Reilly v. Inquest Technology, Inc. , 160 Cal. Rptr. 3d 236 ( 2013 )

Filed 7/31/13
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FOURTH APPELLATE DISTRICT
DIVISION THREE
PETER REILLY,
Plaintiff and Respondent, G046291
v. (Super. Ct. No. 30-2009-00333233)
INQUEST TECHNOLOGY, INC., et al., OPINION
Defendants and Appellants.
Appeal from a judgment of the Superior Court of Orange County, Frederick
Paul Horn, Judge. Affirmed.
Gordee, Nowicki & Augustini and Bryan Arnold for Defendants and
Appellants.
Law Office of Anthony Kornarens and Anthony Kornarens for Plaintiff and
Respondent.
The Independent Wholesale Sales Representatives Contractual Relations
Act of 1990 (the Act) was created to protect sales representatives who receive
commissions from, but are not employed by, a manufacturer. (Civ. Code, § 1738.10
et seq.)1 The Act requires manufacturers to enter into written contracts with their sales
representatives to provide “security and clarify the contractual relations” between the
parties. (§ 1738.10.) In this case, Peter Reilly agreed to use his experience and
connections in the high-tech electronic industry to help grow Inquest Technology, Inc.
(Inquest), owned by David Singhal and Pradeep Sethia (referred collectively and in the
singular as Inquest, unless the context indicates otherwise). Reilly prepared a written
document outlining his business relationship with Inquest, which included his
understanding he would receive 50 percent of the net profits from all sales resulting from
his efforts and contacts. The parties did not execute this document as a written contract,
but the jury ultimately determined Inquest accepted the terms due to Inquest‟s owners‟
conduct.
The jury entered a general verdict in favor of Reilly, awarding him
$2,065,702 for owed commissions. It also determined, by a special findings verdict, that
Inquest, Singhal, and Sethia violated the terms of the Act by willfully failing to provide
Reilly with a written contract. Pursuant to the Act‟s penalty provisions, the trial court
awarded Reilly treble damages. On appeal, Inquest maintains the court erroneously
concluded the Act applied and there was insufficient evidence to support the jury‟s
verdict and damage award. We find these arguments lack merit, and we affirm the
judgment.
I
Over the course of his career, Reilly worked for several technology
businesses and gained experience in electronics and industrial manufacturing and
1 All further statutory references are to the Civil Code.
2
operations. In 1990, Triconex hired Reilly as vice president of operations and vice
president of manufacturing. Triconex manufactures safety and control systems for oil,
gas, chemical, and nuclear industries. Triconex is a division of Invensys, a world-wide
technology manufacturer.
At the time, Singhal and Sethia jointly owned a different company called
American Imex, and they supplied printed wiring boards made in India. One of their
customers was Cal Quality, who resold parts to Triconex. However, Triconex did not
buy circuit boards directly from American Imex.
In 1999, Reilly retired from his position at Triconex. During his
employment, Reilly claimed to have developed “extensive contacts” in the industry. That
same year, Singhal and Sethia converted American Imex into a corporation called
Inquest, to sell electronic parts and components manufactured in China rather than India.
The parts included printed wiring boards, spines (sheet metal used to enclose electronic
equipment), and chassis (a cabinet used to hold spines).
Reilly and Singhal were long-time friends, and they discussed having
Reilly help them expand their business. Reilly offered to provide Inquest with his
expertise and contacts in the industry to help bring in business, including his well-
established connection with his former employer Triconex/Invensys. The parties
understood Inquest would have to satisfy certain requirements before being approved as a
Triconex vendor, and after that, sales with Triconex would grow.
In September 2003, Reilly put in writing the terms of the parties‟ verbal
agreements and negotiations. The document stated, in relevant part, the following pact:
“It is agreed that [Reilly‟s] extensive experience in the electronics and
[i]ndustrial manufacturing segments together with his contacts in the industry could be
beneficial in helping to grow the business of [Singhal and Sethia] (namely Inquest . . .).
“It is also agreed that [Singhal and Sethia] have put together a very useful
and sound company (Inquest . . .), which is poised for expansion based on utilization of
3
the low cost manufacturing opportunities presently available in China and other Asian
countries. [Singhal and Sethia] have established many useful contacts in this arena and
are presently trading with those contacts on an ongoing basis.
“In [Reilly‟s] opinion it is essential[] for a company that is extolling the
benefits of global manufacturing capabilities, to have an „Internet International
Presence[.‟] Therefore, one of his first tasks will be to establish a website for the
company. As this will be a company asset, [Singhal, Sethia, and Reilly] will establish a
reasonable cost for this that the company can afford.
“[Singhal, Sethia, and Reilly] desire that the skills and capabilities of each
of themselves be applied to growing the business . . . . [¶] . . . As many things could
change over the next twelve months it is decided not to change the structure of the
company at this time. [Reilly] will be employed by the company and given the title of
„Vice President of Business Development[.‟] He [will] be remunerated on a commission
only basis as agreed to in this document in paragraphs 7 and 10.”
The two paragraphs describing the payment of commissions provided as
follows: Paragraph 7 stated, “It is agreed that any jobs, orders or contacts that [Reilly]
brings to the company that result in orders being placed with the company or [Singhal‟s
or Sethia‟s] entities, then the profits from these activities will be shared equally with
[Reilly]. That means that the company or entity [will] get 50 [percent] of the profit
before [t]ax and [Reilly will] get 50 [percent] of the profit before [t]ax. Each entity will
be responsible for [its] own tax liabilities.”
And paragraph 10 provided, “It is agreed that any inquiry or order placed
with company through the website or from information on the website, the profits from
these projects will be shared 60 [percent] for the company and 40 [percent] to [Reilly],
unless it is from an existing customer that has been identified by [Singhal or Sethia] prior
to the inquiry, to be outside this agreement.”
4
In addition, the parties agreed Reilly would be given a desk and telephone
at the Inquest office. Reilly agreed to provide his own computer that would be linked to
the “Internet and [Singhal and Sethia].” The agreement stated that to assure fairness, the
costs involved in producing the products must be disclosed, and freight costs incurred by
the company would be considered to project expenses added to the “cost of the project
before profits are calculated.”
The agreement ended with the following statements: (1) “These activities
will start as soon as [the parties] are in agreement. Each person will be responsible for
his own allocation of time to this project[;]” and (2) “A discussion needs to take place
regarding what happens if the company becomes very successful as a result of [Reilly‟s]
activities. This discussion will determine how [Reilly] can be adequately rewarded if
such an event occurs.”
The parties disputed whether the terms of the agreement were accepted.
Reilly asserted that based on his discussions with Singhal and Sethia, he drafted the
document so the parties could have further discussions about it and determine if they
were in agreement. He met with Singhal and Sethia, he provided them with a copy of the
document, and he read every paragraph out loud. After reading each paragraph he would
pause and ask, “Okay?” He recalled neither Singhal nor Sethia asked questions or
objected to his statements. After reading the entire document to Singhal and Sethia,
Reilly asked, “Are we all agreed?” and both parties stated, “Yes,” and shook hands.
On the other hand, Singhal and Sethia asserted they did not agree to the
terms Reilly presented. Singhal recalled he believed the “50/50” split of profits was too
much and he told Reilly he would have to perform before the company committed to the
terms. Sethia asserted he was not present at the meeting and did not see the document
until many years later (in 2009).
After the meeting, Reilly began working on getting Inquest some customers
such as Triconex. In May 2004, he obtained vendor approval from Triconex. He also
5
secured two orders: (1) $90,536 for blanks and spines; and (2) $12,500 for tooling of the
spines.
Inquest paid Reilly a series of “advances” in increments of $1,000 and
$1,500 checks. Inquest advised Reilly they were not able to provide him an accounting.
In August 2004, Triconex/Invensys began using an online bidding system
to acquire spines. Reilly submitted a bid on behalf of Inquest, but it was not successful.
A few months later, Reilly moved to Visalia where he began working for a different
company. Reilly stated he did not seek any other purchase orders for Inquest, stating it
was not his job.
Inquest did not receive any more orders from Triconex for approximately
one year. However in June 2005, Triconex asked Inquest to bid on five printed circuit
boards. In March 2006, Inquest sent Reilly an e-mail, formally ending their relationship
(and backdating the date of termination to July 1, 2005).
In December 2006, Singhal and Sethia finally provided Reilly with an
accounting of the amounts Inquest owed him. They paid him $5,348.48 and wrote on the
memo line of the check, “FINAL SETTLEMENT.” This sum brought Reilly‟s total
commission to $14,348.48.
Reilly believed this was not a final payment and repeatedly asked for an
accounting and commissions owed on later profits due to Inquest‟s ongoing sales with
Triconex and Reilly‟s other contacts. For the next two years, Reilly unsuccessfully tried
to meet with Singhal and Sethia, and he also e-mailed Singhal to ask for more money. In
September 2008, Singhal sent Reilly $1,500 and wrote in the memo line, “consulting
fee.”
Because this sum was less than Reilly expected for his ongoing
commissions resulting from sales to Triconex, Reilly contacted a lawyer and filed a
lawsuit in December 2009. The operative first amended complaint alleged claims for:
(1) breach of contract; (2) breach of implied in fact contract; (3) breach of the covenant of
6
good faith and fair dealing; (4) conversion; (5) constructive trust; (6) statutory unfair
competition; (7) common counts; (8) accounting; (9) declaratory relief; and (10) violation
of the Act. The gravamen of the lawsuit was Reilly‟s belief the parties agreed he would
be compensated for 50 percent of the net profits from continuing sales resulting from his
Triconex contacts and efforts on behalf of Inquest.
Reilly filed a motion for summary adjudication about whether Inquest had a
duty under the Act to enter a written contract with him. Inquest did not oppose the
motion. The court granted it, concluding Inquest was a manufacturer subject to the duties
outlined in the Act.
After a lengthy trial, the jury found in favor of Reilly and assessed
$2,065,702 for damages. The jury determined Inquest also willfully failed to comply
with the Act when it did not provide Reilly with a signed contract containing all the terms
required by the Act. As mandated by the Act, the trial court trebled the damages.
Thereafter, the court concluded Singhal and Sethia were alter egos for the
corporation. It ruled Inquests $6,197,106 trebled liability applied to Singhal and Sethia
individually and entered judgment against them. The owners later filed Chapter 11
bankruptcy petitions. Inquest also petitioned for bankruptcy and due to the automatic
stay, judgment was not entered against it until May 15, 2012.2
II
A. Summary Adjudication
Reilly‟s 10th cause of action alleged Inquest violated the Act by failing to:
(1) enter into a written contract with him; (2) provide him with a signed copy of the
contract; (3) pay commissions; and (4) provide the required written information and
documentation with the commission payments. Before trial, Reilly filed a motion for
2 We treat Inquest‟s notice of appeal filed after the superior court entered the
jury verdict, but before it rendered judgment, as filed immediately after entry of
judgment. (Cal. Rules of Court, rule, 8.104(e).)
7
summary adjudication regarding whether Inquest had a duty to enter into a written
contract with him as described by the Act. (§ 1738.13.) Relying on his own declaration
and Inquest‟s responses during discovery to requests for admissions, Reilly asserted he
was an independent sales representative and Inquest was a wholesale manufacturer within
the meaning of the Act.
Inquest did not oppose the motion and the court granted it, concluding
Inquest owed a duty, as a matter of law, to enter into a written contract as mandated by
the Act. Necessarily implied in this ruling was the legal determination the Act governed
the business relationship between Reilly and Inquest.
Before we begin our analysis, some background information about the Act
is instructive and helpful. The Legislature enacted this statutory scheme based on its
determination “independent wholesale sales representatives are a key ingredient to the
California economy” and there was a need to provide “wholesale sales representatives
[who] spend many hours developing their territory in order to properly market their
products” with “unique protection from unjust termination of the territorial market areas.”
(§ 1738.10.) The Legislature expressed it was its intent “in enacting this act to provide
security and clarify the contractual relations between manufacturers and their
nonemployee sales representatives.” (Ibid.) A manufacturer found to be in violation of
either of these terms of the Act, “shall be liable to the sales representative in a civil action
for treble the damages proved at trial.” (§ 1738.15.)
To insure the necessary clarity in contractual relations, the statutory scheme
provides that whenever a manufacturer is engaged in a business deal with a wholesale
sales representative, who is not an employee, there is a duty to enter a written contract
containing information relating to how commissions will be calculated and details
regarding the assigned territory. (§ 1738.13, subd. (b)(1)-(5).) In addition, the
manufacturer has a duty to provide documentation when it makes commission payments,
such as an accounting of the orders and how the commission was calculated. (Ibid.)
8
In short, the Act was intended to protect independent contractors who
facilitate the relationship between manufacturers and buyers of wholesale products. For
Reilly to prevail on his summary adjudication motion seeking application of the Act‟s
protections, he needed to prove: (1) Reilly was a wholesale sales representative protected
by the Act; and (2) Inquest was a manufacturer producing a wholesale product falling
within the meaning of the Act. The parties agree the evidence in this case was
undisputed and application of the Act is a question of law this court must review de novo.
(Intel Corp. v. Hamidi (2003) 30 Cal.4th 1342, 1348.)
Turning to the first element, we conclude Reilly was a wholesale sales
representative. Section 1738.12, subdivision (e), defines “„[w]holesale sales
representative‟” as “any person who contracts with a manufacturer, jobber, or distributor
for the purpose of soliciting wholesale orders, is compensated, in whole or part, by
commission, but shall not include one who places orders or purchases exclusively for his
own account for resale and shall not include one who sells or takes orders for the direct
sale of products to the ultimate consumer.”
There was undisputed evidence supporting the first three factors that Reilly
(1) contracted with a manufacturer, (2) solicited wholesale orders, and (3) was
compensated by commission. To support his motion, Reilly submitted a declaration and
stated he contracted with Inquest to “make calls to attempt to obtain business” and solicit
wholesale orders from customers and contacts such as Triconex. Inquest does not dispute
it hired Reilly for this purpose and agreed to pay him a commission.
The statutory definition also contains two factors limiting the scope of sales
representatives covered by the Act: The wholesale sales representative must (1) not place
orders for his own account for resale; nor (2) sell or take orders from “the ultimate
consumer.” (§ 1738.12, subd. (e).)
We recognize the phrase “ultimate consumer” is not specifically defined in
the Act and the parties dispute its meaning. Basic rules of statutory construction say we
9
“„must select the construction that comports most closely with the apparent intent of the
Legislature, with a view to promoting rather than defeating the general purpose of the
statute, and avoid an interpretation that would lead to absurd consequences.‟” (Wilcox v.
Birtwhistle (1999) 21 Cal.4th 973, 977-978 (Wilcox).) The stated purpose of the Act is to
protect independent contractors working to sell a manufacturer‟s wholesale products to a
buyer, who cannot be the “ultimate consumer.” Thus, clearly not all salespeople are
sheltered by the Act. The Legislature intended to safeguard only nonemployee
“middle-men” sales representatives dealing with wholesale goods.
“Wholesale” means “the sale of commodities in quantity usually for resale
(as by a retail merchant).” (“wholesale.” Merriam-Webster.com. 2013.
[as of June 20, 2013].)
Wholesale is generally understood to be the opposite of “[r]etail” which is “to sell in
small quantities directly to the ultimate consumer.” (“retail.” Merriam-Webster.com.
2013. [as of June 20, 2013].)
Stated another way, typically a wholesale manufacturer does not sell large quantities
directly to the consumer, i.e., the “one that utilizes economic goods.” (“consumer.”
Merriam-Webster.com. 2013.
[as of June 20, 2013].) Accordingly, the Act‟s use of the term “ultimate consumer”
recognizes wholesale sales representatives do not sell small quantities to the persons
utilizing the goods but rather sell commodities in a quantity appropriate for resale by a
retail store or other larger scale middle-man buyer.
Recognizing this distinction between wholesale and retail, the Legislature
designed the Act to specifically exclude from coverage salespersons and retailers
purchasing manufactured wholesale products for themselves to later resell to the public
(the ultimate consumer) for a profit. To achieve this stated goal, the Legislature
expressly excluded a salesperson who “places orders or purchases exclusively for his own
10
account for resale” or who sells or takes orders from “the ultimate consumer.”
(§ 1738.12, subd. (e).)
In this case, Reilly attested he never ordered Inquest‟s electronic
components “for his own account for resale.” (§ 1738.12, subd. (e).) Indeed, Inquest
does not allege Reilly ever attempted to purchase anything for himself or attempted to
resell for his own profit any parts or electronic equipment. Likewise, there is also no
evidence suggesting Reilly sold or took orders “for the direct sale of products to the
ultimate consumer.” (§ 1738.12, subd. (e).) To the contrary, Reilly solicited business
from Triconex, a manufacturer who used Inquest‟s parts to make other products. Inquest
admitted its electronic parts were not intended to be sold to members of the public, rather
they are “intended to be incorporated into other products that are then sold to end-users.”
We conclude the evidence established as a matter of law Reilly was a wholesale sales
representative as defined by the Act.
For the Act to apply, Reilly also had to establish Inquest was a
manufacturer as defined by the Act. Section 1738.12, subdivision (a), defines
“[m]anufacturer” as “any organization engaged in the business of producing, assembling,
mining, weaving, importing or by any other method of fabrication, a product tangible or
intangible, intended for resale to, or use by the consumers of this state.”
On appeal, Inquest refers to itself as a manufacturer and admits it was
engaged in a manufacturer-to-manufacturer relationship with Triconex. The statutory
definition broadly includes importers of products “tangible or intangible.” (§ 1738.12,
subd. (a).) And there is no dispute Inquest imports electronic parts and components,
which certainly are tangible products.
However, Inquest disputes whether it is a manufacturer subject to the Act,
stating, “the Act does not apply to the sale of every product, but only to products that are
directly purchased or used by „consumers.‟” It argues there is “nothing in the language of
the [Act] that even remotely suggests it was designed to apply to sales of components
11
between manufacturers.” In support of this interpretation, Inquest focuses on the last
phrase of the definition, requiring the manufacturer produce a “product . . . intended for
resale to, or use by the consumers of this state.” (§ 1738.12, subd. (a).) It reads this
language to mean the Act applies only to manufacturers of finished goods sold for
immediate public use, rather than the sale of parts incorporated by the buyer into other
products to later be resold.
To support its interpretation, Inquest refers to common and legal definitions
of the term “consumer,” similar to the one we used above in our discussion of wholesale
sales representatives. To briefly summarize, a “consumer” generally is a person who
buys or uses goods or services with no intention of resale. Inquest argues, “Had the
Legislature intended the Act to include sales between manufacturers, it would not have
used the word „consumer‟” and it is a mistake to interpret the word “consumer” to
include manufacturers. We conclude Inquest misconstrues the statutory language and the
Legislature‟s intent.
As stated earlier, in interpreting a statute we must “„ascertain the intent of
the Legislature so as to effectuate the purpose of the law.‟ [Citation.] The words of the
statute are the starting point. . . . „If the language is clear and unambiguous there is no
need for construction, nor is it necessary to resort to indicia of the intent of the
Legislature . . . .‟ [Citation.] If the language permits more than one reasonable
interpretation, however, the court looks „to a variety of extrinsic aids, including the
ostensible objects to be achieved, the evils to be remedied, the legislative history, public
policy, contemporaneous administrative construction, and the statutory scheme of which
the statute is a part.‟ [Citation.] After considering these extrinsic aids, we „must select
the construction that comports most closely with the apparent intent of the Legislature,
with a view to promoting rather than defeating the general purpose of the statute, and
avoid an interpretation that would lead to absurd consequences.‟ [Citation.]” (Wilcox,
supra, 21 Cal.4th at pp. 977-978.)
12
We appreciate section 1738.12, subdivision (a), uses the term “consumers,”
however, we do not interpret the statutory definition as requiring the manufacturer to sell
a finished product directly to the ultimate consumer. First, this interpretation would be at
odds with the Legislature‟s intent to protect wholesale, as opposed to retail, sales
representatives. Second, such an interpretation would directly contradict
subdivision (e)‟s definition of a wholesale sale representative, expressly excluding
anyone who “sells or takes orders for the direct sale of products to the ultimate
consumer.” As noted above, if Reilly sold or took orders from the “ultimate consumer”
The Act would not protect him. Thus, it would be absurd to interpret the definition of
“manufacturers” as being limited to those who sell directly to the “ultimate consumer.”
Such an interpretation would effectively leave no one protected under the Act. “„“It is a
settled principle of statutory interpretation that language of a statute should not be given a
literal meaning if doing so would result in absurd consequences which the Legislature did
not intend.” [Citations.]‟ [Citations.]” (Baker v. American Horticulture Supply, Inc.
(2010) 186 Cal.App.4th 1059, 1073 (Baker).) The definition of manufacturer must be
read in the context of the entire statute, created to protect nonemployee wholesale sales
representatives who are not selling to the ultimate consumer.
For this reason, we conclude the phrase “intended for resale to, or use by
the consumers of this state” (§ 1738.12, subd. (a)), must be interpreted to simply require
an intention by the manufacturer that its product will eventually be resold or used by a
California consumer. The phrase does not require the manufacturer harbor both an
intention and ability to directly sell to consumers in California. The limiting factor
created by this language is the intent to sell to consumers within this state, as opposed to
consumers elsewhere.
The Legislature did not articulate what policy would be promoted by
excluding manufacturers producing or importing products intended for eventual resale or
use by out-of-state consumers. However, there is support for this interpretation
13
elsewhere in the statutory scheme. For example, section 1738.13, subdivision (a),
mandates that a manufacturer must enter into a written contract when it uses the services
of a wholesale sales representative “to solicit wholesale orders at least partially within
this state . . . .” (Italics added.) Moreover, section 1738.10, containing the legislative
findings and intent, announces the Legislature enacted this statutory scheme based on its
determination “independent wholesale sales representatives are a key ingredient to the
California economy” and sales representatives must be “provided unique protection from
unjust termination of the territorial market areas,” presumably in California. (Ibid;
italics added.) And finally, section 1738.14 mandates a manufacturer “who is not a
resident of this state, and who enters into a contract regulated by this chapter is deemed to
be doing business in this state for purposes of personal jurisdiction.” (Italics added.)
These provisions, like the definition of manufacturer, limit the Act‟s scope to cover
manufacturers hiring salespersons to soliciting wholesale orders within California, having
territories “at least partially” within our state. Section 1738.12 simply provides the added
requirement the manufacturer intend for its products to be eventually used or resold to
California consumers.
Alternatively, Inquest asserts for the first time in its reply brief that the
word “product” necessary means a finished retail product or consumer goods because the
Act does not use the words “components” or “parts.” This argument is a slight variation
of its prior argument seeking to limit the Act‟s scope to only manufacturers selling
products to the “ultimate consumer.” The difference is Inquest now asks us to clarify the
Act by adding words to the statute to limit the scope of possible “products,” and therefore
also, the manufacturers covered by the statutory scheme. We find no reason to alter the
words of the statute because the current wording effectively achieves the Act‟s intent.
We find Baker, supra, 186 Cal.App.4th 1059, instructive. The court agreed
with appellant‟s contention proof of a manufacturer‟s “willfulness” was not a prerequisite
to prevailing under the Act, but it was an element required for an award of treble the
14
damages. (Id. at p. 1072.) It rejected “respondent‟s theory that the Legislature intended
to provide a monetary remedy only for willful violations of the statutory scheme, leaving
nonwillful violations without any remedy whatsoever. Respondent‟s theory is predicated
on a literal reading of the statutory scheme . . . . This lacuna requires us to construe the
statutory scheme. We are „loathe‟ to „add‟ language to the statutory scheme except in the
extreme case. [Citation.] This is an extreme case and we explain why this legislative
drafting omission must be corrected.” (Id. at pp. 1072-1073.)
The Baker court reasoned, “A sales representative who has suffered
damages as a result of a nonwillful violation of the Act should not be precluded from
obtaining any recovery under the Act. Surely, the Legislature did not intend to pass a
toothless statute. Otherwise, if a sales representative sued his manufacturer but was able
to prove only a nonwillful violation, he would be required to pay the violator‟s
reasonable attorney fees and costs since the violator would be the prevailing party
pursuant to section 1738.16. This is the antithesis of „unique protection‟ for the intended
salesperson. (§ 1738.10.) The Legislature did not intend such an absurd result that
would have a chilling effect on the willingness of sales representatives to sue for damages
under the Act.” (Baker, supra, 186 Cal.App.4th at p. 1073, fn. omitted.) The court noted
neither the legislative intent nor history gave any indication the Act intended to exclude a
nonwillful violation. (Id. at p. 1074.) To the contrary, the Act was enacted to broadly
protect wholesale sales representatives and thus expanding the Act to achieve this
objective is consistent with the Act‟s intent.
The case before us is not an extreme situation, calling for the addition of
language limiting the number of manufacturers covered by the Act. To the contrary, if
we were to insert language limiting the types of wholesale products we would be
violating the clear intent of the statute and creating an absurd result. There is simply no
policy reason to hold the Act applies only to manufacturers importing a finished product
made exclusively for the ultimate consumers and at the same time exclude salespeople
15
hired to sell products to the ultimate consumers. (§ 1738.12, subd. (e) [definition of
wholesale sales representatives].) The Act was enacted and specifically designed to
protect the business of those selling wholesale not retail goods.
Moreover, we note the Legislature enacted a very broadly worded
definition to include any manufacturer in the business of “producing, assembling, mining,
weaving, importing, or . . . any other method of fabrication.” (§ 1738.12, subd. (a).) The
kinds of businesses included in the Act appear limitless, and largely include “product[s]
tangible or intangible.” (Ibid.) There is nothing to suggest the Legislature intended to
narrow the scope of possible products to exclude parts or components. The only stated
limitation is that the manufacturer must solicit wholesale orders in California and intend
for its goods to be later resold or used by a California consumer, promoting California‟s
economy.
In summary, we conclude the Act applied to Inquest‟s use of a wholesale
sales representative to solicit orders of large quantities of electric parts and components
from a buyer who was not the ultimate consumer. The trial court properly granted the
summary adjudication motion.
B. Waiver
Although we have concluded the summary adjudication ruling was correct,
we also note Reilly correctly asserted Inquest later waived its right to challenge the ruling
by implementing a litigation strategy at trial that whole heartedly adopted the ruling. 3
3 Reilly suggests the issue of whether the Act applied was waived due to
Inquest‟s failure to oppose the summary adjudication motion. Not so. To prevail on the
motion, the burden fell on Reilly to submit evidence sufficient to establish each element
necessary to sustain a judgment in his favor. “While subdivision (b) of section 437c
allows the court, in its discretion, to grant summary judgment if the opposing party fails
to file a proper separate statement, this provision does not authorize doing so without first
determining that the moving party has met its initial burden of proof.” (Thatcher v.
Lucky Stores, Inc. (2000) 79 Cal.App.4th 1081, 1086.)
16
Inquest was fully aware of the legal issue at stake and the potential consequences if the
Act was found to apply by the court ruling on the summary adjudication motion. The
strategy for Inquest‟s silence with respect to the motion became clear 10 days before trial,
when it filed a motion in limine that not only adopted, but championed the court‟s ruling.
The motion requested an order excluding evidence of a written contract, arguing the
court, in making the summary adjudication ruling, necessarily also “established and
affirmed” the absence of any written contract between Inquest and Reilly.
Although Inquest lost on this motion, it proceeded by adhering to a trial
strategy that accepted application of the Act. Nowhere in the record did Inquest object to
application of the Act or suggest to the trial court that its ruling on the summary
adjudication motion was erroneous. Rather, during closing argument, Inquest‟s counsel
argued Reilly was a salesman under the Act, merely entitled to commissions on the
orders placed while he was actively working for Inquest. Inquest jointly submitted three
specially drafted jury instructions regarding the elements of Reilly‟s 10th cause of action
regarding violation of the Act. Moreover, the morning after closing arguments, Inquest
and Reilly submitted a joint stipulation for an additional instruction asking the jury to
make a special finding about application of the statute of limitations to the cause of action
relating to the Act.
Inquest cannot now complain the cause of action and treble damages are
objectionable on the theory the Act does not apply to these parties and this dispute. “The
doctrine of invited error bars an appellant from attacking a verdict that resulted from a
jury instruction given at the appellant‟s request.” (Stevens v. Owens-Corning Fiberglas
Corp. (1996) 49 Cal.App.4th 1645, 1653 [waived issue of whether lost pension benefits
recoverable by stipulating to instruction requiring jury to assess such damages].) “„Under
the doctrine of invited error, where a party, by his conduct, induces the commission of an
error, he is estopped from asserting it as grounds for reversal. [Citations.] Similarly an
appellant may waive his right to attack error by expressly or impliedly agreeing at trial to
17
the ruling or procedure objected to on appeal.‟ [Citations.] . . . [¶] . . . Absent unusual
circumstances in spite of this risk, appellate courts generally are unwilling to second
guess the tactical choices made by counsel during trial. Thus where a deliberate trial
strategy results in an outcome disappointing to the advocate, the lawyer may not use that
tactical decision as the basis to claim prejudicial error.” (Mesecher v. County of San
Diego (1992) 9 Cal.App.4th 1677, 1685-1686, italics added [jointly drafted special
verdict form resulted in inconsistent verdict]; Gherman v. Colburn (1977) 72 Cal.App.3d
544, 567 [jointly requested legally incorrect jury instructions].)
Inquest‟s appeal seeks reversal of the jury‟s verdict based on the theory it
was improperly “precluded from arguing that it was not subject to the Act or from taking
steps to ensure that this claim was not presented to the jury.” (Italics added.) Inquest
complains the court “led the jury to erroneously conclude that Inquest violated a statute
that never applied to it and meant that the trial court improperly awarded treble damages
to Reilly . . . . Therefore, the judgment, as well as the award of treble damages, should be
vacated.”
We have reviewed the record and find Inquest never objected to application
of the Act or did anything to suggest the Act did not apply. It was never “precluded” by
the trial court from arguing it was not subject to the Act because the trial court was
completely unaware it was a disputed issue. Inquest made the tactical decision to go
along with the court‟s decision it had a duty under the Act, it made arguments before and
during trial indicating it believed the parties were covered by the Act, and it submitted
jury instructions permitting the jury to reach a verdict Inquest violated the Act and the
violation was willful (warranting treble damages). In short, we will not second guess the
tactical choices made by counsel in this case. After embracing and using the summary
adjudication ruling regarding the Act before and after trial, Inquest waived its argument
this court must overturn the pretrial ruling as a means to reverse the jury‟s final verdict.
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It would be inherently unfair to allow a party to raise this issue for the first time on appeal
after inviting the alleged error.
C. Challenges to the Jury’s Verdict
Inquest insists that because the jury awarded Reilly over $2 million in
damages, “we must assume the jury concluded that the September 22 document . . .
reflected the parties‟ contract . . . [and] must also have concluded Reilly was entitled to
commissions indefinitely.” Inquest contends the agreement cannot be interpreted as
“creating a perpetual right to commissions” and this court, applying a de novo standard of
review, should interpret the contract as terminable at will. Inquest also cites cases for the
proposition that “a contract will not be construed to call for perpetual performance unless
the language of the contract unequivocally compels such construction.” (Zimco
Restaurants, Inc. v. Bartenders & Culinary Workers Union (1958) 165 Cal.App.2d 235,
238; Consolidated Theatres, Inc. v. Theatrical Stage Employees Union (1968) 69 Cal.2d
713, 727-728.) Inquest‟s authorities, while supporting the proposition for which they are
asserted, are not on point. The agreement does not require perpetual performance.
Rather, as we will explain, the right to receive commissions was limited to profits that
“resulted from” Reilly‟s activities. A causal connection was required and the obligation
did not necessarily last indefinitely.
We begin by restating the controlling principles of contract interpretation:
“The basic goal of contract interpretation is to give effect to the parties‟ mutual intent at
the time of contracting. (§ 1636; Bank of the West v. Superior Court (1992) 2 Cal.4th
1254, 1264.) When a contract is reduced to writing, the parties‟ intention is determined
from the writing alone, if possible. (§ 1639.) „The words of a contract are to be
understood in their ordinary and popular sense.‟ (§ 1644; see also Lloyd’s Underwriters
v. Craig & Rush, Inc. (1994) 26 Cal.App.4th 1194, 1197-1198 [„We interpret the intent
and scope of the agreement by focusing on the usual and ordinary meaning of the
language used and the circumstances under which the agreement was made‟].)”
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(Founding Members of the Newport Beach Country Club v. Newport Beach Country
Club, Inc. (2003) 109 Cal.App.4th 944, 955 (Founding Members).)
“California recognizes the objective theory of contracts [citation], under
which „[i]t is the objective intent, as evidenced by the words of the contract, rather than
the subjective intent of one of the parties, that controls interpretation‟ [citation]. The
parties‟ undisclosed intent or understanding is irrelevant to contract interpretation.
[Citations.]” (Founding Members, supra, 109 Cal.App.4th at p. 956.)
“The ultimate construction placed on the contract might call for different
standards of review. When no extrinsic evidence is introduced, or when the competent
extrinsic evidence is not in conflict, the appellate court independently construes the
contract. [Citations.] When the competent extrinsic evidence is in conflict, and thus
requires resolution of credibility issues, any reasonable construction will be upheld if it is
supported by substantial evidence. [Citations.]” (Founding Members, supra,
109 Cal.App.4th at pp. 955-956.)
In this case, because the interpretation of the contractual language turned on
a question of the credibility of conflicting extrinsic evidence, the trial court properly
realized interpretation was the jury‟s responsibility as the trier of fact. (Morey v.
Vannucci (1998) 64 Cal.App.4th 904, 912-913.) The jury was given instructions on the
above mentioned principles of contract interpretation. As will be explained, we reject
Inquest‟s argument the jury‟s interpretation of the contract gave Reilly a lifetime of
commission checks and his contention the jury‟s verdict was unsupported by the contract
terms and basic principles of contract interpretation.
“We turn first to the language of the contract itself. „The language of a
contract is to govern its interpretation, if the language is clear and explicit, and does not
involve an absurdity.‟ (§ 1638.)” (Founding Members, supra, 109 Cal.App.4th at
p. 956.) Paragraph 7 stated, “It is agreed that any jobs, orders or contacts that [Reilly]
brings to the company that result in orders being placed with the company or [Singhal‟s
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or Sethia‟s] entities, then the profits from those activities will be shared equally with
[Reilly].” (Italics added.) The provision clearly calls for 50 percent of the profits from
all sales that are a “result” of Reilly‟s “activities.” The agreement specified Reilly‟s
“activities” included not only securing specific orders for merchandise but also bringing
“jobs and contacts” to Inquest.
By their plain meaning, the terms “jobs, orders, and contacts” are not
synonymous. The profits anticipated from a single order would reasonably be understood
to be different from the ongoing long-term profits following the introduction of a new
contact or job resulting in multiple orders. The duration of Reilly‟s commissions was
limited to the time profits arose as a direct result of Reilly‟s activities, as opposed to
when a returning customer makes an order for products due to other factors (such as
customer satisfaction or product quality). The agreement simply did not create a
perpetual right to commissions.
As applied to this case, Reilly had preexisting contacts with Triconex, and
he used his contacts and relationships with Triconex‟s representatives to secure a new
customer for Inquest. The agreement stated Reilly was entitled to commissions for the
period of time Triconex‟s orders were a result of Reilly‟s involvement and activities in
getting Triconex as a customer. After Reilly left Inquest, the business relationship
between Inquest and Triconex continued to evolve and solidify. However, with the
passage of more time, Triconex‟s orders would eventually generate independently from
Reilly‟s earlier involvement. In recognition of this fact, Reilly only requested
commissions from Triconex‟s orders until 2015.
We note, Inquest‟s arguments at trial shows it plainly understood the
difference between commissions made from a specific order as opposed to long-term
profits generated from the introduction of a bigger job or customer. On appeal, Inquest
does not argue the terms “jobs, orders, and contacts” are synonymous or ambiguous.
Rather, at trial and on appeal, Inquest makes a factual argument there was no evidence
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Reilly was anything more than an ordinary salesperson, hired to get specific orders from
Triconex and, therefore, his right to commissions ended with his separation from the
company. Inquest also asserts Reilly asked for the title of vice president of business
marketing simply to help him gain better access to potential customers and not because
he expected a bigger stake in the company‟s long-term profits. In essence, Inquest‟s
theory at trial was Reilly was not really in a position to bring in “jobs” or “contacts” for
which longer-term commissions would be expected. However, this sufficiency of the
evidence argument is simply not relevant to the issue of whether the jury properly
interpreted the contract.
By its plain terms, the agreement created a business relationship
contemplating much more than the hiring of an ordinary salesman. The agreement stated
Reilly was expected to grow the company based on his experience and contacts in the
business. As in a partnership, he was promised 50 percent of the profits from all the
business he generated, and he was promised a greater reward in the future if things went
well. Indeed, it was suggested the 50 percent commission and employment as vice
president was only the starting point in the parties‟ business relationship. The parties
anticipated the structure of the company could change if Reilly grew the business.
Specifically, the document stated, “As many things could change over the next [12]
months it is decided not to change the structure of the company at this time. [Reilly] will
be employed by the company and given the title of „Vice President of Business
Development[‟].” (Italics added.) Additionally, the parties contemplated giving Reilly
additional benefits if he was successful, stating, “A discussion needs to take place
regarding what happens if the company becomes very successful as a result of [Reilly‟s]
activities. This discussion will determine how [Reilly] can be adequately rewarded if
such an event occurs.” The jury properly interpreted the contract as providing a
commission for not only simple one-time orders, but also for profits generated by longer
term jobs and ongoing renewable orders from new customers.
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Finally, we note the jury‟s award of approximately $2 million, contrary to
Inquest‟s argument, was not based on an interpretation giving Reilly commissions
indefinitely for the rest of his life. Reilly‟s expert, Thomas Neches, calculated Inquest
owed Reilly $2,063,702 based on a formula incorporating profits generated from sales to
Triconex/Invensys from 2007 to 2015. He analyzed checks, printouts from accounting
software, purchase orders, invoices, and quotes to determine the sales generated each
year from 2007 to May 2011. Based on this historical data, Neches conservatively
estimated what the sales would be each year from 2011 to 2015. From these sales
figures, he then calculated a 27.5 percent profit margin and determined Reilly was
entitled to half of that amount. When asked why he stopped at 2015, Neches explained,
“I don‟t really expect that the sales will simply vanish starting in 2016[] [b]ut the further
away you get in the future, the more uncertain it becomes. And simply[,] to be simple
and conservative[,] and because it‟s commonly done that you‟ll project about five years, I
stopped it at 2015. [¶] In fact, the amount owed [to] . . . Reilly is understated.”
Moreover, it was reasonable for the jury to conclude Inquest understood its sales would
grow significantly if Reilly could bring in Triconex as a customer, because it offered to
pay 50 percent of the profits to reward the growth in the business. We conclude the
jury‟s interpretation of the agreement and its award of damages is well supported by the
record.
Alternatively, Inquest challenges the jury‟s verdict by arguing Reilly failed
to introduce extrinsic evidence to support a contract interpretation establishing Reilly
would receive commissions for the rest of his life. This argument fails for two reasons.
First, as stated above, the jury did not award damages based on a lifetime of
commissions. Second, extrinsic evidence is not relevant when the contract appears
unambiguous on its face. (See Pacific Gas & E. Co. v. G.W. Thomas Drayage etc. Co.
(1968) 69 Cal.2d 33, 37.) As noted earlier, Inquest does not contend the terms are
23
ambiguous. Thus, Reilly had no burden to produce extrinsic evidence to establish what
was plainly and expressly written in the agreement.
Within Inquest‟s argument about the lack of extrinsic evidence, it also
disputed whether Reilly‟s evidence supports the jury‟s verdict regarding the contract.
Specifically, it notes evidence of Reilly‟s subjective intent in drafting the contract, and
Inquest‟s payment of $1,500 after Reilly severed ties with Inquest, do not support an
interpretation Reilly was to receive commissions for the rest of his life. Inquest explains
there are other facts such as the “final settlement” notation on the final commission
check, which refute Reilly‟s interpretation of the contract. As noted above, such extrinsic
evidence is irrelevant because the contract terms appear unambiguous. And contrary to
Inquest‟s contention on appeal, we have no reason to speculate the jury relied on this
evidence instead of the plain language of the contract when determining the meaning of
its terms. After all, the jury was instructed, “You should assume that the parties intended
the words in their contract to have their usual and ordinary meaning . . .” and in deciding
the meaning of the words “you should consider the whole contract, not just isolated
parts.” The jury was also instructed it was their duty to decide the case based on the
instructions of law the court provided. There is nothing in the record suggesting the jury
did not follow the instructions as given.
D. Breach of Contract
Inquest asserts there was insufficient evidence to support the jury‟s finding
it breached the contract. Specifically, it claims there was insufficient evidence Reilly was
“[r]esponsible for [i]ntroducing Triconex to Inquest.” In addition, Inquest maintains
Reilly should not “be credited for future orders for which he had no involvement.”
Inquest contends it did not breach the contract by failing to pay commissions on profits
generated from sales to Triconex because there was insufficient evidence Reilly‟s
activities resulted in these sales. However, in raising a sufficiency of the evidence claim
on appeal, Inquest merely reargues the evidence favorable to its theory of the case, citing
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to evidence and drawing inferences showing: (1) Inquest already had a business
relationship with Triconex before Reilly started working for Inquest; (2) Triconex was
not Reilly‟s contact; (3) Reilly‟s action of reintroducing Triconex should not be the basis
for commissions; and (4) Reilly did not have any role in sales to Triconex for the years
2007 to 2015.
Because Inquest does not discuss the evidence supporting the jury‟s verdict,
its argument does not amount to anything more than inviting us to redecide the case.
This is not our standard of review. “Where there is conflicting evidence, or evidence
susceptible of conflicting inferences, the general rule is not to disturb the judgment. All
presumptions are in favor of the judgment. Trial judges and juries are the exclusive
judges of credibility and may disbelieve any witness. . . . [¶] . . . On appeal, the evidence
is considered in the light most favorable to respondent, giving the benefit of every
reasonable inference, and resolving all conflicts in support of the judgment. [Citation.]”
(Rivard v. Board of Pension Commissioners (1985) 164 Cal.App.3d 405, 412-413.)
Based on our review of the record, we conclude Reilly presented ample
evidence Triconex qualified as a new “contact” deserving of a commission. Reilly
testified he told Inquest one of the potential customers he would introduce to grow the
business was through his contacts with Triconex. There was no evidence Triconex was
purchasing products from Inquest before Reilly started working for them. To the
contrary, the agreement stated Reilly would not receive commissions from orders
originating from the Web site for any “existing customer that has been identified by
[Singhal or Sethia] prior to the inquiry, to be outside this agreement.” (Italics added.)
Reilly testified no one identified Triconex as a preexisting customer. And Singhal
admitted Inquest did not have a vendor number with Triconex before Reilly agreed to
help grow the business. Robert Rasmussen, a general manager at Triconex, testified the
company approves vendors for specific parts only. He explained the vendor approval
process was necessary before Triconex could place an order with Inquest. Rasmussen
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recalled Reilly contacted him in 2003, and stated he was representing Inquest and he
wanted to “introduce them as a potential supplier of some of [Triconex‟s] key
components, primarily sheet metal related, from sources in Asia.” He opined Reilly was
instrumental in getting Inquest approved as a Triconex vendor.
Reilly testified he contacted Triconex on behalf of Inquest, and worked to
get Triconex‟s product specifications, price quotes, and the necessary vendor approvals.
Once Reilly succeeded in getting a vendor number for Inquest, Triconex began making
orders. The parties understood the relationship between Inquest and Triconex was
“evergreen,” meaning Triconex gave vendors an “ongoing business relationship” and
vendors could expect orders would be regularly renewed. The jury could reasonably
infer from Inquest‟s payment of commissions on the initial orders that Triconex qualified
as a “contact” under the terms of its agreement with Reilly. Based on all the above, we
conclude there was substantial evidence Triconex was Reilly‟s “contact” and Inquest‟s
failure to pay commissions arising from Triconex‟s orders was a breach of contract.
Inquest also complains there was insufficient evidence Reilly should be
credited for Triconex‟s orders from 2007 to 2015. It asserts there was no evidence Reilly
had any role in sales to Triconex after Inquest terminated its relationship with Reilly in
2007. This argument is based on the faulty premise Inquest‟s duty to pay commissions
was limited to specific orders. As explained in more detail earlier in this opinion, the
commission provisions are broadly worded to awarded 50 percent of the profits for more
than just specific orders. The agreement also provided for longer-term commissions
arising from “contacts” Reilly brought to the company that resulted in bigger jobs and
evergreen orders. The jury could reasonably rely on Reilly‟s expert‟s calculations of
commissions ending in the year 2015. When asked why he stopped at 2015, Neches
explained, “I don‟t really expect that the sales will simply vanish starting in 2016[] [b]ut
the further away you get in the future, the more uncertain it becomes. And simply to be
simple and conservative and because it‟s commonly done that you‟ll project about five
26
years, I stopped it at 2015. [¶] In fact, the amount owed [to] . . . Reilly is understated.”
Based on the expert testimony and supporting evidence, we find no grounds to disturb the
judgment.
E. Other Claims
Inquest attacks Reilly‟s remaining causes of action based on the assumption
this court would rule in its favor and conclude (1) the court erred and Inquest was not
subject to the Act, and (2) the jury erred and Inquest did not breach the contract.
However, we have concluded the court and the jury were right. The jury entered a
general verdict in favor of Reilly and awarded damages consistent with the evidence and
instructions submitted on the contract claims. There is no need to address Reilly‟s other
causes of action. The judgment may be affirmed based on breach of contract liability.
F. The Damage Award
Inquest asserts there was insufficient evidence to support the jury‟s damage
award because it was erroneous for the jury to rely on Neches‟s calculations, which
included profits from not only Triconex, but also Reynosa and T&T. Without providing
citations to the record, Inquest describes Reynosa as a division of Invensys and T&T as
Triconex‟s subcontractor. It concludes Reilly had no role in bringing T&T to Inquest and
therefore sales to T&T should not have been included in Neches‟s calculations.
It is true that Neches written report includes profits from sales to Reynosa
and T&T (Exhibit 147, Schedule 1). Neches testified he compiled the data from checks
and accounting software printouts. Neches stated the first column his report
(Schedule 1), “shows which division of Triconex the sale was to, Triconex, T&T,
Reynosa.” This shows the expert determined T&T was similar in status to Reynosa and
both divisions should be included in the calculations. Inquest does not cite to any portion
of the record refuting the expert‟s conclusion and characterization of T&T. We need not
independently hunt for contrary evidence in the record. The jury properly considered
27
Neches‟s calculations that took into account profits arising from sales to Triconex, T&T,
and Reynosa.
III
The judgment is affirmed. Respondent shall recover his costs on appeal.
Respondent‟s motion to strike portions of appellant‟s appendix is denied.
O‟LEARY, P. J.
WE CONCUR:
MOORE, J.
IKOLA, J.
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