Opinion
Civil No. L-99-2226.
March 22, 2001.
MEMORANDUM OPINION
Thomas Harris, an independent sales representative, seeks a commission from Meeks Heit Publishing Company on a sale of textbooks to the Prince George's County Public Schools. Following discovery, each side moved for summary judgment. The Court heard oral argument on December 20, 2000, and afterward gave both sides an opportunity to submit additional evidence on the issue of industry custom. Now that the record is complete, the Court concludes that the contract's clear terms do not entitle Harris to a commission. In addition, Ohio law, which governs the contract, provides no relief for Harris under either a "procuring cause" or a bad-faith termination theory. Accordingly, Harris's motion will be denied and Meeks Heit's motion will be granted.
I.
Meeks Heit was an Ohio-based publishing company specializing in educational materials for health education programs. In December 1996, Meeks Heit contracted with Harris to be the company's sales representative in Maryland. Pl.'s Mem. Ex. A. Philip Heit, a co-owner and co-chief executive officer of Meeks Heit, who is not a lawyer, cobbled together the contract from bits and pieces of other contracts he had obtained; he also relied on advice from one of his salesmen. Pl.'s Supp. Ex. D at 7-8.
The company has been sold and no longer exists as Meeks Heit.
The final contract, attached to the company's memorandum, does not materially differ from the version attached to Harris's memorandum. Def.'s Mem. Ex. 2.
The Court abbreviates the pleadings addressing summary judgment as "Pl.'s Mem."; "Def.'s Mem."; "Pl.'s Reply"; "Def.'s Reply"; "Pl.'s Supp."; and "Def.'s Supp."
In the contract, Harris agreed to serve as Meeks Heit's "sales representative in Maryland." Harris could represent other companies but only with respect to non-competing products. Pl.'s Mem. Ex. A at ¶¶ 3, 9. Harris argues that the contract entitled him to a commission on all sales the company made in Maryland whether he generated them or not. Def.'s Mem. Ex. B. at 28. Meeks Heit disagrees, contending that Harris is entitled to a commission only on sales that he generated.
The dispute centers on paragraph 18 of the contract: "The Company shall pay the Contractor a commission of 15 percent on the net sales price of products solicited by the Contractor and that are sold in the territory." Paragraph 24 of the contract says that after termination of the contractual relationship, Meeks Heit "will pay commissions on all orders submitted by the Contractor to, and accepted by the Company prior to the date of termination in accordance with Paragraphs 18, 19, and 20." As background information, the parties submitted evidence concerning (1) Meeks Heit's and Harris's prior practice under their contract; (2) Meeks Heit's practice with other sales representatives; (3) Harris's contracts with other publishers; and (4) testimony by another sales representative about industry custom.
Paragraph 19 of the contract provides for "a commission of 15 percent on the net sale of its resource books," with the exception of "orders that are generated by owners of the Company. . . . either through workshops by them or their consultants." Similar language appears in Meeks Heit's contracts with its other salesmen. Pl.'s Supp. Ex. C; Def.'s Supp. Ex. A. The pleadings discuss paragraph 19. At oral argument, however, both sides agreed that paragraph 19 is not relevant to their dispute.
On two occasions early in their relationship, Meeks Heit paid Harris commissions on sales (to the public school systems in Baltimore City and Prince George's County) to which Harris did not directly contribute. Pl.'s Mem. Ex. D at 33, Ex. E. at 70-72. Harris testified that he had a minor role in each sale.
Heit testified that on approximately five occasions, sales representatives working for Meeks Heit did not receive commissions when Heit himself made a sale directly. Pl.'s Supp. Ex. D at 18-20. One such order totaled $1 million, but not all were large orders. Id. Contracts between Meeks Heit and other sales representatives that predate Harris's termination resemble Harris's contract in relevant particulars.
Three contracts between Harris and other publishers each specifically state that he would receive a commission on all sales in his territory. Two such contracts specify, respectively, that a company "will be considered to have made a sale of a Product if [it] ships directly and issues an invoice for the Product . . . to a customer located in the Territory," and that a given commission rate applies "on all orders . . . within your territory." Pl.'s Supp. Ex. B. A fourth contract between Harris and another publisher specifically says that he would receive a commission on products he "sells."
Harris produced an affidavit from Walter Barnes, who has worked as a salesman of educational textbooks for eighteen years, affirms that the general practice in the industry calls for exclusive territories, and provides for sales representatives to commissions on all sales made within their territories regardless of their involvement in a particular sale. Pl.'s Supp. Ex. A at 1. Barnes says that a deviation from this general rule would be stated in the contract. Id.
The dispute between Harris and Meeks Heit involves a new product, a large sale of that product, and the company's contemporaneous termination of Harris without paying him a commission. In early 1998, after Harris had been under contract for over a year, Meeks Heit began to develop a new set of health textbooks (called Totally Awesome Health) for elementary school students. See Pl.'s Mem. Ex. D at 12-14. Meeks Heit completed the new textbooks in the summer of 1998, first publicizing them at a national sales meeting held in August. Before the August "roll out," the company kept the new project a relative secret. The company did not even advise its sales representatives of the new textbook series unless the salesman called to say that a school system was about to commit to the soon-to-be-outmoded binder materials.
The new Totally Awesome Health series was intended to replace a set of older materials of the same name. The older materials consisted of binders to be used by teachers (rather than students) in grades K-6. The new materials included student textbooks (and a choice of accompanying teacher materials) for grades K-8. Def.'s Hr'g Ex. 1 at 6-18.
Although the binders had the same title as the textbooks, the textbooks were plainly a new "product" within the meaning of the contract. The textbooks covered grades K-8, Def.'s Hr'g Ex. 1 at 6-17, while the binders covered grades K-6, id. at 18. Also, the textbooks are for student use, while the binder series is for teacher use.
On April 24, 1998, before the new textbooks had been completed, Michael Schaffer, supervisor of Health Education and Wellness for Prince George's County Public Schools, telephoned Heit, whom he had known personally for years. Schaffer told Heit that the school system was planning to switch to hardback health textbooks for student use, and would not be able to use Meeks Heit's teacher binders any longer. Heit replied that Meeks Heit was working on new textbooks that would meet the school system's needs, and on the same day faxed a proposal to Schaffer. Pl.'s Supp. Ex. E; Ex. D at 14. Schaffer and the school system evaluated the new Totally Awesome Health series and determined that it filled the bill. On July 1, 1998, the school system placed a large order. On this order, Schaffer did not deal with Harris at all.
In late April 1998, Heit fired Harris by phone. Pl.'s Mem. Ex. D at 30-31, 39-40. Heit testified that he could not recall the exact date of the phone conversation, while Harris says that it was April 27. Pl.'s Mem. Ex. D at 40; Pl.'s Mem. at 4. According to Heit's testimony, he and his coowner had been discussing firing Harris, for lack of sales productivity, for over six months. Heit confirmed the conversation with Harris in a letter of April 27, 1998. Pl.'s Mem. Ex. C. Harris neither knew of the existence of the new textbook series nor of the prospective sale to Prince George's County before his termination. Pl.'s Mem. Ex. E at 107. Harris did not receive a commission on the sale. When he learned of the sale, Harris sued Meeks Heit to recover a commission, arguing that the contract provided that he should receive one, that Ohio's doctrine of the procuring cause entitled him to one, and that he had been terminated in bad faith.
The contract called for notice of termination at least thirty days before its effective date. Heit's letter of April 27 said Harris would receive commissions on any adoptions of Meeks Heit materials before June 30, 1998, in Harford, Montgomery, Carroll, and Baltimore Counties. Heit testified that Harris himself decided which counties to include, but the summary-judgment record does not otherwise reveal how the counties were selected or why the parties decided to extend the thirty-day period called for in the contract. Pl.'s Mem. Ex. D at 41-42.
II.
Summary judgment is proper if the evidence shows that "there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). A genuine dispute about a material fact exists "if the evidence is such that a reasonable jury could return a verdict for the non-moving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). The court must draw all reasonable factual inferences in favor of the non-movant. 477 U.S. at 255. Both parties argue that they are entitled to summary judgment.
The Court will address each of the plaintiff's three theories in turn, beginning with the terms of the contract itself. "In construing the terms of any contract, the principal objective is to determine the intention of the parties." Hamilton Ins. Servs. v. Nationwide Ins. Cos., 714 N.E.2d 898, 900 (Ohio 1999). "Under Ohio law, interpretation of written contract terms is a matter of law for initial determination by the court. It is only when the relevant contract language is ambiguous that the job of interpretation is turned over to the fact finder, and the determination whether a contract is ambiguous is made as a matter of law by the court." Potti v. Duramed Pharms., Inc., 938 F.2d 641, 647 (6th Cir. 1991) (citations omitted). "If an ambiguity exists in a contract, then it is proper for a court to consider "extrinsic evidence," i.e., evidence outside the four corners of the contract, in determining the parties' intent." United States Fid. and Guar. Co. v. St. Elizabeth Med. Ctr., 716 N.E.2d 1201, 1208 (Ohio Ct.App. 1998) (citations omitted). "When the terms included in an existing contract are clear and unambiguous, we cannot create a new contract by finding an intent not expressed in the clear and unambiguous language of the written contract." Hamilton, 714 N.E.2d at 901. With these principles in mind, the Court will address the contract.
The parties agree that Ohio law governs their dispute. Pl.'s Mem. at 6-7; Def.'s Mem. at 7-8; Pl.'s Mem. Ex. A at ¶ 25. (Although the plaintiff specifies that Ohio law applies "with regard to the breach of contract claims," Pl.'s Mem. at 6-7, the complaint pleads only breach of contract. Compl. at ¶ 8.)
Paragraph 18 of the contract gives Harris a commission on "the net sale price of products solicited by the Contractor and that are sold in the territory." The parties could have contracted for a commission on "the net sale price of products that are sold in the territory," thus clearly requiring a commission on every sale in Harris's geographic territory. Instead, the plain language of the contract limits Harris to a commission on "the net sale price of products solicited by" Harris (emphasis added).
Harris admits that he (1) had never heard of the new textbooks before his termination, (2) had no contact with Schaffer about the new textbooks, and (3) had nothing to do with the Prince George's County School System's purchase of the new textbooks. The new textbooks, of which Harris had never heard, do not appear to be "products solicited by" him. Accordingly, the plain language of the contract does not provide for a commission — unless the verb "solicited" means representation of the company and its products in a general sense, so that Harris could somehow logically have solicited the purchase of a product of which he had never heard.
The contract does not define "solicit." Pl.'s Mem. Ex. A at ¶ 4. The parties submitted no evidence showing an accepted meaning for the word that was used in the industry. Thus, the Court must rely on the common usages of the verb, which require active involvement in pursuing a sale. The relevant definitions of the verb "solicit" in the Oxford English Dictionary give the meanings "to entreat or petition (a person) for, or to do, something," "to urge" or "importune," "to ask earnestly or persistently," "to urge or plead (one's suit [or] cause)," "to request, petition, or sue for (some thing [or] favour)," and "to desire or seek by petition." Oxford English Dictionary (2d ed.). These definitions all imply that the solicitor takes an active role in soliciting a given sale. Thus Harris could not have "solicited" a sale without having been directly involved in generating it.
Heit, who wrote the contract, testified that he understood "to solicit" to mean "to initiate an order, have contact with the purchaser, make the purchaser aware of the products we have, of new products, visit with the particular purchasers, keep their ear to the ground as will adoptions be coming up and meeting with the purchasers and trying to find out if they're going to have adoptions, when they're thinking of adoptions." Pl.'s Supp. Ex. D at 13. Heit's definition does not help to answer whether "solicit[ation]" could mean general representation. In addition, Harris testified that he understood the language to mean that he was entitled to a commission on all sales within his territory. Because the Court finds paragraph 18 to be clear and unambiguous, the parties' subjective readings of the contract are irrelevant.
Looking elsewhere in the contract, the termination clause (paragraph 24) gainsays the idea that Harris was automatically entitled to a commission on any sale in Maryland. The termination clause specifies that Meeks Heit "will pay commissions on all orders submitted by the Contractor to, and accepted by the Company prior to the date of termination in accordance with Paragraphs 18, 19, and 20" (emphasis added). Harris's argument would read out of the contract the phrase "submitted by the Contractor." The termination clause shows that Harris must be personally involved to receive a commission, on post-termination sales at least.
Harris is not entitled to a commission under paragraph 24. He did not submit the order in question to Meeks Heit. In addition, Meeks Heit did not accept the order before Harris's termination date. The date of the school system's purchase order, July 1, 1998, was after the end of the sixty-day notice period, the last possible "termination date" under the contract and Meeks Heit's termination letter.
The Court concludes that the contract does not provide for a commission on the sale at issue, because the new textbooks could not have been "products solicited by the Contractor" within the clear meaning of paragraph 18. Harris did not even know of the product's existence, so he could not have solicited its sale. Because the clear terms of the contract do not provide for a commission, Harris must look beyond the contract if he is to recover. He argues that he should recover because he was the "procuring cause" of the sale and because he was terminated in bad faith.
The Court does not reach extrinsic evidence, finding the contract unambiguous. See United States Fid. Guar. Co., 716 N.E.2d at 1208. The extrinsic evidence on the record, however, was consistent with the view that Harris should not have expected an automatic commission on all sales in his territories. Meeks Heit's contracts with its other sales representatives, like its contract with Harris, awarded commissions based on "products solicited." Meeks Heit did not pay commissions in other cases in which the sales representative had nothing whatsoever to do with the sale. Of four of Harris's contracts with other publishers, three specifically called for him to receive a commission on all sales in his territory, and the fourth specifically required his involvement in a sale. Pl.'s Supp. Ex. B. It would have been unreasonable for Harris to assume that a contract lacking a clear statement that he would receive commission on all sales in his territory (and actually stating the opposite) would entitle him to do so.
Thus, even if the contract's use of the term "solicited" were ambiguous, Meeks Heit would still prevail on summary judgment on the basis of the extrinsic evidence presented. The only testimony supporting Harris's view, the testimony of Walter Barnes that exclusive territories were an industry custom not necessarily reflected in written contracts, does not establish a clear industry practice in the light of the specific contracts submitted by Harris.
III.
The "procuring cause" doctrine protects agents' interests against unscrupulous principals. Gadsby v. Norwalk Furniture Corp., 71 F.3d 1324 (7th Cir. 1995). It grants compensation to an agent for a transaction procured by the agent, even if the agent is terminated or otherwise excluded from the transaction before it is complete. Harris argues that regardless of the contract, he was the "procuring cause" of the sale at issue. Unfortunately for Harris, under Ohio law, "the procuring cause doctrine does not apply if the contract between the parties expressly provides when commissions will be paid." Gadsby, 71 F.3d at 1327. Harris's contract with Meeks Heit specifically provided when commissions would be paid.
Even if the contract between Harris and Meeks Heit were silent regarding commission, the procuring-cause doctrine would not cover the sale at issue. The doctrine "is linked to the acquisition of particular orders by the agent, not customers." Davis Tatera, Inc. v. Gray-Syracuse, Inc., 796 F. Supp. 1078, 1084 (S.D.Ohio 1992). Harris cannot use a doctrine designed "to prevent an agent from being denied a commission on a sale for which the agent performed the majority of the work" to win a commission on a sale of a product of which he had never even heard. 796 F. Supp. at 1084-85. Accordingly, the procuring-cause doctrine cannot help Harris.
IV.
Finally, Harris argues that he was terminated in bad faith. However, his contract with Meeks Heit clearly provides that it "can be terminated by either party, with or without cause, by giving the other party (30) thirty days written notice." Def.'s Mem. Ex. 2 at ¶ 24. The Ohio Supreme Court recently interpreted the actual phrase used in Harris's contract, "with or without cause." Hamilton, 714 N.E.2d 898. The court said a plaintiff may not bring a suit for bad-faith termination of an at-will contract that used the phrase "with or without cause." "There can be no implied covenants in a contract in relation to any matter specifically covered by the written terms of the contract itself." Hamilton, 714 N.E.2d at 901. Accordingly, Harris cannot recover under a theory of bad-faith termination.
For these reasons, the Court will deny summary judgment to Harris and will grant summary judgment to Meeks Heit.
ORDER
In accordance with the attached Memorandum, it is this 22nd day of March, 2001, by the United States District Court for the District of Maryland, ORDERED:1. That Plaintiff's Motion for Summary Judgment BE, and the same IS, hereby DENIED; and
2. That Defendant's Motion for Summary Judgment BE, and the same IS, hereby GRANTED.
3. The Clerk is directed to CLOSE THIS CASE.