Seller’s purported cancellation of the contract, the Judge concluded that “[a]ll of these facts and the intentions of the parties” could not be resolved through summary judgment, and denied Buyer’s motion for the summary judgment on Seller’s claim of breach of contract.

[MJK]

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