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iDrive Logistics LLC v. IntegraCore LLC

Court of Appeals of Utah

December 7, 2017

iDrive Logistics LLC, Appellee,
v.
IntegraCore LLC, Appellant.

         Fourth District Court, Provo Department The Honorable Fred D. Howard No. 130400386

          Jeffery S. Williams, Edwin C. Barnes, Aaron D. Lebenta, and Bryan L. Quick, Attorneys for Appellant.

          David R. Parkinson, Christopher B. Sullivan, and Ronald F. Price, Attorneys for Appellee.

          Judge David N. Mortensen authored this Opinion, in which Judges Gregory K. Orme and Michele M. Christiansen concurred.

          OPINION

          MORTENSEN, Judge.

         ¶1 iDrive Logistics LLC contracted with IntegraCore LLC to provide IntegraCore with services designed to optimize its shipping and transportation costs. iDrive sued IntegraCore for breach of the agreement and IntegraCore counterclaimed. Both iDrive and IntegraCore alleged breach of contract and breach of the covenant of good faith and fair dealing. On competing motions for partial summary judgment, the district court concluded that iDrive performed under the contract and IntegraCore did not. Accordingly, the court granted summary judgment in favor of iDrive and denied IntegraCore's motion for summary judgment. IntegraCore, on interlocutory appeal, challenges those decisions. We affirm in part and reverse in part.

         BACKGROUND

         ¶2 This saga of business contractual dysfunction began when iDrive and IntegraCore entered into a 2009 agreement. Soon thereafter, each claimed the other had breached the agreement and the impasse was resolved by way of a new agreement in 2010. Another dispute arose shortly thereafter that was resolved by yet a third agreement in 2011 (the Agreement)-the subject of this interlocutory appeal. Once again each side claims breach and so the complicated history of the Agreement and the parties' attempts to operate under the Agreement must be understood.

         The Parties

         ¶3 IntegraCore is a logistics company that provides supply chain management, warehousing, packaging, and distribution services to its clients. iDrive is a consulting firm that uses its industry expertise to help reduce its clients' shipping costs.

         The Lawsuit

         ¶4 iDrive filed this action in March 2013, alleging, among other things, (1) "IntegraCore failed to flow all significant logistics decisions through iDrive"; (2) "IntegraCore failed to timely provide iDrive with information regarding changes in its arrangements with Carriers"; (3) "IntegraCore failed to compensate iDrive for changes in its arrangements with Carriers as required by the terms of [the Agreement]"; and (4) "IntegraCore diverted USPS shipments that were required to be made on the iDrive negotiated USPS contract, and instead secretly and without iDrive's knowledge or consent made those shipments using a different USPS contract rate."

         ¶5 IntegraCore filed an answer and counterclaim in May 2013, raising claims of breach of contract and breach of the implied covenant of good faith and fair dealing based on "iDrive's failure to fulfill its contractual obligations as Vice President . . . of Logistics for IntegraCore and to provide pricing optimization services for IntegraCore."

         The Agreement

         ¶6 Even though the parties had experienced significant difficulties, or perhaps because of them, the Agreement provides for substantial entanglement between the two entities. Of note is a requirement in the Agreement that iDrive's president, or another mutually agreed upon person, be appointed as vice president of logistics at IntegraCore. The obligations for iDrive's designee as the vice president of logistics were to spend two days in IntegraCore's operations learning logistics practices; help recruit a director of logistics; provide recommendations for logistics changes; work directly with carriers regarding carrier agreements, services, and changes; conduct two additional visits over the next two quarters after the Agreement was executed; and monitor transportation cost trends.

         ¶7 The Agreement further outlines the "pricing optimization services" that iDrive contracted to provide to IntegraCore, referred to in the Agreement as CUSTOMER:

As VP of logistics, iDrive will also manage the contract negotiation/optimization process with Carrier(s), as well as the contract maintenance process, on CUSTOMER'S behalf. This process includes collecting and analyzing CUSTOMER'S current parcel shipping data, pricing and Carrier contracts; establishing negotiation parameters with the CUSTOMER; issuing Request For Proposals (RFP) to the Carriers; collecting and analyzing the Carriers' responses to the R FP; negotiating pricing, terms and conditions with the Carriers; presenting analysis on Carrier proposals to the CUSTOMER. Final selection of a Carrier(s) is the CUSTOMER'S decision.

         Although the final selection of carriers rests with IntegraCore, the Agreement also provides that "[a]ll significant logistics decisions will flow through iDRIVE for review."

         ¶8 The Agreement also contains a compensation provision, which includes when and how iDrive's compensation was to be calculated and paid:

iDRIVE shall receive a retainer of two thousand one hundred and eighty-five dollars ($2, 185) per month for seven (7) months beginning February 1, 2011. iDRIVE shall receive thirty-eight percent (38%) of savings that the CUSTOMER derives from iDRIVE'S optimization service. All improvements made to any of CUSTOMER's contract(s) with Carrier(s) between the signature date on this Agreement and the end of the Agreement term are considered to be the result of iDRIVE'S optimization service. For the purposes of calculating savings from iDRIVE'S optimization efforts with the Carrier(s), iDRIVE and CUSTOMER agree that CUSTOMER'S current rates, incentives and terms will be used as the benchmark. CUSTOMER'S benchmark data will be used as the basis for calculating savings attributable to iDRIVE'S Pricing Optimization service.

         ¶9 Compensation is also addressed in two other sections of the Agreement-the "General" section and the "Agreement Term" section. The General section states,

Savings attributed to iDRIVE'S contract negotiation with the carriers will be determined by comparing incentives currently being offered to CUSTOMER under the contract(s) from the Carrier(s) in effect on the date of this Agreement, less the new incentives achieved from the Carrier(s) after the date hereof and will be calculated based on CUSTOMER'S actual shipping data.

         The Agreement Term section states, "Any new Carrier agreement signed by CUSTOMER during a period of 3 years after the execution date of this agreement shall be deemed to be based on iDRIVE's optimization efforts, whether negotiated directly with the Carrier(s) by iDRIVE, CUSTOMER or any other party[.]"[1]

         ¶10 The Agreement further provides that "iDrive operates as an independent contractor and agent, not as an employee of" IntegraCore. The term of the Agreement is for three years. The Agreement defines the term "carriers" as including United Parcel Service (UPS), Federal Express (FedEx), United States Postal Service (USPS), DHL International (DHL), and "any other identified local, regional, national, or international carriers."

         ¶11 The Agreement also contains an integration clause and an exculpatory clause. The integration clause provides:

This Agreement, including the Attachments hereto and iDRIVE policies referenced herein, constitutes the entire Agreement between iDRIVE and CUSTOMER concerning the subject hereof and supersedes all prior and contemporaneous Agreements between the parties, whether written or oral. This Agreement may not be waived, repealed, altered or amended in whole or in part except by an instrument in writing executed by authorized representatives of each of the parties.

         The exculpatory clause provides, in part:

Notwithstanding anything else in this Agreement or otherwise, iDRIVE will not be liable with respect to any subject matter of this Agreement under any contract, negligence, strict liability or other legal or equitable theory (I) for any amounts or (II) for any punitive, special, incidental or consequential damages or lost data or (III) for costs of procurement of substitute goods, technology or services or (IV) for loss or corruption of data or interruption of use.

         The History of Performance/Non-performance

         ¶12 IntegraCore appointed Stephen Chase (iDrive President) as IntegraCore's vice president of logistics. In January 2011, Shaun Rothwell (iDrive CEO), sent Ted Broman (IntegraCore CEO) a resume for Thad Haderlie (Director of Logistics), whom IntegraCore then hired as its director of logistics.

         ¶13 iDrive President spent two days in meetings at IntegraCore's office in February 2011. Included in those various meetings were meetings between iDrive President, Director of Logistics, and representatives from UPS and FedEx. Despite the Agreement's requirement that iDrive President make at least two additional visits, he did not visit IntegraCore's office again after the February 2011 meetings. Also in February 2011, iDrive sent a memorandum to IntegraCore analyzing IntegraCore's agreements with UPS and FedEx and outlining strategies for improving IntegraCore's contracts with these carriers.

         ¶14 Between February 2011 and May 2011, iDrive President communicated with a representative from FedEx and a representative from UPS on multiple occasions. During these communications, iDrive President discussed the respective carriers' contracts with IntegraCore. The FedEx representative indicated to iDrive President that IntegraCore's shipping volumes with FedEx did not merit a change to IntegraCore's agreement with FedEx.

         ¶15 In May 2011, iDrive President emailed a memorandum to the UPS representative requesting price adjustments and requesting that UPS provide a proposal to change surcharges and discounts offered to IntegraCore. Whether this request constitutes a Request for Proposal (RFP), which the Agreement required iDrive to submit as part of its pricing optimization services, is disputed. The UPS representative testified that she interpreted the email as requesting "incentive changes" rather than an RFP because the request lacked the formality normally present in an RFP.[2] The UPS representative acknowledged that the memorandum indeed requested improvements on UPS pricing for IntegraCore and specifically requested a proposal in response. In June 2011, the UPS representative sent an email to iDrive President informing him that "based upon the characteristics of [IntegraCore's] business, . . . [UPS] would not be making any changes to their current agreement."

         ¶16 Around the same time, Director of Logistics requested that iDrive CEO, not iDrive President, be Director of Logistics's point of contact between himself and iDrive. As a result, iDrive CEO had several meetings with Director of Logistics, some of which took place at IntegraCore.[3] Accordingly, iDrive stepped back to allow Director of Logistics to "run point" on those negotiations.

         ¶17 In July 2011, after Director of Logistics missed a regularly scheduled phone call with iDrive, iDrive President asked Director of Logistics for an in-person meeting between Director of Logistics and an iDrive employee to receive an update on the status of Director of Logistics's progress with UPS and FedEx regarding the requested price adjustments. In October 2011, iDrive President sent another email to Director of Logistics requesting to "catch up" on any progress with UPS and FedEx and offering to help facilitate progress.

         ¶18 Director of Logistics stated that, in October or November 2011, he informed IntegraCore CEO that he was going to contact UPS and FedEx to see if there were any negotiations occurring on IntegraCore's contracts. The UPS representative testified that, in the "first . . . five or ten days of October, " she had a conversation with Director of Logistics in which he asked, "My contract is three years old, c'mon my business has grown substantially, what can you do about that?" Director of Logistics's request resulted in a new UPS contract effective at the end of October 2011. While IntegraCore timely paid iDrive the retainer amount, it did not compensate iDrive for any savings realized under its new UPS contract.

         ¶19 IntegraCore did not complain to iDrive about its performance in 2011 or 2012. After October 2011, iDrive continued to perform auditing services under the Agreement through July 2013.

         ¶20 IntegraCore also continued to use iDrive's USPS account to ship packages between October 2011 and August 2013. However, in early 2012, IntegraCore began using a different account operated by Move Method, another shipping broker, to ship items via USPS. IntegraCore did not inform iDrive of its decision to use the Move Method account, nor did IntegraCore CEO believe he needed to involve iDrive to determine which account to use. IntegraCore claims the underlying carrier contract with USPS was unaffected by a change of use of the account. When iDrive CEO asked Director of Logistics about the decreased volumes in USPS shipments, Director of Logistics mischaracterized the situation, telling iDrive CEO that the decrease resulted from customers pulling their USPS volumes from IntegraCore.

         The Partial Summary Judgment Rulings

         ¶21 Both parties filed motions for partial summary judgment. iDrive filed a motion for partial summary judgment on its claims of breach of contract and breach of good faith and fair dealing, excluding its claims pertaining to the USPS contracts from its motion. IntegraCore sought summary judgment in its favor on iDrive's motion and also sought summary judgment on iDrive's USPS contract claims. iDrive also moved for partial summary judgment against IntegraCore's breach of contract and breach of good faith and fair dealing counterclaims.

         ¶22 The district court heard argument and issued its rulings from the bench. Those rulings were memorialized in three orders. When IntegraCore objected to the form of the orders, the district court issued an eleven-page ruling clarifying the court's earlier decisions. In the first order, the district court granted iDrive's motion regarding breach of contract and breach of the covenant of good faith and fair dealing arising from the 2011 UPS Agreement.[4] The district court determined that IntegraCore had breached the Agreement by negotiating and entering into the October 2011 carrier contract with UPS in secret and by failing to remit thirty-eight percent of the savings that had been realized by entering into the new contract. The district court determined that no genuine issues of material fact existed, explaining that the Agreement precludes IntegraCore from entering into any agreement with any carrier without iDrive's knowledge and that IntegraCore did not respond to iDrive's inquiries about IntegraCore's contact with UPS and did not otherwise involve iDrive in the discussions that lead to the new UPS contract. The district court further determined that the Agreement "unambiguously requires [IntegraCore] to pay [iDrive] for 38% of savings achieved with any new carrier agreement entered into during the term of [the Agreement], regardless of whether [iDrive] participates in the negotiation of such new agreement." (Emphasis in original.)

         ¶23 Specifically responding to IntegraCore's assertion that iDrive failed to perform under the Agreement, the district court stated: "[T]he Court finds[5] that as of the date of [IntegraCore's] breaches of contract in October, 2011, iDrive had either performed, or was in the process of performing, as required by the terms of [the Agreement]." The district court further rejected IntegraCore's defense for its nonperformance because the Agreement "did not provide that time was of the essence for performance, " that IntegraCore "was . . . obligated to provide notice to [iDrive]" if it "believed that time had expired for [iDrive] to perform, " and that IntegraCore "continued to accept [iDrive's] performance . . . long after [IntegraCore] now asserts it had a known excuse for nonperformance." Thus, the district court concluded that IntegraCore's failure to provide notice and its continued acceptance of performance constituted independent bases "to reject IntegraCore's argument of lack of performance."

         ¶24 In the second order, the district court granted iDrive's motion for partial summary judgment on IntegraCore's counterclaims for breach of contract and breach of the covenant of good faith and fair dealing. Incorporating its ruling on iDrive's claim against IntegraCore, the district court concluded that IntegraCore breached the Agreement. The district court further determined, "Under the first to breach rule, [IntegraCore's] breaches of [the Agreement] relieved [iDrive] of further obligations . . . and [IntegraCore's] claims are barred for this ...


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