Opinion ID: 1988079
Heading Depth: 1
Heading Rank: 3

Heading: Claim for Declaratory and Injunctive Relief.

Text: FMS claimed in its petition that its contractual relationship with Hawkeye entitled it to a declaration that in the event of termination of the relationship ... [FMS] has the exclusive and permanent right as between [FMS] and [Hawkeye] to transact life insurance and annuity business with [FMS's] existing insurance clients who are also [Hawkeye] bank customers. It also sought a permanent injunction to prevent Hawkeye from soliciting FMS's clients. In support of this claim, FMS relies primarily on two contractual provisions, one in the 1983 contract and one in the 1990 contract. [3] As a fall back position, FMS argues that even if the 1990 contract did not contain a covenant not to compete, the court should imply such a covenant. We discuss each argument separately. A. 1983 contract. FMS contends that paragraph thirteen of the 1983 agreement provides FMS with a perpetual ownership interest in the book of business obtained through its affiliation with the Hawkeye banks. This provision of the 1983 contract vested agent-level renewal commissions in FMS on a graduated scale, with such renewal commissions being fully vested after five years. (No part of any general agent's renewal commission vested under this paragraph.) We think this provision does nothing more than entitle FMS to the agent-level renewal commissions allocable to it on the business generated while the 1983 contract was in effect. [4] In other words, renewal commissions on any policies written between 1983 and 1990 were vested in FMS pursuant to the schedule contained in paragraph thirteen. There is no basis in this contractual provision for a factual finding that FMS owned the underlying book of business. We rejected a nearly identical argument in Burke v. Hawkeye National Life Insurance Co., 474 N.W.2d 110, 111-13 (Iowa 1991). In that case, the defendant insurer was sued by Burke, one of its former independent insurance agents. Burke, 474 N.W.2d at 111. Burke claimed the insurance company breached the parties' agency agreement when it solicited his clients. Id. at 112. More specifically, Burke claimed that the insurer violated his vesting privileges under the contract when it wrote replacement policies that eliminated his renewal commissions. Id. at 113. We rejected this claim, stating: The weak link in Burke's contract argument is the lack of any binding agreement between the parties, written or oral, concerning ownership of Burke's customers. There appears little dispute that the written contract is silent on the question. Clearly the policyholder information was as accessible to [the insurance company] as to Burke. In the absence of an agreement giving an agent the exclusive right to use such information, we have held both agent and principal are free to solicit insurance business based on customer records contained in their respective files. ... Evidence of Burke's reliance on industry custom and vague company promises about the nest egg he was building simply does not rise to the level of proof necessary to establish an oral contract. Id. (citations omitted). We think our holding in Burke is dispositive of the claim made by FMS here. FMS's entitlement to renewal commissions is simply not the same as ownership of the book of business generating those commissions. Consequently, the vesting provision in the 1983 contract cannot, as a matter of law, support a declaratory judgment that FMS has the exclusive right to conduct insurance business with the clients referred to it by Hawkeye. B. 1990 contract. FMS argues that the 1990 contract contained a provision that, when considered with FMS's vesting rights under the 1983 agreement, provided FMS with permanent protection ... from Hawkeye for life insurance and/or annuity business generated by or through the efforts of FMS. FMS relies on the following language from the 1990 contract: [Hawkeye] agrees ... to not compete with FMS or deal with any other third party with respect to the sale of insurance policies and annuities covered by this Agreement .... (Emphasis added.) The district court held that this provision was effective only during the life of the contract. FMS contends the contract does not contain a general restriction against competition, but merely prevents Hawkeye from interfering with existing contracts between FMS and the banks' customers. FMS argues that the following evidence extrinsic to the agreement itself supports this interpretation of the 1990 agreement: (1) the vesting provision in the 1983 contract; (2) the 1983 contract was never formally terminated; (3) the 1990 contract did not address the subject of vesting of renewal premiums; (4) FMS became the general agent under the 1990 contract; and (5) FMS's continued development of the insurance business of bank customers. [E]xtrinsic evidence is admissible as an aid to interpretation [of a contract] when it throws light on the situation of the parties, their antecedent negotiations, the attendant circumstances, and the objects the parties were striving to attain. Fashion Fabrics of Iowa, Inc. v. Retail Investors Corp., 266 N.W.2d 22, 25 (Iowa 1978) (emphasis added). Interpretation involves ascertaining the meaning of contractual words; construction refers to deciding their legal effect. Id. (emphasis added). The flaw in FMS's position is that the evidence it offers does not assist in determining the meaning of contractual words. The initial issue to be resolved is whether the non-compete provision survives the termination of the contract. The contractual restriction applies only to the sale of insurance policies and annuities covered by this [the 1990] Agreement. The agreement states that it is in effect from March 1, 1990 until February 28, 1991, subject to one-year renewals unless terminated by either party upon six-months written notice. There is no provision in the contract that sales of policies and annuities occurring before the contract became effective or after its termination are covered by the terms of the contract. Importantly, FMS does not specifically relate the extrinsic evidence upon which it relies to the interpretation of any contractual terms relevant to the issue before us, namely, whether any restrictions on competition extend beyond termination of the 1990 contract. FMS simply alleges that the evidence creates a genuine issue as to whether the 1990 agreement not to compete continues after termination of the contract. We conclude FMS's reliance on extrinsic evidence is in reality an inappropriate attempt to vary the terms of the agreement. See Bankers Trust Co. v. Woltz, 326 N.W.2d 274, 276 (Iowa 1982) (holding extrinsic evidence may be used only to interpret, not alter, a written contract). We think the district court did not err in concluding that the non-compete provision does not apply, by its own terms, to sales made after the contract has terminated. Therefore, the court correctly ruled there was no factual basis in the record to find a perpetual covenant not to compete in the 1990 contract. C. Implied restrictive covenant. FMS argues that the court should imply a restrictive covenant in the 1990 agreement. We note that [a]greements in restraint of trade are generally disfavored. Lamp v. American Prosthetics, Inc., 379 N.W.2d 909, 911 (Iowa 1986). Moreover, a party must meet a high standard to establish an implied covenant: Courts are slow to find implied covenants. The obligation must arise from the language used or it must be indispensable to give effect to the intent of the parties; it must have been so clearly within their contemplation that they deemed it unnecessary to express it. It can be justified only on the ground of legal necessity and can arise only when it can be assumed it would have been made part of the agreement if attention had been called to it. Fashion Fabrics, 266 N.W.2d at 27-28. FMS contends there is a genuine issue of material fact as to whether it has satisfied this test for an implied covenant. We have already determined that the language of the contract itself does not provide for a perpetual covenant not to compete, nor do we think that such a covenant arises from the language of the contract. Thus, we are left to consider whether such a covenant is indispensable to give effect to the intent of the parties. Id. at 27. FMS relies upon the following evidence to generate a factual dispute on this issue: (1) under the 1990 agreement, FMS was a general agent that contracted for itself with insurance companies to provide products for its clients; (2) FMS was an independent contractor under the 1990 agreement and had complete control over its operations; (3) the 1990 agreement was a referral arrangement; and (4) FMS was fully vested in all agent-level renewal commissions. FMS apparently contends it was the intent of the parties that FMS would own this book of business and enjoy the renewal commissions generated on this business in perpetuum without any competition from Hawkeye. This argument fails for reasons similar to those discussed in connection with the 1983 contract claim. Regardless of any vesting rights FMS had under the 1983 contract, the evidence does not support a finding that the parties intended that FMS would own the underlying book of business. Absent evidence of such an intent, FMS must generate a factual issue on whether a covenant not to compete is indispensable to the intent that is expressed in the 1990 contract. Although the 1983 contract vested agent-level renewal commissions in FMS, under the 1990 contract writing-agent renewal commissions were payable to the bank and FMS received the general agent's share of the commission. Our review of the record reveals no evidence from which a fact finder could conclude that a covenant not to compete is a legal necessity to effectuate the parties' intent, even if we consider FMS's right to renewal commissions under the 1983 contract. See Fashion Fabrics, 266 N.W.2d at 28 (holding covenant must be a legal necessity); see also Burke, 474 N.W.2d at 113 (holding that insurance company's solicitation of agent's customers did not violate agent's vested right to renewal commissions). To recognize an implied covenant not to compete under these circumstances would be tantamount to holding that FMS owned the book of business, a right not bestowed by the 1983 contract or the 1990 contract. We conclude, therefore, that the district court did not err in entering summary judgment for the bank on FMS's claim that a covenant not to compete should be implied in the 1990 contract.