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Bar J Sand & Gravel, Inc. v. Fisher Sand & Gravel Co.

United States District Court, D. New Mexico

September 29, 2017

BAR J SAND & GRAVEL, INC., a New Mexico corporation, Plaintiff,
v.
FISHER SAND & GRAVEL CO., a North Dakota corporation, doing business in New Mexico through its division SOUTHWEST ASPHALT & PAVING, Defendant.

          MEMORANDUM OPINION AND ORDER

         THIS MATTER is before the Court on Defendant Fisher Sand & Gravel Co.'s (“Fisher”) Partial 12(b)(6) Motion to Dismiss. Doc. 101. In this motion, Fisher seeks dismissal of Counts II and III of Plaintiff Bar J Sand & Gravel, Inc.'s (“Bar J”) First Amended Complaint. Id. For the reasons set forth below, the Court grants the motion and hereby dismisses Counts II and III with prejudice.

         I. Background[1]

         The Exclusive Supply Agreement (“ESA”) that the parties entered into on June 28, 2007 included a provision limiting the contact between Fisher and the Pueblo. This provision, which Fisher refers to as the “no contact” provision and Bar J refers to as the “no direct contact” provision, stated that:

[Fisher] agrees that at no time will any of its employees, representatives or agents contact any federal or Tribal persons, agencies, or entities, including without limitation the Department of the Interior, the Bureau of Indian Affairs, the Bureau of Land Management, or Pueblo Officials and Tribal Members about any topic or provision that relates to this Agreement, including, but not limited to, the severance, excavation, removal and sale of Material and processing of Material on the Premises, including the operation of a hot mix plant and a concrete batch plant.
Should any Tribal members, representatives, or entities, including without limitation the Bureau of Indian Affairs, the Bureau of Land Management, or Pueblo officials, representatives, or tribal members, contact [Fisher] about any topic or provision that relates to this Agreement, including, but not limited to, the excavation, removal and sale of Material and processing of Material on the Premises, including the operation of a hot mix plant and a concrete batch plant, [Fisher] agrees to immediately contact [Bar J] and relay to [Bar J] in full detail the communication. Further, [Fisher] designates [Bar J] and its representatives as its sole and exclusive agent in dealing with federal agencies and their representatives, and with Tribal members, representatives, and officials, and in representing [Fisher] in any dispute before the Pueblo.

ESA ¶ 3 (hereinafter “Section 3 of the ESA”).

         In its first amended complaint, Bar J alleges that Fisher breached Section 3 of the ESA in mid-October 2014 when it contacted the Pueblo “about the possible viability of Fisher entering into a lease on the gravel reserve directly with the Pueblo.” See Am. Compl. ¶ 37 (Doc. 38). Bar J further alleges that Fisher intentionally hid this contact with the Pueblo from Bar J until November 24, 2014. Id. ¶ 38.

         In Count II, Bar J seeks a declaratory judgment that Fisher's direct contacts with the Pueblo “about the potential viability of Fisher entering into a lease directly with the Pueblo is a violation of the ESA.” Doc. 38 ¶¶ 77, 79. Bar J further seeks a judgment “prohibiting further direct contact by Fisher with the Pueblo pertaining to excavation, processing, sale or removal of materials or asphalt.” Id. ¶ 79. In Count III, Bar J asserts a breach of contract claim for damages, including punitive damages, arising from Fisher's breach of the ESA “by contacting the Pueblo directly to seek its own lease and/or permission to continue to remove and sell Material outside of the ESA.” See id. ¶¶ 80-84.

         II. Analysis

         Fisher argues that Counts II and III should be dismissed for failure to state a claim under Fed.R.Civ.P. 12(b)(6). Fisher contends that Section 3 of the ESA is unenforceable as a matter of law because it is “unlimited in temporal and geographic scope.” See Doc. 101 at 1. “[T]o withstand a Rule 12(b)(6) motion to dismiss, a complaint must contain enough allegations of fact, taken as true, to state a claim to relief that is plausible on its face.” Khalik v. United Air Lines, 671 F.3d 1188, 1190 (10th Cir. 2012) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). In ruling on a motion to dismiss, the Court “accept[s] the well-pled factual allegations in the complaint as true, resolve[s] all reasonable inferences in the plaintiff's favor, and ask[s] whether it is plausible that the plaintiff is entitled to relief.” Diversey v. Schmidly, 738 F.3d 1196, 1199 (10th Cir. 2013) (internal citations and quotation marks omitted).

         In its previous ruling, the Court determined that the ESA was not renewed and therefore expired at the end of the initial term on June 28, 2012. As Bar J acknowledges in its response brief, Counts II and III of Bar J's amended complaint are premised on factual allegations “that Fisher contacted the Pueblo during the ESA's renewal term.” See Doc. 110 at 9. Having decided the ESA was no longer in effect in 2014 when Fisher contacted the Pueblo, Counts II and III cannot be premised on the existence of a renewed ESA at the time of the contacts.

         A separate question exists, however, as to whether Section 3 of the ESA survived the expiration of the ESA. The plain language of Section 3 of the ESA provides, “at no time will any of [Fisher's] employees, representatives or agents contact any federal or Tribal persons . . . .” ESA ¶ 3 (emphasis added). Thus, the Court must ask whether Fisher remained bound by Section 3 of the ESA even though the ESA, itself, was no longer in effect in 2014 when Fisher contacted the Pueblo. Although Bar J contends in its response that the Court need not decide this question for purposes of deciding the motion, Bar J states that the Section 3 of the ESA “is unambiguous as to duration - because ‘at no time' means ‘at no time'.” Doc. 110 at 10. Bar J's position therefore appears to be that Section 3 of the ESA is unlimited in duration. This is consistent with Bar J seeking a judgment prohibiting Fisher from all “further direct contact” with the Pueblo in Count II of its amended complaint. Doc. 38 ¶ 79. On its part, Fisher argues that Section 3 of the ESA is unenforceable because it has no temporal limitation. See Doc. 101 at 6.

         “Broadly speaking, any bargain or contract which purports to limit in any way the right of either party to work or to do business, whether as to the character of the work or business, its place, the manner in which it shall be done, or the price which shall be demanded for it, may be called a bargain or contract in restraint of trade.” See 6 Richard A. Lord, Williston on Contracts, § 13:1 (4th ed.). “It is now uniformly agreed that in order to be valid, a promise imposing a restraint in trade or occupation must be reasonable.” Id. § 13:4. “A covenant imposing a reasonable restraint will generally be held to be a valid exercise of the parties' freedom to contract.” Id. “Whether there is a reasonable restraint depends on the facts of a particular case and is a matter of law for the courts to decide.” Bowen v. Carlsbad Ins. & Real Estate, Inc., 1986-NMSC-060, ¶ 4, 724 P.2d 223 (internal citation omitted). “In determining reasonableness, courts consider such factors as the nature of the business, its location, the parties involved, the purchase price, and the main object of the restriction.” Id.

         Section 3 of the ESA contains time and geographic limitations on Fisher. As such, the basic test for determining if Section 3's limitations are permissible is “whether the restraint as to time and territory is necessary for the protection of the promisee [Bar J], but neither oppressive on the promisor [Fisher], nor injurious to the interests of the general public.” See Williston § 13:5; see, e.g., Winrock Enterprises, Inc. v. House of Fabrics of New Mexico, Inc., 1978-NMSC- 038, ¶ 15, 579 P.2d 787 (finding restriction preventing party from establishing a competing business within a certain radius was valid because it was “reasonably limited in time and place and was subsidiary to the main purpose of the lease agreement.”); see Nichols v. Anderson, 1939-NMSC-02 ...


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