John E. McDonald Jr. v. Scitec, Inc.

MAINE SUPREME JUDICIAL COURT Reporter of Decisions
Decision: 2013 ME 59
Docket: BCD-12-269
Argued: April 10, 2013
Decided: May 30, 2013
Revised: June 20, 2013
Panel: SAUFLEY, C.J., and ALEXANDER, LEVY, SILVER, MEAD, GORMAN, and
JABAR, JJ.
JOHN E. McDONALD JR.
v.
SCITEC, INC., et al.*
MEAD, J.
[¶1] John E. McDonald Jr. appeals from a judgment entered in the Business
and Consumer Docket (Nivison, J.) in favor of Scitec, Inc., on McDonald’s
complaint alleging that Scitec continued to owe him commissions on sales that it
made to an established customer, a company known as Avaya, after Scitec
unilaterally terminated McDonald’s commission agreement. The court’s judgment
(1) denied McDonald’s motion, made pursuant to M.R. Civ. P. 50(b), for judgment
as a matter of law following a jury verdict in favor of Scitec on the issue of
whether Scitec was required to continue paying McDonald Avaya-derived
commissions after terminating the agreement; and (2) found in favor of Scitec on
McDonald’s statutory claim that commissions were due him pursuant to the Illinois
*
This opinion replaces McDonald v. Scitec, Inc., 2013 ME 52.
2
Sales Representative Act (ISRA), 820 Ill. Comp. Stat. Ann. §§ 120/0.01-3
(West, Westlaw through P.A. 98-7 of the 2013 Reg. Sess.). Scitec asserts that
McDonald’s right to commissions ended when it unilaterally terminated the
agreement.
[¶2] We conclude that the agreement unambiguously requires Scitec to
continue paying commissions to McDonald on sales it makes to Avaya for as long
as those sales continue, unless McDonald’s future conduct triggers one of the
explicit provisions in the agreement that allows Scitec to stop paying commissions.
For that reason, we must vacate the court’s order denying McDonald’s
M.R. Civ. P. 50(a) motion for judgment as a matter of law made at the close of the
evidence at trial.1
I. BACKGROUND
[¶3] The historical facts are not disputed. Scitec, Inc., founded by Dr. Bing
Sun in 1993 and owned solely by him, is a major supplier of hotel telephones. In
1
M.R. Civ. P. 50(a) provides, in part:
In an action tried to a jury, a motion for judgment as a matter of law on any claim may be
made at any time before submission of the case to the jury. . . . The court may grant the
motion as to any claim if the court determines that, viewing the evidence and all
reasonable inferences therefrom most favorably to the party opposing the motion, a jury
could not reasonably find for that party on an issue that under the substantive law is an
essential element of the claim.
3
April 2002, McDonald and Scitec2 entered into a commission agreement. Its
central provision specified that when Scitec sold its products to “contacts” that
McDonald introduced to Scitec and Scitec pre-approved, McDonald would be paid
a commission:
The Company shall pay McDonald an amount equal to five percent
(5%) of the product sales only . . . paid to the Company by the
Contacts, up to the gross amount of $5,000,000, paid to the Company
within the prior twelve month period. For all gross amounts over
$5,000,000 paid to the Company by the Contacts, within the prior
twelve-month period, the Company shall pay to McDonald four
percent (4%) of such amounts. . . . Payment for gross amounts paid to
the Company by any Contacts shall continue until the earlier of five
(5) years after this Agreement is terminated upon mutual agreement or
the Contact receives any amounts from a competitor of the Company
as the result of an introduction by McDonald to the competitor for a
product that McDonald has introduced for the Company.
A separate confidentiality provision also provided a condition pursuant to which
the Company’s obligation to pay McDonald would cease:
A violation of this Section [making certain information confidential]
shall give the Company the right to immediately terminate this
Agreement with McDonald and to make no payment on any sale made
after the termination of this Agreement.
[¶4] Scitec does not contend that McDonald violated either the noncompete
or confidentiality clauses in these provisions. The agreement also contains a
survival clause, which states that the commissions and confidentiality clauses
2
Scitec, Inc., eventually merged with another company, Telematrix, Inc., and then changed its name
to Cetis, Inc. All three entities were named as defendants in McDonald’s complaint. This opinion refers
to them collectively as Scitec.
4
“shall survive any termination or expiration of this Agreement.” A choice of law
clause provides that the agreement is governed by Illinois law.3
[¶5] The “contact” relevant to this case is Avaya. Pursuant to the
agreement, from January 2004 through Scitec’s termination of the agreement on
April 8, 2010, Scitec paid McDonald $562,086.19 in commissions on its sales to
Avaya. Scitec terminated the agreement on the day that McDonald served it with a
complaint claiming that Scitec owed him commissions on sales it made to another
company.4 Although Scitec continued to sell to Avaya after terminating the
agreement, it has not paid McDonald any commissions on those sales. The parties
stipulated at trial that the unpaid commissions, if owed, would amount to
approximately $83,201.25, plus interest.
[¶6] After Scitec terminated the agreement, McDonald amended his
complaint to allege six counts; only Count III, claiming breach of contract for
failure to pay commissions, is relevant to our discussion here. In October 2011,
the court denied Scitec’s motion for summary judgment on Count III. On
December 12 and 14, 2011, the case was tried to a jury on the issue of whether
3
The parties agree that their contractual relationship is controlled by Illinois law. Accordingly, we
apply Illinois law to resolve substantive issues, and Maine law to procedural matters. See Stenzel v. Dell,
Inc., 2005 ME 37, ¶ 7, 870 A.2d 133 (“When a contract contains a choice of law provision, we generally
will interpret the contract under the chosen state’s laws.”).
4
Scitec’s decision to terminate its contractual relationship with McDonald was based solely upon
Scitec’s owner taking offense at the fact that McDonald commenced a lawsuit against the company for
commissions in a transaction unrelated to this matter.
5
McDonald was due commissions resulting from Scitec’s post-termination sales to
Avaya.
[¶7] At the close of the evidence, McDonald moved for judgment as a
matter of law on Count III pursuant to M.R. Civ. P. 50(a). The court denied the
motion after finding that the agreement was ambiguous, and that it was for the jury
to decide what the parties intended concerning ongoing commissions in the event
of a unilateral termination. On the single issue before it, the jury answered “no” to
the question: “Has [McDonald] proved by a preponderance of the evidence that
[Scitec] is required under the terms of the parties’ contract to pay [McDonald]
commissions on Avaya sales made after the termination of the parties’ contract?”
Based on the jury’s verdict the court entered judgment for Scitec on Count III.
[¶8] McDonald filed a post-trial motion pursuant to M.R. Civ. P. 50(b),
asking the court to set aside the jury verdict as unsupported by the evidence and to
enter judgment in his favor on Count III. The court denied the motion, and this
appeal followed.
II. DISCUSSION
[¶9] “We review de novo the denial of a motion for judgment as a matter of
law pursuant to M.R. Civ. P. 50.” State v. Price-Rite Fuel, Inc., 2011 ME 76, ¶ 11,
24 A.3d 81. The threshold issue in this appeal is whether the commission
agreement is ambiguous concerning whether McDonald was due commissions on
6
sales made by Scitec to Avaya after Scitec unilaterally terminated the agreement.
If the agreement is unambiguous, meaning that it is not “reasonably susceptible to
different interpretations,” then we review the agreement “de novo and interpret it
according to the plain meaning of the language used.” Camden Nat’l Bank v.
S.S. Navigation Co., 2010 ME 29, ¶ 16, 991 A.2d 800 (alteration and quotation
marks omitted); see Thompson v. Gordon, 948 N.E.2d 39, 47 (Ill. 2011) (same).
[¶10] We conclude that the agreement is not ambiguous with regard to
commissions due and owing on completed transactions. The commissions clause
is clear and straightforward—McDonald is due commissions on ongoing sales
made by Scitec to Avaya unless the agreement was terminated by mutual
agreement or McDonald had violated the noncompete or confidentiality clauses,
neither of which occurred. Because the agreement is unambiguous concerning the
issue decided by the jury, the trial court erred in assigning to the jury the task of
interpreting the agreement in light of the parties’ intent instead of applying the
agreement’s plain language and granting McDonald’s motion for judgment as a
matter of law at the close of the evidence.5 See Whalen v. Down East Cmty. Hosp.,
2009 ME 99, ¶ 15, 980 A.2d 1252 (stating that the interpretation of unambiguous
contract provisions is a question of law); Thompson, 948 N.E.2d at 47 (stating that
5
We emphasize that we do not look behind the jury’s verdict to reach this result; rather, we conclude
that the question of what the parties intended in the event of Scitec’s unilateral termination of the
agreement should not have been submitted to the jury because the language of the agreement is
unambiguous as to the result in that situation.
7
a court can consider extrinsic evidence of the parties’ intent if contract language is
ambiguous).
[¶11] Scitec argues that the commissions clause is ambiguous because it
addresses what would occur if the agreement was terminated by mutual consent,
but says nothing about what would occur if it was terminated unilaterally. The
contract, however, is not silent on this issue. The commissions clause states that
Scitec “shall pay McDonald” commissions on its ongoing sales to Avaya, and that
those payments “shall continue” unless one of two stated events occurred. Neither
did. To further emphasize this point, the contract explicitly provides that the
commissions clause “shall survive any termination or expiration of this
Agreement.”
[¶12] Scitec further argues that the separate confidentiality provision applies
in the case of a mutual termination of the agreement—in which case payments for
completed transactions would continue in effect for five years—but would be
rendered a nullity in the case of a unilateral termination because McDonald’s right
to commissions would immediately end. In fact, the confidentiality clause
supports McDonald’s position because it demonstrates that the parties knew
perfectly well how to terminate ongoing commissions in a specific situation when
they so chose—“[a] violation of this [confidentiality] Section shall give the
Company the right . . . to make no payment on any sale made after the termination
8
of this Agreement”—but did not employ similar language in the case of a unilateral
termination of the agreement for other reasons. See Thompson, 948 N.E.2d at 47,
51 (stating that “[a] contract must be construed as a whole, viewing each provision
in light of the other provisions”; also stating that “there is a presumption against
provisions that easily could have been included in a contract but were not”). The
commissions clause anticipates McDonald’s ongoing entitlement to commissions
in the case of a unilateral termination, and the agreement protects Scitec in that
event by penalizing McDonald for a breach of confidentiality for as long as that
entitlement lasts.
[¶13] Scitec’s assertion that the survival clause does not create an obligation
on its own to pay ongoing commissions similarly misses the mark. Like the
commissions clause, the language of the survival provision is straightforward:
“Section[] 2 [the commissions clause] . . . shall survive any termination . . . of this
Agreement.” As we have concluded, the commissions clause entitles McDonald to
ongoing Avaya-derived commissions, and the survival clause plainly states that
that obligation survives “any termination” of the agreement, including Scitec’s
unilateral termination, unless one of the two events set out in the commissions
clause occurs. Because neither event occurred, McDonald’s entitlement to
commissions survives.
9
[¶14] Finally, Scitec asserts that requiring it to pay ongoing commissions to
McDonald violates the Illinois rule concerning contracts of indefinite duration.
Pursuant to Illinois law, “Contracts of indefinite duration are terminable at the will
of either party.” Jespersen v. Minn. Mining & Mfg. Co., 700 N.E.2d 1014, 1016
(Ill. 1998). Scitec’s argument, however, fails to appreciate the distinction between
the agreement itself and the obligation to pay commissions created by the
agreement.
[¶15] It is not contested that Scitec was free to unilaterally terminate the
open-ended agreement prospectively, thereby foreclosing the possibility that
McDonald would become entitled to commissions on Scitec’s future sales to
customers who were not yet approved “contacts.” What Scitec could not do, under
Illinois law or by the agreement’s plain terms, is unilaterally end McDonald’s
entitlement to commissions based on performance rendered before the agreement
was terminated, unless (1) McDonald violated the noncompete or confidentiality
clauses, or (2) Scitec stopped selling its products to Avaya.
[¶16] Jespersen is illustrative of the principle that contracts of indefinite
duration are terminable at will concerning prospective performance. In that case,
an auto parts dealer’s distribution agreement was unilaterally terminated without
cause when the company that entered into the agreement was purchased by another
company. Id. at 1015-16. The Illinois Supreme Court held that because the
10
agreement provided that it “shall continue in force indefinitely” it was an
“agreement at will, which means [the parties] could terminate the agreement for
any reason or no reason without committing a breach of contract.” Id. at 1016,
1017 (quotation marks omitted). The Court explained its reasoning by observing
that
perpetual contracts are disfavored. “Forever” is a long time and few
commercial concerns remain viable for even a decade. Advances in
technology, changes in consumer taste and competition mean that
once[-]profitable businesses perish—regularly. Today’s fashion will
tomorrow or the next day inevitability fall the way of the buggy whip,
the eight-track tape and the leisure suit. Men and women of
commerce know this intuitively and achieve the flexibility needed to
respond to market demands by entering into agreements terminable at
will.
Id. at 1017 (citation omitted).
[¶17] This rationale underpinning the Illinois rule concerning perpetual
contracts is fully applicable to the Scitec-McDonald agreement looking forward, in
that either party was free to terminate their agreement of indefinite duration when
it no longer suited their interests—the law would allow neither to be locked into
the agreement forever. Looking backward, however, to transactions wherein one
party has fully performed and all that remains is for the other party to tender
payments as they become due, the Jespersen rationale has no applicability.
[¶18] Moreover, beyond these principles of Illinois law, given the plain
language of the agreement and the absence of an explicit provision to the contrary,
11
we do not construe the agreement to allow Scitec to stop paying commissions at its
whim after McDonald fully performed his obligation to make an introduction to
Scitec that resulted in commissionable sales.6 The commissions clause here is akin
to other common types of contracts that may be terminated by a party
prospectively, leaving intact that party’s obligation to pay for pre-termination
performance. Here, McDonald had already done all that the agreement required
him to do to earn commissions on Scitec’s sales to Avaya, as evidenced by the fact
that Scitec had been paying those commissions for six years prior to terminating
the agreement.
[¶19] Because the commission agreement unambiguously required Scitec to
pay commissions to McDonald on sales it made to Avaya after Scitec unilaterally
terminated the agreement, McDonald was entitled to judgment as a matter of law
on his breach of contract claim. The trial court did not reach the merits of
McDonald’s ISRA claim after interpreting the agreement to the contrary;
accordingly, we remand for a de novo determination of that claim in light of this
opinion.
6
Under Scitec’s interpretation, it could have, after McDonald made the introduction to Avaya and the
two companies agreed to purchase and sale terms, unilaterally terminated the agreement before any sales
were completed, resulting in McDonald being entitled to no commissions at all after doing everything the
agreement required him to do.
12
The entry is:
Judgment as to Count III vacated. Remanded for
entry of a judgment on Count III in favor of
John E. McDonald Jr. in the amount of
$83,201.25, plus interest as called for in the
agreement. Judgment as to Count VI vacated;
remanded for further proceedings consistent with
this opinion.
On the briefs:
Michael J. Donlan, Esq., and Seth S. Coburn, Esq., Verrill Dana, LLP,
Portland, for appellant John E. McDonald, Jr.
Randall B. Weill, Esq., and Jonathan G. Mermin, Esq., Preti Flaherty
Beliveau & Pachios, LLP, Portland, for appellees Scitec, Inc., Telematrix,
Inc., and Cetis, Inc.
At oral argument:
Michael J. Donlan, Esq., for appellant John E. McDonald, Jr.
Randall B. Weill, Esq., for appellees Scitec, Inc., Telematrix, Inc., and Cetis,
Inc.
Business and Consumer Docket docket number CV-2010-37
FOR CLERK REFERENCE ONLY