Opinion
CIVIL ACTION NO. 3:99-CV-1930-P.
April 15, 2002
ORDER
Plaintiff, Machine Tool Associates, Inc. ("MTA"), filed this suit alleging claims for breach of contract or alternatively for quantum meruit. The case was tried before the court without a jury. This order will serve as the court's findings of fact and conclusions of law pursuant to Federal Rule of Civil Procedure 52(a).
Defendant Hydromat, Inc. ("Hydromat") manufactures rotary transfer machines for sale to businesses. Plaintiff MTA is a machine tool distributor. Hydromat sells its machines through contracts "with sales representatives such as MTA. On December 10, 1993, Hydromat sent a letter to MTA offering a representative arrangement for the sale of transfer machinery. The letter provided in part:
[W]e would like to begin working with you under a temporary contract covered by this letter. . . . [After 6 months], we will make a determination if we should enter into a full contractual agreement. During the initial trial period all existing Hydromat customers would be excluded and protection would only apply to new customers. I have enclosed the page from our formal contract which outlines the machine sale commissions. Even though we will not be operating under a formal contract as I mentioned, you will be fully protected . . .
Hydromat attached to its letter two pages from Hydromat's formal contract with its sales representatives containing the commission rates on sales of equipment. On February 25, 1994, MTA accepted Hydromat's offer and stated further, "[I]t is our understanding that the only existing protected Hydromat `house account' would be Hilite, Ind.-Carrollton." Hilite was an existing customer of Hydromat to whom Hydromat had previously sold transfer equipment. The parties agreed that the trial period would start on March 1, 1994. After the expiration of the 6 month trial period, the parties did not enter into a formal, written contract. Following the expiration of the trial period, Hydromat sold three transfer machines to Hilite. Plaintiff claims it is owed commissions on the sales of these three machines to Hilite. Hydromat contends that Hilite was a protected house account for which plaintiff is not entitled to a commission.
Trial testimony established that a house account is an account or customer that transacts directly with Hydromat instead of through a sales representative such as plaintiff. Both sides agree that Hilite was a protected house account during the 6 month trial period. The parties disagree as to the status of house accounts after the trial period.
On September 24, 1998, Hydromat sent a letter to plaintiff terminating "all written and/or verbal agreements" between Hydromat and MTA effective October 1, 1998. The letter further stated, "With regard to ongoing business, we are prepared to offer you protection on all open quotes for the customers indicated below. . . ." The letter offered protection to plaintiff on the Grinnell account for 6 months until March 31, 1999. Testimony at trial from defendant was that a purchase order from Grinnell within the 6 protection month period would have entitled plaintiff to a commission. By the end of the 6 month protection period, no purchase order had been received from Grinnell. However, Hydromat equipment was later sold to Grinnell in May 2000. Plaintiff claims it is also owed commission for the sale to Grinnell.
BREACH OF CONTRACT
The parties dispute what type of contract existed after the expiration of the 6 month trial period. Hydromat asserts that the express written contract contained in the December 10, 1993 letter continued under the same terms. Plaintiff maintains that the house account provision was not continued past the trial period. As stated above, there was no subsequent written contract between the parties after the trial period. John Borys, president of MTA, testified that he inquired of Hydromat about being paid commissions on the sales to Hilite. Borys stated he was told by Silvio Lombardy, Sales Manager for Hydromat, that Borys would be paid something for the sales to Hilite. Borys testified that he also brought up the issue with Jim Otten, Hydromat Vice-President for Sales and Marketing. Otten told Borys he would get back to him, but never did. Otten, on the other hand, testified that when Borys asked him if he could be eligible for Hilite commissions in the future, Otten told him that Hilite would continue under the original agreement. Otten also testified that he informed Borys that no formal contract would be issued for MTA.
Defendant's trial testimony established that after expiration of the trial period defendant intended for the relationship to continue under the same terms. However, Hydromat did not, at any time, communicate this in writing to plaintiff. According to Otten, his oral communication with Borys regarding commissions on the Hilite account occurred, at the earliest, around September 1997, or perhaps as late as June 1998 when Borys was first paid commissions on a sale to Hilite. Thus, from September 1, 1994 until September 1997 or June 1998, MTA was not informed of the type of contract under which it was working. Borys assumed the house account protection only applied during the trial period, although he did not ask for and did not receive any written confirmation of this. Apparently, there was agreement between the parties as to the commission rate to be paid to MTA after the expiration of the trial period, as Hydromat continued to pay MTA for sales to other customers after September 1, 1994.
The best the court can determine from the evidence is that Hydromat was uncertain in September 1994 whether it wanted to enter into a formal contractual agreement with plaintiff Otten testified it was not until around September 1997 that he decided not to send a formal contract to plaintiff. This created uncertainty as to the specific terms of the relationship between the parties after September 1, 1994. The court finds that the responsibility for creating this uncertainty falls on Hydromat. Hydromat's letter of December 10, 1993 informed MTA that after the expiration of the temporary contract, Hydromat would "make a determination if we should enter into a full contractual agreement." The letter also stated that "house accounts" would be protected "[d]uring the initial trial period". The letter is silent as to the status of house accounts after the trial period, and plaintiff interpreted this to mean that house accounts would not be protected after the trial period. Plaintiff understandably relied on Hydromat's statement that it would make a decision after the trial period. In light of Hydromat's failure to make a decision after the trial period, and the agreement's ambiguity as to the status of house accounts after the trial period, the court finds it unjust to accept Hydromat's assumption that the original agreement continued after the trial period under the same terms. This is particularly so since Hydromat never communicated in writing to plaintiff its intent for the relationship to continue under the same terms as the temporary contract. Moreover, Hydromat failed to communicate its intent to plaintiff in any manner in reasonable proximity to the expiration of the trial period. By Hydromat' s own testimony, plaintiff was not informed that the parties were continuing under the terms of the original agreement until September 1997 or June 1998. By September 1997, all three machines in dispute had been sold to Hilite. Defendant points to evidence that in October 1995 and December 1997 plaintiff requested advance commissions on sales of equipment to other customers. Plaintiff did not request an advance on the sales to Hilite in either of these requests. however, this could mean, as Hydromat contends, that plaintiff did not believe it was entitled to commissions on sales to Hilite, or it could simply reflect the uncertainty of the status of these accounts. The court finds it likely that plaintiff was still waiting to hear from Hydromat with respect to the specifics of their agreement after the trial period as Hydromat had stated in its letter of December 1993.
QUANTUM MERUIT
a. Hilite
Because there was no express contract between the parties concerning the status of house accounts after September 1, 1994, the court finds that plaintiff is entitled to pursue recovery on a theory of quantum meruit. Truly v. Austin, 744 S.W.2d 934, 936 (Tex. 1988) (stating the general rule that a party is entitled to recover in quantum meruit only when there is no express contract). To recover under quantum meruit, plaintiff must establish that: 1) valuable services were furnished by plaintiff, 2) to the party sought to be charged, 3) which were accepted by the party sought to be charged, and 4) under such circumstances as reasonably notified the recipient that the plaintiff, in performing, expected to be paid by the recipient. Heldenfels Bros., Inc. v. City of Corpus Christi, 832 S.W.2d 39, 41 (Tex. 1992). The court finds that the first three elements are easily satisfied with respect to the sales of machine no. 4 and no. 5 to Hilite. Borys, president of plaintiff, testified as to the efforts he made on behalf of Hydromat to help secure the sales of these machines to Hilite. The court finds Mr. Borys' testimony believable on this issue and notes that the testimony is supported by documentary evidence. In June 1998, Hydromat paid MTA a commission for the rebuilding of a machine previously sold to Hilite. Then, in February 1999, MTA was paid an advance commission on the sale of machine no. 6 to Hilite, and paid a final commission in April 1999. Otten testified that plaintiff was paid commissions on the rebuild and machine no. 6 because it assisted in these sales, and Hilite for the first time expressed a willingness to work with MTA instead of directly with Hydromat. Defendant maintains that it was only after these commissions were paid that plaintiff raised an issue with respect to commissions on machine nos. 3, 4, and 5. Otten testified that it was after the first commission on Hilite sales was paid to plaintiff that Borys asked if MTA could be eligible for future commissions on Hilite sales and asked about a formal contract. Otten testified that he informed Borys that Hilite would remain under the original agreement. However, this testimony is refuted by the fact that Borys was subsequently paid a commission in June 1998 on the rebuild work and in 1999 for the sale of machine no. 6 to Hilite.
The more difficult issue is with respect to element 4, whether plaintiff has shown that it performed services under such circumstances as reasonably notified Hydromat that MTA expected to be paid by Hydromat for MTA's services concerning Hilite. Following the trial period, Hydromat did not inform MTA of the specifics of their continuing relationship, nor of its desire that house accounts continue to be protected. Instead, Hydromat failed to carry through on its statement in its letter of December 1993 that it would make a determination regarding a full contractual relationship after the trial period. Under these circumstances, with respect to the sales of machine no. 4 and no. 5, it was not reasonable for Hydromat to believe that MTA would perform months of services on the Hilite account in an effort to generate sales and not expect to be compensated. Recovery in quantum meruit is proper when it would result in unjust enrichment to the party for whom the services were performed. Vortt v. Exploration v. Chevron U.S.A, 787 S.W.2d 942, 944 (Tex. 1990). The evidence does not indicate that, after the trial period, MTA pursued only other accounts and ignored Hilite. To the contrary, the evidence shows that MTA received copies of correspondence between Hydromat and Hilite and attended meetings between Hydromat and Hilite. ( See, e.g., Def. Exh. 20, bates stamp nos. 217, 228, 234, 235-236, 252, 254, 255, 256, and 263 showing a "cc" to Borys on various letters between Hydromat and Hilite; and a document titled "Hydromat #4 Concerns" attached to this exhibit showing Borys attending a meeting between Hydromat and Hilite on September 18, 1996). With respect to the sale of machine no. 3, the purchase order was made only a few months after the trial period. MTA has acknowledged that Hilite was a protected account during the trial period. Clearly, most of the work done to generate this sale was performed during the trial period and before. MIA could not reasonably have expected to be paid for work performed on a protected account during the trial period. However, the purchase order for machine no. 4 was placed in November 1996 and in December 1996 for machine no. 5, more than two years after the expiration of the trial period. In sum, the court finds that the evidence establishes that MTA was actively involved in the sale of the two of the machines in question to Hilite and in equity should be compensated for its services at the rate specified in Hydromat's contracts with its sales representatives.
b. Grinnell
By Letter of September 24, 1998, Hydromat terminated its relationship with MTA. As part of the termination, Hydromat provided MTA with a 6 month protection period in which to conclude, or at least secure purchase orders, on any accounts MTA was actively working. While the evidence establishes that MTA expended substantial effort in attempting to finalize a sale to Grinnell, no purchase order was made by the end of the 6 month period. Borys testified that the 6 month protection period given by Hydromat was unreasonable. Borys further testified that a reasonable period for termination should be open-ended until the deal is either consummated or dropped. Plaintiff's expert testified that an appropriate protection period following termination was typically 6 months to 2 years, and in some cases up to 3 years. The court finds that Hydromat's period of protection in this case was reasonable. Borys had been working on a sale to Grinnell since April 1997. Thus, at the end of the protection period, MTA had two years to consummate a sale with Grinnell and was unable to do so. Plaintiff has not presented evidence as to why it would be reasonable to require another two or three years of protection. The evidence was that Grinnell submitted a purchase order in June 1999, but cancelled it in September 1999. Grinnell submitted another purchase order in February for a different, smaller machine but cancelled that purchase order in May 2000. In May 2000, Grinnell submitted a third purchase order and finally took delivery of the equipment in September 2000. Borys' suggestion of an open-ended protection period would be unworkable and could potentially raise more issues such as whether the product ultimately sold was the same, any change in personnel involved in the transaction at either Hydromat or Grinnell, and the efforts of the new personnel or others involved in the transaction after MTA was no longer involved. Additionally, this could apply to multiple customers with which MTA had contact. The court finds that the 6 month protection period allowed by Hydromat was reasonable in the industry. The 6 month period provided for certainty with notice to the parties of a definite deadline for bringing transactions to conclusion. Finally, the 6 month period was long enough to allow plaintiff time to conclude sales or obtain a purchase order. Plaintiffs own expert testified that a 6 month protection period could be reasonable in the typical case. Plaintiff has not presented any evidence establishing that its circumstances were not typical for the industry. Plaintiff knew it was entitled to be paid only for sales it made, not for efforts made in sales that did not materialize. Despite all of its efforts, Plaintiff was not able to bring about a sale to Grinnell. Hence, the court finds that MTA is not entitled to be compensated for the sale of equipment to Grinnell.
The court will enter a final judgment in accordance with the findings and conclusions contained in this order.
Attorneys Fees
Plaintiff seeks recovery of attorneys fees. If the parties do not reach agreement on attorneys fees, defendant is directed to file a response to plaintiffs request for attorneys fees within 20 days after the filing of this order. Plaintiff's reply will be due within 15 days after defendant files its response.