Ag Spectrum Company v. Vaughn Elder
865 F.3d 1088
| 8th Cir. | 2017Background
- Vaughn Elder transitioned from Ag Spectrum employee to independent-contractor "Area Manager" under a written Agreement; he bought product from Ag Spectrum and sold it for a markup, supplied his own equipment, insurance, and facilities, and received no payroll or benefits.
- The Agreement required Elder to sell only Ag Spectrum product and included a three-year post-termination noncompete forbidding marketing to, selling to, or consulting with Ag Spectrum customers.
- Elder cultivated most customers himself (and through dealers working under him); only two customers came to him via Ag Spectrum.
- Elder handled ordering, storage, delivery logistics, payment to Ag Spectrum, and bore credit risk if customers didn’t pay; Ag Spectrum provided limited support (training, marketing help, management-zone maps, a rail tank facility and leased railcars though Elder paid freight and maintenance).
- Elder terminated the Agreement in Sept. 2012 and began competing; Ag Spectrum sued in Jan. 2015 with ~9 months remaining on the noncompete. The district court granted Elder summary judgment, holding the noncompete unreasonable and unenforceable; Ag Spectrum appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether enforceability of noncompete is question for court or jury | Ag Spectrum: reasonableness is factual, so jury should decide | Elder: court can decide as a matter of law | Court: predict Iowa Supreme Court would treat enforceability as a question of law for the court |
| Whether noncompete was reasonably necessary to protect employer | Ag Spectrum: training, proprietary tools, goodwill, and customer relationships justified protection | Elder: he developed customer base and received only ordinary reseller support, no special trade secrets or exclusive lists | Court: not necessary—training/support was ordinary reseller support and customers were Elder’s, not Ag Spectrum’s |
| Whether covenant unduly burdens former contractor | Ag Spectrum: Elder could sell noncompeting products or find new customers; burden not disproportionate | Elder: enforcing would force him to rebuild his customer base from scratch given his independent-contractor role | Court: burden disproportionate to Ag Spectrum’s protectable interests; covenant unreasonable |
| Public interest / unfair enrichment concern | Ag Spectrum: enforcing protects business and market stability | Elder: enforcement would unjustly strip him of customers he developed; competition benefits public | Court: public-interest factor neutral; core concern is preventing unjust enrichment—here noncompete would improperly capture Elder’s customers |
Key Cases Cited
- Jackson v. Riebold, 815 F.3d 1114 (8th Cir.) (standard of review for summary judgment)
- Iowa Glass Depot, Inc. v. Jindrich, 338 N.W.2d 376 (Iowa 1983) (framework for reasonableness of noncompete covenants)
- Revere Transducers, Inc. v. Deere & Co., 595 N.W.2d 751 (Iowa 1999) (factors relevant to covenant reasonableness)
- City of Davenport v. Shewry Corp., 674 N.W.2d 79 (Iowa 2004) (enforceability as public-policy reasonableness question for the court)
- Rohlin Constr. Co. v. City of Hinton, 476 N.W.2d 78 (Iowa 1991) (court decides whether contractual term is unenforceable on public policy grounds)
- Orkin Exterminating Co. v. Burnett, 146 N.W.2d 320 (Iowa 1966) (distinguishing employee-served customers from independent-contractor clientele)
- Reddy v. Community Health Found. of Man, 298 S.E.2d 906 (W. Va.) (enforceable covenants center on preventing unjust enrichment)