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Drug Testing Compliance Group, LLC v. Dot Compliance Service

Supreme Court of Idaho

November 3, 2016

DRUG TESTING COMPLIANCE GROUP, LLC, Plaintiff-Respondent,
v.
DOT COMPLIANCE SERVICE, DAVID MINERT, JEFF MINERT and RYAN BUNNELL, Defendants-Appellants.

         2016 Opinion No. 127

         Appeal from the District Court of the Fourth Judicial District of the State of Idaho, Ada County. Hon. Richard D. Greenwood, District Judge.

         The judgment of the district court is reversed.

          Hawley Troxell Ennis & Hawley, Boise, for appellants. D. John Ashby argued.

          Points Law, PLLC, Boise, for respondent. Michelle R. Points argued.

          J. JONES, Chief Justice.

         DOT Compliance Service ("DOT Compliance"), Jeff Minert, David Minert, and Ryan Bunnell (collectively "Appellants") appeal a jury verdict finding that DOT Compliance and Bunnell tortiously interfered with Respondent Drug Testing Compliance Group, LLC's ("DTC Group's") customer contracts and that Jeff and David Minert violated the covenant of good faith and fair dealing by disparaging DTC Group in violation of a settlement agreement entered into by the parties. DTC Group and DOT Compliance are companies that provide drug and alcohol testing and other services to commercial drivers. Both companies obtain new business by making unsolicited phone calls to newly registered drivers. DTC Group brought this suit alleging that DOT Compliance, through its owners and employees was calling DTC Group's customers, asking them to cancel their service, and making disparaging comments about DTC Group.

         On appeal, Appellants allege that the district court erred in denying their motion for directed verdict on the tortious interference with contract claim because DTC Group is not registered with the Idaho Attorney General as required under the Idaho Telephone Solicitation Act ("ITSA") and, as a result, any customer contracts were void ab initio. Additionally, Appellants allege that the district court erred in denying their motion for judgment notwithstanding the verdict ("JNOV") on DTC Group's breach of good faith and fair dealing claim against Jeff and Dave Minert because no evidence was presented at trial that they personally made disparaging comments about DTC Group in violation of the settlement agreement. Appellants also appeal the district court's jury instructions, the exclusion of certain evidence, and the district court's award of attorney fees to DTC Group. Appellants and DTC Group each seek attorney fees on appeal.

         I.

         FACTUAL AND PROCEDURAL BACKGROUND

         DOT Compliance was founded by David and Jeff Minert in March 2011. DOT Compliance provides drug and alcohol testing and other services to commercial drivers to help drivers comply with regulations promulgated by the United States Department of Transportation ("USDOT"). DTC Group was founded by David Crossett in July 2013 and is a direct competitor of DOT Compliance. Both companies are Idaho limited liability companies with their principal place of business in Ada County, Idaho. Both companies solicit new business by obtaining information from the USDOT website about newly registered commercial drivers and making unsolicited calls to those drivers to offer testing and other services.

         When Crossett founded DTC Group, two employees joined the company that previously worked at DOT Compliance and had signed non-compete agreements. DOT Compliance filed suit against DTC Group, alleging tortious interference with contract. DTC Group answered and filed counterclaims against DOT Compliance. Crossett testified that a few months into DTC Group's operation it experienced a sharp increase in cancellations and chargebacks. Crossett testified that he believed that customers were cancelling with DTC Group after receiving calls from DOT Compliance. Additionally, Crossett testified that DTC Group had been audited by the Idaho Department of Labor while the litigation was pending, due to an anonymous tip that he believed came from DOT Compliance.

         On July 11, 2014, Jeff Minert and David Minert, on behalf of themselves and DOT Compliance, and Crossett, on behalf of himself and DTC Group, entered into a settlement agreement, agreeing to discharge and release all claims and counterclaims in the litigation.[1] As relevant to this appeal, the settlement agreement included a "no disparagement" clause, which provides:

The Parties will not disparage each other in their communications with third parties relating to the character, reputation, profession, business, practices, operations, services, facilities, presence, plans, or conduct of another Party, and shall not cause, encourage or suggest disparaging statements to be made by a third party regarding a Party.

         Appellants allege that in June 2014, while the parties were negotiating the settlement agreement, Crossett met with David and Jeff Minert and proposed that DOT Compliance and DTC Group agree not to compete for customers. David Minert spoke with an attorney about the conversation with Crossett and soon after received a call from the United States Department of Justice ("USDOJ"). The USDOJ asked David Minert to meet with Crossett to discuss the agreement and to record the conversation. David Minert agreed and testified that during a second meeting on July 10, 2014, Crossett suggested that the companies agree that whoever called a customer first would win and that the other would not try to compete. David Minert also testified that Crossett proposed that each company could then raise their prices and stated that DTC Group would be raising its prices the following week. Crossett testified at trial that he was motivated to enter into the settlement agreement in part because he believed that DOT Compliance was agreeing to not call customers and offer lower prices once the customer entered into an agreement with and paid DTC Group. The USDOJ and FBI later sent Crossett a subpoena for a grand jury investigation for violations of antitrust laws.

         Crossett testified that the rate of cancellations and chargebacks at DTC Group continued to go up after the parties entered into the settlement agreement. Crossett further testified that several of the cancelling customers informed DTC Group employees that they were called by DOT Compliance and told to cancel their service with DTC Group for various reasons, such as: DTC Group was being investigated by the FBI, DTC Group was a scam, DTC Group's employees stole the idea from DOT Compliance, DTC Group was not authorized to perform services in a particular state, and DTC Group provided substandard service and customers would fail safety audits if they continued to work with DTC Group.

         On August 18, 2014, DTC Group filed a complaint against the Appellants, alleging claims for breach of contract, breach of the covenant of good faith and fair dealing, interference with prospective economic advantage, tortious interference with contracts, unfair competition, and civil conspiracy. DTC Group alleged that DOT Compliance was calling customers who had contracted for service with DTC Group and trying to persuade those customers to cancel their service. DTC Group also alleged that during these phone calls, DOT Compliance's employees (including Bunnell) were making disparaging comments about DTC Group in violation of the settlement agreement.

         Appellants filed an answer and moved for summary judgment. In their summary judgment motion, Appellants argued that DTC Group could not prove actual injury for any of its claims because it was operating in violation of the registration requirements of the ITSA and any customer contracts entered into were void. Additionally, Appellants argued that they had not interfered with any contracts because no customer contract was enforceable until the three-day rescission period under the ITSA had passed. Appellants also argued that DTC Group failed to state a claim for unfair competition because it had not alleged a conspiracy. DTC Group filed a cross motion for summary judgment, asking the court to rule in favor of DTC Group on all claims.

         On January 28, 2015, the district court heard argument on various motions including the parties' motions for summary judgment. The court granted summary judgment to Appellants on the unfair competition claim, but denied their motion as to the rest of the claims. The court concluded that the ITSA only gives consumers-not competitors-the right to void a contract made in violation of the Act and, therefore, Appellants did not have "standing" to raise the issue. The court then denied DTC Group's motion for summary judgement, finding that issues of material fact precluded summary judgment on the remaining claims.[2] DTC Group later amended its complaint to add David Minert as a defendant.

         The case was tried from May 11 through May 15, 2015. During direct examination, Crossett testified about the July 10, 2014 conversation with David Minert and the following FBI/USDOJ investigation. DTC Group tried to elicit testimony as to costs incurred by Crossett and DTC Group as a result of the investigation. The district court excluded such testimony, concluding that DTC Group failed to disclose that it would be seeking damages related to the FBI/USDOJ investigation. During redirect examination, Crossett testified he believed that any report David Minert made to the USDOJ suggesting that DTC Group attempted to engage in price fixing was "frivolous." In response to this testimony, Appellants sought to introduce the FBI's recording of the July 10, 2014 conversation as impeachment evidence. The district court excluded the evidence, concluding that the FBI/USDOJ investigation was a collateral issue and David Minert would have an opportunity to explain his basis for reporting DTC Group during his testimony.

         Appellants moved for a directed verdict at the end of DTC Group's case in chief. Appellants asked the court to dismiss DTC Group's claim for tortious interference with contract, arguing that the ITSA's three-day recession right precluded a finding that any interference by Appellants caused customers to breach a contract. Additionally, Appellants asked for a directed verdict on the breach of contract and breach of the covenant of good faith and fair dealing claims against Jeff and Dave Minert, alleging no evidence had been presented that they individually made disparaging comments to customers in violation of the settlement agreement. The district court denied Appellants' motion for directed verdict on both claims.

         Appellants moved again for a directed verdict at the conclusion of trial, alleging that DTC Group did not prove a claim for tortious interference with contract because DTC Group was operating in violation of the ITSA and any contracts it entered into were void. The district court denied the motion, again stating that the ITSA did not give a competitor "standing" to void contracts made in violation of the Act. The district court, on its own motion, dismissed the claim for civil conspiracy and tortious interference with prospective economic advantage. Additionally, DTC Group agreed to dismiss the tortious interference with contract claim against Jeff and Dave Minert as individuals.

         Appellants proposed several jury instructions on the ITSA. The district court ruled that it would not give instructions on the ITSA because the three-day rescission right and DTC Group's failure to register were not defenses to the interference with contract claim and such instructions would confuse jurors. Appellants also objected to the court including DTC Group's proposed instruction on the elements of a tortious interference with contract claim rather than using Idaho Jury Instruction ("IDJI") 4.70.

         The jury was asked to determine: (1) whether DOT Compliance, Jeff Minert, and/or David Minert breached a contract with DTC Group; (2) whether DOT Compliance, Jeff Minert, and/or David Minert breached the covenant of good faith and fair dealing; and (3) whether DOT Compliance and/or Bunnell tortiously interfered with DTC Group's contracts. The jury returned a verdict finding that DOT Compliance, Jeff Minert and David Minert breached a contract with DTC Group but that their breaches did not cause DTC Group any damages. The jury concluded that DOT Compliance, Jeff Minert, and David Minert breached the covenant of good faith and fair dealing. The jury found that Jeff Minert and David Minert, as individuals, each caused DTC Group $20, 000 in damages, but DOT Compliance did not cause any damages for its breach. The jury additionally found that DOT Compliance and Bunnell tortiously interfered with DTC Group's contracts whereby DOT Compliance caused DTC Group $20, 000 in damages and Bushnell caused DTC Group $500 in damages.

         Appellants moved for JNOV, alleging in part that no evidence was presented to show David or Jeff Minert personally disparaged DTC Group in violation of the settlement agreement. Additionally, Appellants and DTC Group moved for an award of attorney fees. The district court heard oral argument on the parties' motions on July 15, 2015. The district court found that there was evidence in the record supporting the jury's conclusion that Jeff Minert and David Minert breached the covenant of good faith and fair dealing. The district court reasoned:

I think in this case the jury could infer that the Minerts and thereafter their company were responsible for the calls to the [Department of Labor], the calls to the FBI, and certainly to - there was at least one tape where a jury could have found that young Mr. Minert's conversation with the customer was certainly contrary to his stated testimony as to how he talked to customers.

         The district court also concluded that DTC Group was the prevailing party in the litigation and entitled to fees against DOT Compliance, Jeff Minert, and David Minert, but not against Bunnell.

         On August 3, 2015, the district court entered judgment against DOT Compliance in the amount of $20, 000, against Jeff Minert in the amount of $20, 000, against David Minert in the amount of $20, 000, and against Bunnell in the amount of $500. Additionally, the district court entered judgment against DOT Compliance, Jeff Minert, and David Minert jointly and severally for attorney fees in the amount of $87, 414.14. Appellants timely appealed.

         Appellants appeal the district court's denial of their motion for directed verdict on the tortious interference of contract claim against DOT Compliance and Bunnell and the district court's denial of their motion for JNOV on the breach of the covenant of good faith and fair dealing claim against Jeff Minert and David Minert. Additionally, Appellants challenge the district court's exclusion of the FBI recording, the court's jury instructions, and the court's award of attorney fees to DTC Group. Appellants and ...


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