Watkins Incorporated v. Chilkoot Distributing, Inc.
2013 U.S. App. LEXIS 13716
8th Cir.2013Background
- Watkins (manufacturer) contracted with Appellants (Chilkoot Distributing) under a 1988 Dealer Agreement and a 2006 International Associate Agreement; dispute existed whether 2006 superseded 1988, but either could govern the dispute.
- Appellants built a valuable downline including the Lambert Group, which sold large volumes of insect repellent in Quebec and obtained steep product discounts and generated substantial upline commissions.
- Watkins in 2008 sought to restructure discounts/commissions and, in January 2009, reclassified the Lambert Group from a sales associate (part of Appellants’ downline) to a manufacturer’s representative, cutting off Appellants’ commissions (Watkins paid reduced half-commissions through Dec. 2009).
- Appellants sued for breach of contract and equitable relief; Watkins sought declaratory judgment that its reclassification was permitted. The district court granted summary judgment for Watkins; this court previously reversed on the question of which agreement governed and remanded.
- On remand Watkins again moved for summary judgment arguing no breach under either agreement; the district court granted summary judgment for Watkins again, dismissing Appellants’ legal and equitable counterclaims. The Eighth Circuit affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Watkins breached the contract by reclassifying the Lambert Group (removal from downline) | Reclassification deprived Appellants of commissions and violated express protections (e.g., “Changing Line of Sponsorship” policy) | Neither the 1988 nor the 2006 Agreement prohibits Watkins from reclassifying a sales associate; no contractual duty to preserve downline | Court: No breach; agreements are silent on protecting downline permanence, so reclassification is not prohibited |
| Whether reclassification violated implied covenant of good faith and fair dealing | Watkins’ conduct was sharp tactics that frustrated Appellants’ expectations and investments in building a downline | No contractual duty existed to preserve downline status, and implied covenant cannot create obligations beyond the contract | Court: No breach of implied covenant; it cannot be used to impose duties not in the contract |
| Availability of equitable remedies (quantum meruit, promissory estoppel, unjust enrichment) | Even if contract exists, quantum meruit can apply when contract is silent as to a conferred benefit | A valid, governing contract controls; equitable relief is barred where parties’ rights are governed by an express agreement | Court: Equitable claims dismissed; contract governs and quantum meruit not available absent an incomplete or ambiguous compensation agreement |
| Effect of uncertainty over which agreement governs (1988 v. 2006) on summary judgment | Unclear which agreement controls so district court could not grant summary judgment based on 2006 | Either agreement could govern; summary judgment appropriate if Watkins did not breach either agreement | Court: Affirmed; because Watkins did not breach under either agreement, summary judgment proper despite factual dispute over which agreement controls |
Key Cases Cited
- Park Nicollet Clinic v. Hamann, 808 N.W.2d 828 (Minn. 2011) (elements required to prove breach of contract)
- BancorpSouth Bank v. Hazelwood Logistics Ctr., LLC, 706 F.3d 888 (8th Cir. 2013) (standard of review for summary judgment)
- In re Hennepin Cnty. 1986 Recycling Bond Litig., 540 N.W.2d 494 (Minn. 1995) (implied covenant of good faith and fair dealing read into contracts; limits on its scope)
- U.S. Fire Ins. Co. v. Minn. State Zoological Bd., 307 N.W.2d 490 (Minn. 1981) (equitable relief unavailable where parties’ rights are governed by valid contract)
- Holman v. CPT Corp., 457 N.W.2d 740 (Minn. Ct. App. 1990) (quantum meruit available only when contract is not a full agreement concerning compensation)
- Frankson v. Design Space Int’l, 394 N.W.2d 140 (Minn. 1986) (quantum meruit requires confusion or incompleteness regarding compensation)