Summary
holding that sales representative agreement containing termination for convenience clauses were not ambiguous
Summary of this case from Harris Corp. v. Giesting Associates, Inc.Opinion
Case No. 98-74911
January 30, 2001
MEMORANDUM AND ORDER
I. Introduction
This is a breach of contract case. Plaintiff A.P.J. Associates, Inc. (AP) was safes representative for defendant Signetics Company (Signetics), a division of defendant North American Philips Corporation (Philips) (collectively Philips). AP claims that it is entitled to commissions on the sale of microprocessors shipped to GM in 1995 and 1998. Phillips claims that under the termination provision of the contract, AP is only entitled to commissions earned during the contract period, which ended in 1992. Presently before the Court are cross-motions for summary judgment. A hearing on the motions was held on July 18, 2000 and the parties have submitted such supplemental papers as directed by the Court. For the reasons that follow, AP's motion is DENIED and Philips's motion is GRANTED.
Plaintiff's other motions, including Plaintiff's Motion for Termination of Defense Counsel's Admission to the State Bar of Michigan and Default and Sanctions, Plaintiff's Motion in Limine to strike defense expert Bruce McFarlane, and Plaintiff's Motion to Compel were dismissed from the bench at the hearing.
II. Background A. Facts 1. 1989
AP is a manufacturer's representative. It became a representative for Philips, a manufacturer of electronic components, in 1989. According to AP, Philips chose AP as its representative specifically to assist Philips in beginning and developing a relationship with General Motors (GM). A written sales representative agreement was signed in December 1989 by Stephen L. Pletcher (Pletcher), Vice-president of Signetics, and Jim Alexander (Alexander), President of AP. The 1989 agreement provided, in relevant part, that commissions would be paid "as set forth in Addendum "C" . . ., based on all shipments of Product made to and developmental charges paid by customers within REPRESENTATIVE'S Territory by SIGNETICS." ¶ 10. Addendum C stated:
2. Commission Calculations:
SIGNETICS shall pay REPRESENTATIVE commissions for integrated circuits shipped and developmental charges as the result of sales solicited and orders received by customer location within REPRESENTATIVE's Territory in an amount equal to the sum of the Commission Bases for both OEM and SIGNETICS Authorized Distributor sales of integrated circuits and developmental charges for each customer location multiplied by the applicable incremental Commission Rate for the aggregate year-to-date shipments. . . .
The term of the agreement was thirty-one days, expiring on December 31, 1989. It provided that "either party may terminate the agreement for its convenience upon at least thirty (30) days prior written notice of termination." It further stated that:
Upon termination by either party, the REPRESENTATIVE shall receive its commissions a follows:
1. The beginning backlog shall be determined by Signetics and the amount shall be communicated to the Representative within thirty (30) days of signing the Representative Agreement. This amount shall be deducted from the backlog existing at the time of termination, "the ending backlog." If the ending backlog is less than the beginning backlog, Signetics will not owe the Representative any further OEM Commissions. If the ending backlog is higher than the beginning backlog, amount becomes the maximum amount of net sales upon which commissions are calculated.
Pursuant to this term, on December 28, 1989, Philips sent AP a letter stating that AP would receive commissions on $447,580.30 in sales that took place prior to the effective date of the contract; this was the "backlog" of sales on Philips's books that had yet to be shipped into AP's new territory. AP did no work in obtaining the sales — a previous sales representative did — but AP "inherited" the commissions.
The termination provision further stated that:
2. On direct customer sales (OEM) purchase orders solicited by REPRESENTATIVE:
a. The purchase order must have been accepted and acknowledged in writing by SIGNETICS prior to the effective date of the termination; and
b. The products or the developmental work ordered on those purchase order must be delivered to and accepted by such direct sales customers within four (4) SIGNETICS' Accounting Months after the effective date of the termination.
(Emphasis added).
2. 1990 a.
In January 1990, AP and Philips signed a new one-year agreement, similar to the 1989 agreement. The 1990 agreement changed the way in which commissions were calculated, providing, in relevant part, that Philips would pay "a commission based on a performance to a budget as set forth in Addendum "C" and "E" . . ., based on all shipments of Product made to and developmental charges paid by customers within REPRESENTATIVE'S Territory by SIGNETICS." Addendum C set forth a schedule for representative's commissions based in part on a percentage attainment to the total budget, by which the commission rate was incrementally increased. Addendum E laid out the 1990 budget for the different sales types (e.g. OEM, Distribution, etc.). The 1990 agreement contained the same thirty-day termination clause as the 1989 agreement.
Prior to signing the 1990 agreement, AP's Alexander complained to Rich Lesinski (Lesinski), the Philips sales manager in Michigan, about the agreement's thirty-day termination clause. Lesinski agreed to "bring it up with his superiors," and did so. Philips, however, refused to change the agreement language and Alexander signed it as it was written. Alexander, however, contends that he was also repeatedly told by Philips that long term sales equals long term commissions, and that "as long as you're doing a good job, you'll get paid."
b.
On March 13, 1990, AP arranged a meeting with, and eventually facilitated a relationship between, representatives from Philips and AC Rochester (AC), a contractor for GM. Throughout the year, AP arranged numerous meetings between the two companies, arranged transportation, paid for food, and generally acted as a go-between for Philips and AC. By November 1990, the parties were engaged in serious discussions to have Philips design a custom cruise control chip (the 575 microprocessor) for AC which would be used in General Motor's automobiles, starting in model year 1995. This resulted in AC sending Philips a letter on February 8, 1991, which stated that "AC Rochester intends to work with Signetics Company on the development of a new microprocesser (sic) for our Stepper Motor Cruise Control module."
3. 1991 a.
On February 18, 1991, Philips and AP signed another one-year agreement. The commission provisions of the 1991 agreement were substantially similar to the 1990 agreement, except that the 5.5 percent top commission rate is earned for sales in excess of 115 percent of the budget, and the budget as a whole is lowered to $2.5 million a year. It also contained the thirty-day termination clause. Alexander continued to express his concern over the short duration of the agreement, but signed it nonetheless.
b.
Revised quotations on the 575 microprocessors were issued in April, 1991 and in May 1991, AP forwarded a Philips invoice for $50,000 to AC for non-recurrent engineering charges in the cruise control microprocessor project.
4. 1992 a.
On January 28, 1992, AP and Philips entered into another one-year agreement. The 1992 agreement varied significantly from the 1991 agreement in several respects. In particular, Addendum E was deleted so that AP no longer had a budget or quota, and Philips instead would pay a flat commission rate. Additionally, the 1992 agreement included for the first time a choice of law and forum provision designating California as its chosen state. The thirty-day termination clause, however, remained the same as in the prior agreements.
Prior to signing the 1992 agreement, Alexander again voiced his concerns about the one-year duration of the agreement to Lesinski. Lesinski told Alexander, "in so many words," that Alexander could "take it or leave it," because "they were given this directive from corporate and they were not given any latitude to negotiate at their level." Alexander dep. at 129-30. Both Lesinski and his superior, Fred Buchholz (Buchholz), invited Alexander to take his complaints to someone with more authority in Philips. Alexander declined, however, testifying at his deposition that "it was not a politically correct thing to do. You jeopardize your position with a large corporation when you become a whiner over issues." Alexander dep. at 130.
Alexander also requested a modification of the 1992 agreement to give AP "an extended period of commissions in the event of termination." The request was denied because "[n]obody at the corporate level [at Philips] was willing to open Pandora's Box, so to speak, because they would have then had to go back with all the representatives across the country and offer them the same discussion of contract amendment." Alexander dep at 138. Alexander thereafter signed the 1992 agreement on February 10, 1992, as it was originally offered.
b.
Throughout 1992, AP continued to facilitate meetings and communication between Philips and AC to discuss the 575 microprocessor, as well as a new microprocessor called the 576. On September 8, 1992, AC asked Philips to give a price quotation on the 576 microprocessor production. Approximately two weeks later, on September 25, 1992, Philips notified AP that it was terminating the 1992 agreement effective November 1, 1992. The letter stated that "[c]ommissions will be paid in accordance with our [1992] Sales Representative Agreement."
On February 17, 1993, Philips sent AP a check in the amount of $2,649.43, as "final reconciliation" for the last months of the contract. The letter enclosing the check stated that "[t]he endorsement of your final check verifies the completion and acknowledgment and releases Signetics of all obligations." AP endorsed the check and deposited the funds in its account on February 19, 1993.
5. Post-termination
Immediately following the termination of the 1992 agreement by Philips, AP complained of the decision. AP made no demand on Philips, however, for post-termination sales, prior to filing this case. AP did no further work for Philips after the 1992 agreement was terminated.
AC subsequently purchased the 575 microprocessors from Philips. They have been installed in all GM cars that use cruise control beginning in model year 1995 to the present.
B. Parties' positions
AP argues that: (1) Philips fraudulently induced AP into signing the representative agreements; (2) Philips is equitably estopped from denying AP commissions on the sales of the 575 microprocessors to AC; (3) the representative agreements are ambiguous and parole evidence must be used to clarify their terms; and (4) paragraph 13 of the representative agreements violates the Michigan Sales Representative statute and is void as against public policy.
Philips responds that: (1) AP knowingly, and voluntarily entered into the representative agreements with no taint of fraud; (2) unjust enrichment and promissory estoppel are inapplicable because the parties have an express contract; (3) the representative agreements are not ambiguous and parol evidence is barred; and (4) the Michigan statute does not apply because the parties chose California law to govern their relationship, and alternatively, Philips complied with the Michigan statute because it paid AP all the commission due under the representative agreements.
III. Summary Judgment
Summary judgment is appropriate when the moving party demonstrates 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). There is no genuine issue of material fact when "the record taken as a whole could not lead a rational trier of fact to find for the non-moving party." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). The Court must decide "whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law." In re Dollar Corp., 25 F.3d 1320, 1323 (6th Cir. 1994) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251-52 (1986)).
IV. Analysis A. Fraudulent inducement
At the heart of AP's fraud claim is its contention that Philips employed a "Major Accounts Program," by which Philips would take away from its independent service representative any account which totaled over $5 million in sales, in order to avoid paying the sales representative a commission. According to AP, ENCO Marketing (ENCO) had been Philips's representative for over 13 years, from 1975 to 1988. "Because of [ENCO's] efforts," Philips "got its foot in the door at Ford Motor Co." (Ford) and "the sales to Ford Motor from Philips went from $187,000 in 1975 to $14 million in 1988." AP's Brief in Support of Motion for Summary Judgment at 2. Then in 1989, pursuant to Philips's enactment of its Major Accounts Program, the Ford account was taken away from ENCO. "A dispute ensued and as a result, the Michigan sales rep terminated its relationship with Philips." Id.
By not telling AP about Philips's Major Accounts Program and by making statements along the lines of "long term sales equals long term commissions," AP claims that Philips fraudulently misled AP to believe that Philips intended a long term relationship with AP, despite the one year contracts. But for these misrepresentations, AP says that it would not have signed the representative agreements. Moreover, AP contends that the existence of the Major Accounts Program itself is evidence that Philips never intended to honor its promise that "long term service would end with long-term payments." Alexander dep. at 43.
1.
Generally, fraud must relate to a present or pre-existing fact.McCreery v. SEACOR, 921 F. Supp. 489, 492 (W.D. Mich. 1996). Fraud premised upon a promise to perform in the future is limited to one situation under Michigan Law: when a promise is made without a present intention of performance or when a promise is given for the purpose of deceiving the promisee and influencing his conduct constitutes fraud. See Lifeline Limited II v. Connecticut Life Ins. Co., 827 F. Supp. 438 (E.D. Mich. 1993). As such, in order to prevail, AP must establish as a matter of law that Philips had no intention of fulfilling its promise at the time that it was made. See Berry v. Chrysler Corp., 150 F.2d 1002 (6th Cir. 1945) (claim of fraud based on misrepresentation pertaining to duration of contractual relationship within series of contracts). In other words, AP must establish that Philips intended to terminate AP before any significant commissions would be paid on GM sales. A mere change in circumstance after the promise was made, or the non performance of a promise does not constitute fraud. See Kovacs v. Electronic Data Systems Corp., 762 F. Supp. 161, 166 (E.D. Mich. 1990).
Although the parties dispute whether Michigan or California law applies, each party agrees that for all relevant purposes and on all relevant issues, Michigan and California law are in complete accord. See e.g. Brief in Support of Philips's Opposition to Plaintiff's Motion for Summary Judgment at footnotes 11, 13, 15. Therefore, for the convenience of the Court, Michigan law will be referenced.
2.
On the record as it now stands, there is no evidence that Philips lacked the requisite present intent to fulfill its promises to AP, such that Philips committed actionable fraud in its dealings with AP. First, it is unclear whether Philips actually made a promise contrary to the written agreements. Simply to say that long term sales would result in long term commissions is not in and of itself, contrary to the written agreement. Moreover, although AP states in its papers that Philips told Alexander on numerous occasions that "long term sales equals long term commissions" and that "a renewal would be signed every year as long as AP did its job," AP does not cite to any deposition transcript page or document attributing the statement to a particular person from Phillips.
Fred Bucholz and Rich Lesinski are now deceased. See Anthony Daragona dep. at 37-38.
Additionally, even assuming that Philips's Major Accounts Program functions in the way AP describes in its brief, as well as what can be reasonably inferred from such a program, assuming AP is correct in its characterization, Phillips was certainly aware of the 30-day termination clause and the potential that Phillips, at any time, could have taken the account in-house; this is a common risk taken by a manufacturer's representative in trying to make a deal between the purchaser and its customer.
Further, although the expected commission stream in the 1991-1992 contracts may have been lower than originally expected, AP was fully aware of this when it entered into the next contracts. It, in essence, subsequently ratified them.
Therefore, Phillips is entitled to summary judgment on the issue of fraudulent inducement.
B. Breach of Contract
Despite AP's protestations, the language of the representative agreements is not ambiguous. Paragraph 9 of the 1991 agreement sets forth the manner in which commissions are generally paid. Paragraph 13 pertains to commissions paid in the event of termination. Thus, the two paragraphs are neither internally inconsistent nor do they directly contradict each other. Additionally, simply because the representative agreements may be silent on certain issues, does not itself create an ambiguity sufficient to invoke parole evidence. See Clark Bros. Sales Co. v. Dana Corp., 77 F. Supp.2d 837, 843-44 (E.D. Mich. 1999).
Moreover, because the representative agreements define the extent of Phillips's responsibility to pay commissions upon termination, Michigan's procuring cause doctrine is inapplicable. See id. at 843. As this Court has said before, see Roberts Assoc., Inc. v. Blazer Int'l Corp., 741 F. Supp. 650 (E.D. Mich. 1990), the procuring cause doctrine is triggered only "where the contract is silent." See also Clark Bros., 77 F. Supp.2d at 847-849 (holding that Michigan law imposes no duty to pay post-termination commissions under the procuring cause doctrine where the parties have provided otherwise in their agreement).
At the motion hearing held on July 18, 2000, the Court found that the first purchase order for the 575 semiconductors was issued in May, 1994. Prior to May, 1994, GM was not obligated to Phillips in any way — it could have canceled the project or selected another vendor. See hearing transcript at 21. Since it is undisputed that Phillips terminated the representative agreement with AP in September, 1992, there were no GM purchase orders issued, for which AP could have received a commission, prior to AP's termination. Given that it is also undisputed that all commissions due to AP, prior to the termination, were paid, there is no breach of the representative agreement. Accordingly, Phillips is entitled to summary judgment on the issue of breach of contract.
C. Promissory Estoppel/Unjust Enrichment
Although the Court had indicated at the hearing that AP possibly had a claim for promissory estoppel, or unjust enrichment, for the efforts and costs it expended in making the "wedding" of GM and Philips, upon further research, it appears that the Court's comments were in error.
Promissory estoppel is an equitable remedy used to imply a contract in the absence of an express contract. See Barber v. SMH (US). Inc., 202 Mich. App. 366 (1993) ("a contract will be implied only if there is no express contract covering the same subject matter.") Here, the parties had an express, written contract setting forth the terms of AP's compensation by commission which stated that for a commission to be earned, "the purchase order must have been accepted and acknowledged in writing by [Philips] prior to the effective date of the termination." By limiting AP's commissions to sales made prior to the contract's termination, the contract therefore barred post-termination commissions.
AP's argument that no contract exists with regard to GM parts sold in 1994 is mistaken. Contrary to AP's papers, the Court did not find at the hearing that "there is no applicable contract." See plaintiff's supplemental brief at 2. Rather, the Court found that under the contract itself, AP had no claim. See IV.B. discussion infra. As noted above, there was an express contract which governed the payment of commissions between AP and Philips. This was the basis of AP's breach of contract claim. It would be inconsistent for AP to first claim that it is entitled to post-termination commissions under the contract, and then, when unsuccessful, subsequently claim that there was no contract. Accordingly, because an express contract exists with regard to payment of commissions to AP, it cannot recover under the equitable doctrine of unjust enrichment or promissory estoppel. See Clark Bros, 77 F. Supp.2d at 843-44 (E.D. Mich. 1999).
SO ORDERED.