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Sixth Circuit Issues Notably Flawed Opinion in Sales Commission Case

For salesmen and manufacturers representatives who are owed commissions, a recent decision of the Court of Appeals for the Sixth Circuit in a breach of contract case for commissions owed is not encouraging. The analysis and application of Tennessee breach of contract law to the facts of the case by the majority of the three judge panel was D to D-  work (to the losing plaintiff, I am sure it was F work) .  The dissenting judge’s opinion, which was justifiably quite sharp, is the only bright spot for those seeking unpaid commissions (and for lawyers who like to see the law applied correctly).

In the case, Maverick Group Marketing, Inc. v. Worx Environmental Products, Ltd., the plaintiff sales company worked for years on behalf of the defendant to have Wal-Mart buy the defendant’s product.  Then, the defendant terminated its contract with plaintiff.  The defendant then received its first order from Wal-Mart three weeks after terminating its contract with the plaintiff.

Before terminating the plaintiff’s contract, the defendant had supplied Wal-Mart a supplier agreement, Wal-Mart had tested the product, and Wal-Mart and the defendant had agreed on the price for the product. The only thing that had not happened was that Wal-Mart had not placed an order.

The contract between the plaintiff and the defendant provided that, if the agreement between them was terminated, then the plaintiff would still receive commissions on “orders solicited prior to the effective date of termination.” The two judge majority reasoned that, because Wal-Mart had not placed an order, no orders had been solicited and, therefore, the plaintiff was not entitled to any sales commissions.

The glaring problem with the reasoning of the majority of the court was that it did not interpret “solicit” according to its plain and ordinary meaning. Under long established Tennessee breach of contract law, a court should interpret the language of a contract according to its plain and ordinary meaning. Instead of doing that, the Sixth Circuit affirmed the decision of the district court judge that the phrase “orders solicited” was ambiguous. As the dissenting judge pointed out, especially considering the entire context of the parties’ agreement, there was nothing ambiguous about that language.  As the dissenting judge also aptly pointed out, if there was any ambiguity, it should have been construed against the defendant, which drafted the contract.

As the dissenting judge observed, the district court judge, who was affirmed, held an unnecessary trial to resolve what he considered to be ambiguous language — the phrase “orders solicited.” Then, he ruled that the phrase embodied a five-part definition based on expert testimony of that phrase offered by an expert who testified for the defendant.

Salesmen, sales representatives and manufacturers’ representatives who are owed commissions will undoubtedly have different contract language in their contracts than the language contained in this case. So, the extent to which this opinion can be applied to wreak havoc in other breach of contract cases for commissions is probably limited.