Opinion
No. C16-52-LTS
2020-12-04
CRST EXPEDITED, INC., Plaintiff, v. TRANSAM TRUCKING, INC., Defendant.
Abram V. Carls, Paul D. Gamez, Larry G. Gutz, Abbe M. Stensland, Kevin J. Visser, Simmons Perrine Moyer Bergman PLC, Cedar Rapids, IA, for Plaintiff. Rachel H. Baker, Brenda G. Hamilton, Christopher M. McHugh, Julie E. Parisi, Christopher C. Tillery, Seigfreid Bingham, PC, Kansas City, MO, Gregory M. Lederer, Lederer Weston Craig PLC, Cedar Rapids, IA, for Defendant.
Abram V. Carls, Paul D. Gamez, Larry G. Gutz, Abbe M. Stensland, Kevin J. Visser, Simmons Perrine Moyer Bergman PLC, Cedar Rapids, IA, for Plaintiff.
Rachel H. Baker, Brenda G. Hamilton, Christopher M. McHugh, Julie E. Parisi, Christopher C. Tillery, Seigfreid Bingham, PC, Kansas City, MO, Gregory M. Lederer, Lederer Weston Craig PLC, Cedar Rapids, IA, for Defendant.
ORDER ON DEFENDANT'S MOTION TO CERTIFY QUESTIONS OF LAW TO THE IOWA SUPREME COURT
Leonard T. Strand, Chief Judge
I. INTRODUCTION
This case is before me on a motion (Doc. 232) by defendant TransAm Trucking, Inc. (TransAm), to certify questions of law to the Iowa Supreme Court. Plaintiff CRST Expedited, Inc. (CRST), has filed a resistance (Doc. 235), and TransAm has filed a reply (Doc. 239). Oral argument is not necessary. See Local Rule 7(c). For the reasons that follow, the motion will be denied.
II. RELEVANT PROCEDURAL HISTORY
CRST commenced this action on April 12, 2016. It alleges that beginning in 2014, TransAm actively recruited and hired drivers who were under employment contracts with CRST. The contracts prohibited the drivers from working for any CRST competitor for a specified amount of time, known as the Restrictive Term. Doc. 2 at ¶ 18. CRST asserts claims for (1) intentional interference with contract, (2) intentional interference with prospective economic advantage and (3) unjust enrichment. TransAm filed an answer (Doc. 31) on February 23, 2017, in which it denies liability on all claims and raises thirty-six affirmative defenses.
On April 18, 2018, CRST filed a motion (Doc. 153) for partial summary judgment as to an element of its intentional interference with contract claim, along with most of TransAm's affirmative defenses. On the same day, TransAm filed a motion (Doc. 156) for summary judgment on all of CRST's claims. On July 31, 2018, I entered an order (Doc. 193) granting TransAm's motion for summary judgment in its entirety. Regarding CRST's intentional interference with contract claim, I found that TransAm had failed to show (1) that CRST's contracts with the drivers TransAm recruited were not valid and (2) that TransAm did not know about the contracts. Doc. 193 at 21–25. However, I agreed with TransAm that no reasonable jury could find that its actions caused any of the drivers to breach their contracts with CRST and granted summary judgment on that basis. Id. at 30–31. I also agreed with TransAm's arguments regarding CRST's interference with economic advantage and unjust enrichment claims and granted summary judgment on those claims. Id. at 31–33.
On May 27, 2020, the Eighth Circuit Court of Appeals reversed the entry of summary judgment in favor of TransAm and remanded this case for further proceedings. Doc. 213. Specifically, the court of appeals disagreed with my finding that CRST failed to raise a genuine issue of material fact as to whether TransAm caused CRST's drivers to breach their contracts. Id. at 7–9. On October 15, 2020, TransAm filed its motion (Doc. 232) to certify certain questions of law pertaining to CRST's intentional interference with contract claim to the Iowa Supreme Court.
III. SUMMARY OF THE FACTS
CRST is an Iowa corporation based in Cedar Rapids, Iowa. TransAm is a Missouri corporation based in Olathe, Kansas. Both TransAm and CRST are commercial trucking companies. TransAm serves the Midwest, Southeast and Northeast regions of the United States and hauls both dry van freight and refrigerated protein. CRST provides freight-hauling services nationwide and also hauls both dry van freight and refrigerated or temperature-controlled loads. CRST offers expedited shipping. In order to meet shipping deadlines, CRST uses a team driving system in which two drivers are assigned to a single truck and alternate driving responsibilities.
CRST and TransAm compete with each other in the labor market for qualified drivers. To work as a long-haul commercial truck driver, an individual must have a Class-A commercial driver's license (CDL), which is typically obtained by attending a truck driving school. To recruit drivers, CRST developed a Driver Training Program (DTP) through which it finances training upfront. In exchange, a driver promises, through a non-compete restrictive covenant in his or her contract, to work for CRST for a specific amount of time after obtaining a CDL.
TransAm does not operate its own driver training program. Instead, it recruits drivers who already have their CDLs. TransAm receives between 30,000 and 80,000 driver applications a year to fill around 1,500 positions. TransAm recruits drivers by using standardized, nationwide advertising methods, including magazine and radio ads and postings on online job boards, TransAm's website and social media platforms. TransAm also offers a tuition reimbursement program, through which it reimburses tuition costs up to $6,000. This program does not apply to drivers who have already obtained their CDLs through other trucking company schools, such as CRST's. Drivers must contact TransAm to begin the hiring process. When a driver starts the hiring process, TransAm sends the driver's prior employer an employment verification request.
In this case, there are 167 former CRST drivers with whom TransAm allegedly interfered. All of those drivers left CRST before their Restrictive Terms expired. TransAm sent CRST verification requests for all of these drivers. CRST then sent TransAm notices stating that the drivers were under agreement with CRST and that CRST would send further information within 30 days of obtaining signed releases from the employees. CRST also sent TransAm a cease and desist letter on May 30, 2014.
IV. STANDARD FOR CERTIFYING QUESTIONS
A federal court may certify questions of state law to a state's highest court in certain circumstances. See Huffman v. Boersen , 406 U.S. 337, 338 n.2, 92 S.Ct. 1598, 32 L.Ed.2d 107 (1972) (noting that some states "have procedures by which federal appellate courts may certify questions of law to the state supreme court" while others do not); see also Clay v. Sun Ins. Office Ltd. , 363 U.S. 207, 212, 80 S.Ct. 1222, 4 L.Ed.2d 1170 (1960) (noting that, "[e]ven without such a facilitating statute," the Supreme Court has occasionally found certification appropriate "where a federal constitutional question might be mooted thereby"). The procedure for certifying a question of state law in Iowa is outlined in the Iowa Code:
The supreme court may answer questions of law certified to it by the supreme court of the United States, a court of appeals of the United States, a United States district court or the highest appellate court or the intermediate appellate court of another state, when requested by the certifying court, if there are involved in a proceeding before it questions of law of this state which may be determinative of the cause then pending in the certifying court and as to which it appears to the certifying court there is no controlling precedent in the decisions of the appellate courts of this state.
See Iowa Code § 684A.1.
"Whether a federal court should certify a question to a state court is a matter of discretion." Johnson v. John Deere Co., a Div. of Deere & Co. , 935 F.2d 151, 153 (8th Cir. 1991). This court has identified seven factors to evaluate in deciding whether to certify a question of law to the applicable state court: (1) the extent to which the legal issue under consideration has been left unsettled by the state courts; (2) the availability of legal resources which would aid the court in coming to a conclusion on the legal issue; (3) the court's familiarity with the pertinent state law; (4) the time demands on the court's docket and the docket of the state supreme court; (5) the frequency that the legal issue in question is likely to recur; (6) the age of the current litigation and the possible prejudice to the litigants which may result from certification; and (7) whether there is any split of authority among those jurisdictions that have considered the issues presented in similar or analogous circumstances. Leiberkneckt v. Bridgestone/Firestone, Inc. , 980 F. Supp. 300, 310–11 (N.D. Iowa 1997).
V. ANALYSIS
TransAm seeks to certify two questions to the Iowa Supreme Court:
(1) As a matter of Iowa law, is a restrictive covenant or non-compete agreement void if it does not protect any legitimate business interest?
(2) As a matter of Iowa law, may a restrictive covenant or non-compete agreement that is unsupported by a legitimate protectable business interest, which renders it void, support a tortious interference with contract claim?
Doc. 233 at 3. TransAm argues that although both this court and the court of appeals have addressed the issue of whether CRST's restrictive covenant is valid on the grounds of reasonableness, neither court has yet considered its argument that the covenant is void ab initio because it does not protect a legitimate business interest and is thus an invalid restraint on trade. Id. TransAm argues that answering these questions of law is essential to this case because the issue is novel and an answer in its favor from the Iowa Supreme Court would dispose of CRST's claims and obviate the need for any future appeal. Id. If the contractual provision it allegedly caused CRST's drivers to breach is void, TransAm reasons, there is, as a matter of law, no grounds for CRST's intentional interference with contract claim. Id. And if CRST has no valid tortious interference claim, it also has no basis for its unjust enrichment claim. Doc. 239 at 1.
CRST argues that certifying these questions to the Iowa Supreme Court is both improper and unnecessary. It argues that both this court, and the court of appeals, have addressed TransAm's arguments as to whether CRST's non-compete provision was supported by a legitimate business interest and found the contract valid. Doc. 235 at 9–11. Therefore, according to CRST, the prior decisions on the issue constitute the law of the case and are controlling going forward. Id. Even if those decisions are not the law of the case, however, CRST argues that the factors for determining whether to certify questions weigh against certification. Id. at 11–13.
Before determining whether certifying TransAm's questions is appropriate, I must resolve the parties' disagreement as to whether those issues have already been addressed by prior decisions in this case. If so, the law of the case doctrine will influence whether I may, or should, consider certifying them.
The law of the case is a judicially-created doctrine that "posits that when a court decides upon a rule of law, that decision should continue to govern the same issues in subsequent stages in the same case." Arizona v. California , 460 U.S. 605, 618, 103 S.Ct. 1382, 75 L.Ed.2d 318 (1983), decision supplemented , 466 U.S. 144, 104 S.Ct. 1900, 80 L.Ed.2d 194 (1984). The purpose of the doctrine is "to insure uniformity of decisions, protect the expectations of the parties, and promote judicial economy." In re Usery , 242 B.R. 450, 457 (B.A.P. 8th Cir. 1999), aff'd , 242 F.3d 378 (8th Cir. 2000). When a court is asked to reconsider an issue addressed by its own decisions in a case, it may exercise its discretion to reopen that issue when it "is ‘convinced that [its prior decision] is clearly erroneous and would work a manifest injustice.’ " Pepper v. United States , 562 U.S. 476, 506–07, 131 S.Ct. 1229, 179 L.Ed.2d 196 (2011) (alteration in original) (quoting Agostini v. Felton , 521 U.S. 203, 236, 117 S.Ct. 1997, 138 L.Ed.2d 391 (1997) ). However, when an issue has been addressed by a higher court on appeal, the lower court is bound by its decision on remand and may not re-examine that issue. Lamb Eng'g & Const. Co. v. Nebraska Pub. Power Dist. , 145 F.3d 996, 998 (8th Cir. 1998). "[E]very question decided by the [higher] court, whether expressly or by necessary implication , is finally settled and determined, thus creating a mandate for the lower court." In re Usery , 242 B.R. at 457 (emphasis in original). The law of the case in these circumstances is closely related to the "mandate rule," which also prohibits lower courts from reopening an issue on remand when it was ripe for review at the time of an initial appeal, but forgone by the appellant, unless the higher court's "mandate can reasonably be understood as permitting it to do so." Havlish v. 650 Fifth Ave. Co. , 934 F.3d 174, 181–82 (2d Cir. 2019) (quoting United States v. Ben Zvi , 242 F.3d 89, 95 (2d Cir. 2001) ).
The first question is whether the decisions of this court, and the Eighth Circuit, have already addressed TransAm's argument that CRST's non-compete provision was void ab initio for lack of an underlying legitimate business interest. In my July 31, 2018, order, I found that TransAm's claim to summary judgment on the first element of CRST's intentional interference with contract claim – that the contract allegedly interfered with was valid – turned on whether TransAm could show that the non-compete provision was void ab initio. Doc. 193 at 17–22. If TransAm could show that the provision was void from its inception – i.e., that it was a completely unenforceable promise because it violated the law or public policy – then CRST had no basis for its tortious interference claim and TransAm would be entitled to summary judgment. Id. at 19–21. However, if TransAm's arguments consisted only of the proposition that the non-compete provision was voidable – i.e., that it was unenforceable only if a party to the contract sought to avoid it – then TransAm could still be held liable for tortious interference under Iowa law. Id. at 18–19.
TransAm raised several arguments regarding the validity of the non-compete provision, but I found only one – that the provision operates as a lifetime ban on joining other trucking companies – provided possible grounds for finding the provision void ab initio. Id. at 20–21. I then found that the provision's language could not be interpreted as imposing a lifetime ban on drivers, and thus did not grant summary judgment on that basis. Id. at 20–21. Because I found that all TransAm's remaining arguments addressed the reasonableness of the provision – i.e., whether it was voidable – TransAm could not challenge the provision on those grounds because it was not a party to the contract and, thus, lacked standing. Id. at 19. Even if TransAm could have shown that the provision was voidable, nothing under Iowa law shielded it from liability for tortious interference with a voidable, but not avoided, contract. Id. Thus, I found that TransAm failed to show that the non-compete provision was invalid as a matter of law. Id.
On appeal, the Eighth Circuit agreed that CRST's non-compete provision "is valid for purposes of its intentional interference with contract claim." Doc. 213 at 13. It noted the distinction between void and voidable contracts to analyze TransAm's arguments. Id. at 10. The court held that TransAm's arguments that "the non-compete provision is unenforceable because it does not protect a legitimate business interest, [and] its terms are broader than necessary to protect the stated interest," challenged the reasonableness of the provision and, thus, whether it was voidable. Id. at 10–11. Because there was no evidence any driver had tried to avoid the contract before the alleged interference occurred, the Eighth Circuit agreed that whether the contract could have been avoided was irrelevant to the issue of TransAm's liability under Iowa law. Id. at 11. As for TransAm's argument that the provision operates as a lifetime ban, the Eighth Circuit assumed that such effect would likely render the provision void ab initio. Id. at 11–12. However, it agreed that "a plain reading of the non-compete provision in this case does not support such an interpretation." Id. at 12.
TransAm now argues that neither of these previous decisions sufficiently addressed the questions it seeks to certify. According to TransAm, determining whether the business interest being protected by a non-compete provision is legitimate is a separate and distinct issue from determining whether the provision is reasonable. TransAm argues that although non-compete agreements are generally valid, an agreement that does not protect a legitimate business interest is per se an illegal restraint on trade and void ab initio. TransAm claims that the previous decisions considered only whether the non-compete provision was voidable as an unreasonable restraint on trade, not whether the lack of a legitimate business interest rendered it void as an illegal restraint on trade, so the issue has not yet been addressed.
To analyze this argument, it is again helpful to examine the distinction between voidable contracts and void contracts as they relate to non-compete agreements. A "void" contract is "[a] promise for breach of which the law neither gives a remedy nor otherwise recognizes a duty of performance by the promisor." Restatement (Second) of Contracts § 7 cmt. a (1981). In other words, it is a promise that is wholly unrecognized, as a matter of law, as a basis for forming a contract. No matter how sincere or strong the promise, the law refuses to recognize a duty to perform as a matter of public policy. See, e.g., Oubre v. Entergy Operations, Inc. , 522 U.S. 422, 431–32, 118 S.Ct. 838, 139 L.Ed.2d 849 (1998) (Breyer, J., concurring) (explaining that a contract is void when "enforcement of the contract would violate the law or public policy irrespective of the conditions in which the contract was formed," such as "a contract to commit murder"); Swigert v. Tilden , 121 Iowa 650, 97 N.W. 82, 83 (1903) (explaining the evolution of "[t]he doctrine that contracts in general restraint of trade are to be held void as against public policy").
When considering whether a non-compete agreement is void as an invalid restraint on trade, courts have long relied on the distinction between general and partial restraints on trade. Non-compete agreements that amount to general restraints on trade are invalid and void ab initio. Oregon Steam Nav. Co. v. Winsor , 87 U.S. (20 Wall.) 64, 65, 22 L.Ed. 315 (1873) ; Hedge, Elliott & Co. v. Lowe , 47 Iowa 137, 140 (1877). General restraints exist when an individual is completely prohibited from pursuing his or her trade. Oregon Steam Nav. Co. v. Winsor , 87 U.S. (20 Wall.) 64, 65, 22 L.Ed. 315 (1873). Public welfare is jeopardized by extreme restrictions on competition, such as the formation of a monopoly, Swigert v. Tilden , 121 Iowa 650, 97 N.W. 82, 86 (1903), or when the purpose of the agreement is otherwise contrary to public policy or its restrictions are "deliberately unreasonable and oppressive." Ehlers v. Iowa Warehouse Co. , 188 N.W.2d 368, 374 (Iowa), reh'g denied and opinion modified , 190 N.W.2d 413 (Iowa 1971) (quoting Fullerton Lumber Co. v. Torborg , 270 Wis. 133, 70 N.W.2d 585, 592 (1955) ).
Partial restraints on trade, in contrast, limit restrictions "to particular persons or places, or for a limited time." Hedge, Elliott & Co. v. Lowe , 47 Iowa 137, 140 (1877). Partial restraints have long been considered valid as long as they are supported by consideration and are reasonable. See Oregon Steam , 87 U.S. at 65 ; Lowe , 47 Iowa at 140. To determine whether a non-compete agreement is a reasonable partial restraint, Iowa courts apply a three-part test to balance the interests of the employer, the employee and the public. Iowa Glass Depot, Inc. v. Jindrich , 338 N.W.2d 376, 381 (Iowa 1983). An agreement is reasonable if it (1) is necessary to protect the employer's business, (2) is not unreasonably restrictive of the employee's rights and (3) is not prejudicial to the public interest. Id. A non-compete agreement that is not reasonable is unconscionable and therefore unenforceable – i.e., voidable – but not void. Restatement (Second) of Contracts § 186 ; see also Nichols v. City Of Evansdale , 687 N.W.2d 562, 571 (Iowa 2004) ("In the case of a voidable contract, if neither party seeks avoidance, the court cannot void the contract, and the contract remains valid." (citing First State Bank v. Shirley Ag Serv., Inc. , 417 N.W.2d 448, 452 (Iowa 1987) )); Restatement (Second) of Contracts § 8 ("An unenforceable contract is one for the breach of which neither the remedy of damages nor the remedy of specific performance is available, but which is recognized in some other way as creating a duty of performance ....").
As noted above, both this court and the court of appeals found that only one of TransAm's arguments – that CRST's non-compete provision operates as a lifetime ban – potentially supported a finding that the provision is void ab initio. Both courts then rejected that argument. As for all of TransAm's other arguments, including its arguments regarding the legitimacy of the business interest CRST desired to protect through its non-compete provision, this court and the court of appeals found that they addressed whether the provision was unreasonable and, therefore, voidable. Thus, TransAm's argument that CRST's non-compete provision is void for lack of a legitimate business interest has already been considered, and rejected, in this case.
TransAm attempts to steer around these prior decisions by arguing that the legitimacy of the business interest protected by a non-compete agreement is a separate issue from whether the provision is reasonable based on the three-part balancing test. However, it has not provided, nor have I found, any support for that distinction. A non-compete agreement is void ab initio as a general restraint on trade, or if it otherwise violates the law or public policy, but TransAm does not raise such a challenge to the validity of CRST's non-compete provision in its "legitimate business interest" argument. Indeed, the cases TransAm cites in support of its argument show why the legitimacy of the business interest – as TransAm uses the term – is a factor to be considered as part of the normal reasonableness analysis, not as grounds that may render a non-compete provision void.
TransAm cites cases such as Iowa Glass Depot and Dan's Overhead Doors in arguing that CRST has no legitimate protectable interest in the training and licensing it provided under the contract because the training consisted of general skills and knowledge that were not confidential to, or specialized for, work at CRST. Doc. 233 at 7–8. However, in those cases the courts held that the non-compete agreements were unreasonable because they were not necessary to protect the employers' businesses and infringed excessively on the employees' rights to work in their chosen profession, not that they were void due to an illegitimate business interest. Iowa Glass Depot , 338 N.W.2d at 383 ; Dan's Overhead Doors 2007 WL 1486133, at *3–4. The courts reasoned that workers who had gained only general knowledge and skills through normal work and simple training, rather than sophisticated and specialized skills or access to confidential information or trade secrets, were unlikely to be able to unjustly enrich themselves at their employer's expense and could be easily replaced. Iowa Glass Depot , 338 N.W.2d at 383 ; Dan's Overhead Doors , 2007 WL 1486133, at *3–4.
Dan's Overhead Doors & More, Inc. v. Wennermark , 735 N.W.2d 204 (Table), 2007 WL 1486133 (Iowa Ct. App. 2007).
TransAm also cites Ag Spectrum Co. v. Elder , 865 F.3d 1088 (8th Cir. 2017), a case applying Iowa law, in arguing that CRST's desire to recoup the costs of training through a non-compete provision is not a legitimate business interest. Doc. 233 at 8. However, the court did not find that recovering training costs is never a valid basis for a non-compete agreement. Rather, under the specific facts of that case, the court held that the training at issue was akin to "ordinary on-the-job training" that did not put the employee into a position to compete unfairly. Ag Spectrum Co. , 865 F.3d at 1092–93.
Finally, TransAm argues that CRST has no legitimate business interest in the non-compete agreement because it has not required all drivers to sign such an agreement and, therefore, the agreement is not necessary to protect its business. Doc. 233 at 8–9. This argument does nothing but take an element from the reasonableness analysis and attempt to characterize it, without support, as a distinct basis for finding a non-compete provision void ab initio. Although evidence that non-compete agreements are selectively sought or enforced may show that such agreements are not necessary to protect business, the outcome if they are not necessary, as discussed above, is that the provision is voidable as unreasonable, not void.
Thus, TransAm's arguments regarding the legitimacy of the business interest CRST seeks to protect through its non-compete provision are, as before, relevant only to the issue of whether the provision is reasonable. Both this court and the court of appeals have already found that these arguments attack the reasonableness of CRST's non-compete provision, which is irrelevant to the issue of TransAm's liability for intentional interference with contract. Because the court of appeals has addressed these arguments, I find that the law of the case doctrine precludes revisiting them.
Even if there were no law of the case issue as to these questions, however, I still would not certify them to the Iowa Supreme Court. The first, and most important, factor in considering whether to certify a question of state law is whether the federal court is genuinely uncertain as to whether the issue has been settled by the state's courts. Johnson v. John Deere Co., a Div. of Deere & Co. , 935 F.2d 151, 153 (8th Cir. 1991) (citing Tidler v. Eli Lilly & Co. , 851 F.2d 418, 426 (D.C. Cir. 1988) ); Hagen v. Siouxland Obstetrics & Gynecology, P.C. , 964 F. Supp. 2d 951, 961 (N.D. Iowa 2013). As noted above, Iowa law is clear that a non-compete agreement is void ab initio as an invalid restraint on trade only when it amounts to a general restraint. TransAm has previously provided only one argument – that the provision operates as a lifetime ban – that could potentially be considered a general restraint, but that argument has no merit. TransAm has otherwise failed to show how the lack of a legitimate business interest, as it uses the term, amounts to a general restraint on trade. Instead, its arguments regarding legitimate business interests all relate to the factors for determining whether a non-compete provision is reasonable.
Based on the law of the case doctrine, and the fact that there is no genuine uncertainty as to whether the issues TransAm raises have been settled by the state courts of Iowa, I decline to exercise my discretion to certify questions of law to the Iowa Supreme Court.
VI. CONCLUSION
For the reasons set forth herein, TransAm's motion (Doc. 232) to certify questions of law to the Iowa Supreme Court is denied .