950 N.W.2d 774
S.D.2020Background
- In 2010 Eide Bailly sold its medical practice management division to Aqreva by an Asset Purchase Agreement (APA) governed by Delaware law; the APA included a four‑year seller non‑compete and a clause requiring Eide Bailly to use “commercially reasonable means” to enforce Brandt’s 2009 partnership non‑compete.
- Brandt was not a signatory to the APA; he separately executed consulting agreements with Aqreva (2010–2014) as an independent contractor that contained non‑compete and non‑solicit covenants.
- Kampmann signed a confidentiality agreement with Aqreva in 2010 as an at‑will bookkeeper, later worked for Brandt’s business (initially named Medical Practice Management, later LJB), and provided bookkeeping/services for some clients.
- Aqreva sued Eide Bailly, Brandt, Kampmann, and LJB alleging breach of the APA and consulting agreements, torts (tortious interference, trade name and trade secret misappropriation, civil conspiracy), and fraud; Brandt counterclaimed for unpaid referral fees.
- The circuit court granted summary judgment for defendants on most claims (dismissing counts except certain employment/tort interference claims, which were later voluntarily dismissed); the South Dakota Supreme Court affirmed and awarded appellate attorney fees to Eide Bailly.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Was Brandt a party to the APA and therefore liable for breaching it? | Brandt was effectively a party because signing a consulting agreement was a closing condition and he benefitted financially from the sale. | Brandt is not a signatory to the APA; incidental distributions do not make him a contracting party. | Brandt was not a party to the APA; summary judgment for defendants affirmed. |
| Did Eide Bailly breach the APA by competing or failing to prevent Brandt from competing? | Eide Bailly knew Brandt was competing (e.g., prepared his tax return, received his mail) and failed to enforce §9(j). | Eide Bailly’s obligation to enforce arose only if Brandt breached the 2009 partnership non‑compete; Brandt did not breach that provision. | No breach by Eide Bailly; §9(j) was not triggered because Brandt did not violate the 2009 partnership agreement. |
| Are Brandt’s consulting agreement non‑compete and non‑solicit covenants enforceable under SD law? | Aqreva contends covenants protect goodwill and qualify under SDCL exceptions (sale of goodwill or employee restriction). | Brandt’s covenant is an unlawful restraint: he was not a seller under the APA and was an independent contractor (not an employee). | Non‑compete unenforceable as an unlawful restraint; SDCL 53‑9‑9 and 53‑9‑11 exceptions do not apply. Non‑solicit failed because Kampmann was not shown to be a manager/consultant of Aqreva. |
| Did Brandt/LJB misappropriate the trade name “Medical Practice Management”? | Use of the name by Brandt/LJB caused confusion and appropriated Aqreva’s trade name. | The term is generic/descriptive; no evidence of actual confusion or consumer association; Aqreva tolerated the use and later sent a cease‑and‑desist. | Summary judgment for defendants: name is generic/not protectable and Aqreva produced no evidence of substantial likelihood of confusion or damages. |
| Did Brandt, Kampmann, or LJB misappropriate trade secrets? | Defendants used Aqreva’s formulas, compilations, and forms to obtain clients and service accounts. | Aqreva failed to identify protectable secrets or show defendants used them or caused damages; some clients approached Brandt first. | Summary judgment for defendants: Aqreva did not prove existence, misuse, or damages for trade secrets. |
| Was there fraud or civil conspiracy by Eide Bailly/Brandt? | Eide Bailly misrepresented enforceability of Brandt’s non‑compete in §9(j) and conspired to divert business. | Allegations are conclusory, lack specific false statements, reliance, meeting of the minds, or an underlying tort. | Summary judgment for defendants: fraud and civil conspiracy claims dismissed for lack of specific factual support and no established underlying tort. |
Key Cases Cited
- Alliance Data Sys. Corp. v. Blackstone Capital Partners, V.L.P., 963 A.2d 746 (Del. Ch. 2009) (only formal parties to a contract are ordinarily bound).
- Osborn ex rel. Osborn v. Kemp, 991 A.2d 1153 (Del. 2010) (elements of contract formation: intent, definite terms, consideration).
- Rhone‑Poulenc Basic Chem. Co. v. American Motorists Ins. Co., 616 A.2d 1192 (Del. 1992) (objective contract interpretation—reasonable person in parties’ position).
- Central Monitoring Serv., Inc. v. Zakinski, 553 N.W.2d 513 (S.D. 1996) (statutory exceptions to restraint of trade construed narrowly).
- Daktronics, Inc. v. McAfee, 599 N.W.2d 358 (S.D. 1999) (plaintiff bears burden to prove existence of trade secret).
- Paint Brush Corp., Parts Brush Div. v. Neu, 599 N.W.2d 384 (S.D. 1999) (existence of trade secret is mixed question of law and fact).
- Cellular Sales, Inc. v. Mackay, 942 F.2d 483 (8th Cir. 1991) (generic terms are not entitled to trademark protection).
- JAS Enterprises, Inc. v. BBS Enterprises, Inc., 835 N.W.2d 117 (S.D. 2013) (non‑parties to a covenant not to compete are not bound by it).