Opinion
Docket No.: BCD-CV-10-37
11-14-2011
JOHN E. MCDONALD, JR., Plaintiff, v. SCITEC, INC., TELEMATRIX, INC., and CETIS, INC., Defendants
DECISION AND ORDER
(Partial Motion for Summary Judgment)
Defendants Scitec, Inc., Telematrix, Inc., and Cetis, Inc. (collectively, the "Defendants") move for partial summary judgment on Plaintiff John E. McDonald, Jr.'s Second Amended Complaint. Specifically, Defendants seek: 1) summary judgment on Count I, a declaratory judgment action regarding the status of Teledex, Inc.; 2) partial summary judgment on Counts III, IV, and VI regarding any claims by McDonald that he is due commissions with respect to Teledex; and 3) partial summary judgment on Counts III, IV, and VI regarding any claims by McDonald that he is due commissions for transactions occurring after the termination of the parties' agreement.
I. BACKGROUND
The following facts are undisputed except where noted. Scitec was formed by Dr. Bing Sun in 1993 and, by 1998, became a manufacturer of telephones. (Defs.' Supp. S.M.F. ¶¶ 1-2; Pl.'s Opp. S.M.F. ¶¶ 1-2.) Scitec purchased the assets of Telematrix, another telephone manufacturing company and one of Scitec's competitors, and began operating a new entity called Telematrix. (Defs.' Supp. S.M.F. ¶ 3; Pl.'s Opp. S.M.F. ¶ 3.) Telematrix and Scitec operated as separate entities until December 31, 2009, when they merged to form Cetis. (Defs.' Supp. S.M.F. ¶¶ 4-5; Pl.'s Opp. S.M.F. ¶¶ 4-5.)
McDonald and Scitec entered into a commission agreement (the "Agreement") on April 8, 2002, by which McDonald would be paid a commission for bringing business to Scitec through third parties with which McDonald had or would establish business contacts (the "Contacts"). (Defs.' Supp. S.M.F. ¶¶ 9-11; Pl.'s Opp. S.M.F. ¶¶ 9-11.) The Agreement is governed by Illinois law. (Defs.' Supp. S.M.F. ¶ 18; Pl.'s Opp. S.M.F. ¶ 18.)
Under the Agreement, Scitec or Dr. Sun could approve or deny a contact. (Defs.' Supp. S.M.F. ¶ 13; Pl.'s Opp. S.M.F. ¶ 13.) Pursuant to the Agreement, Scitec agreed to "pay McDonald an amount equal to five percent (5%) of the product sales only (excluding shipping and handling, sales taxes, use taxes, other taxes) paid to [Scitec] by the Contacts, up to the gross amount of $5,000,000" within the prior 12-month period. (Defs.' Supp. S.M.F. ¶ 15; Pl.'s Opp. S.M.F. ¶ 15.) The Agreement further states that "For all gross amounts over $5,000,000 paid to [Scitec] by the Contacts, within the prior twelve-month period, [Scitec] shall pay to McDonald four percent (4%) of such amounts." (Defs.' Supp. S.M.F. ¶ 16; Pl.'s Opp. S.M.F. ¶ 16.)
As to duration, the Agreement states: "Payment for gross amounts paid to [Scitec] by any Contacts shall continue until the earlier of five (5) years after the Agreement is terminated upon mutual agreement or the Contact receives any amounts from a competitor of [Scitec] as the result of an introduction by McDonald to the competitor for a product that McDonald has introduced for [Scitec]." (Defs.' Supp. S.M.F. ¶ 20; Pl.'s Opp. S.M.F. ¶ 20.) Finally, the Agreement includes a survival clause, which provides: "Sections 2, 3, and 6-9 shall survive any termination or expiration of this Agreement." (Pl.'s A.S.M.F. ¶ 65; Defs.' Reply S.M.F. ¶ 65.)
Until November of 2002, McDonald owned a company that served as a distributor for Teledex LLC, a telephone supplier and one of Scitec's competitors. (Defs.' Supp. S.M.F. ¶ 23; Pl.'s Opp. S.M.F. ¶ 23; Pl.'s A.S.M.F. ¶ 11; Defs.' Reply S.M.F. ¶¶ 11, 16.) In January 2003, Scitec approved Teledex as a Contact under the Agreement. (Defs.' Supp. S.M.F. ¶ 25; Pl.'s Opp. S.M.F. ¶ 25; Pl.'s A.S.M.F. ¶ 16; Defs.' Reply S.M.F. ¶ 16.) In 2003 and 2004, McDonald spoke with Teledex about the possibility of Scitec acquiring Teledex; McDonald arranged a meeting between Scitec and Teledex in May of 2004, but no agreement was reached. (Pl.'s A.S.M.F. ¶¶ 17-23 ; Defs.' Reply S.M.F. ¶¶ 17-23.)
In the summer of 2009, Teledex was in significant financial trouble, and Telematrix entered into negotiations with GE Capital, the holder of Teledex's debt, to acquire Teledex's debt. (Defs.' Supp. S.M.F. ¶¶ 32-34; Pl.'s Opp. S.M.F. ¶¶ 32-34; Pl.'s A.S.M.F ¶ 24; Defs.' Reply S.M.F. ¶ 24.) TMX Funding, a subsidiary of Telematrix, was set up to acquire Teledex's debt from GE Capital. (Defs.' Supp. S.M.F. ¶ 39; Pl.'s Opp. S.M.F. ¶ 39; Pl.'s A.S.M.F. ¶ 43; Defs.' Reply S.M.F. ¶ 43.) TMX Funding acquired the debt of Teledex on December 7, 2009, and then foreclosed on the debt. (Defs.' Supp. S.M.F. ¶¶ 40-41; Pl.'s Opp. S.M.F. ¶¶ 40-41.) Teledex's assets were sold to TMX Funding at public foreclosure auction on December 18, 2009. (Pl.'s A.S.M.F. ¶ 44; Defs.' Reply S.M.F. ¶ 44.) After the purchase, Scitec and Telematrix merged into Cetis. (Pl.'s A.S.M.F. ¶ 47; Defs.' Reply S.M.F. ¶ 47.) The parties dispute at which point in 2009 that McDonald learned of Defendants' purchase of Teledex, but McDonald had no knowledge of the details regarding the transaction. (Defs.' Supp. S.M.F. ¶¶ 46-47; Pl.'s Opp. S.M.F. ¶¶ 46-47.)
Cetis phones are marketed in the United States using the Teledex brand name, but are not marketed as Teledex in China. (Defs.' Supp. S.M.F. ¶¶ 51-52; Pl.'s Opp. S.M.F. ¶¶ 51-52.) Between January 2010 and January 2011, Defendants reported $7,323,565.74 in gross sales of Teledex related products. (Pl.'s A.S.M.F. ¶ 56; Defs.' Reply S.M.F. ¶ 56.) Cetis terminated the Agreement on April 8, 2010 (Pl.'s A.S.M.F. ¶ 60; Defs.' Reply S.M.F. ¶¶ 59-60.), and has ceased making commission payments to McDonald. (Pl.'s A.S.M.F. ¶ 68; Defs.' Reply S.M.F. ¶ 68).
McDonald initiated this litigation on April 7, 2010. McDonald's Second Amended Complaint contains five remaining counts: 1) declaratory judgment action, pursuant to 14 M.R.S. §§ 5951-63 (2009), regarding the status of Teledex (Count I); 2) breach of contract for failure to pay commissions (Count III); 3) conversion of unpaid commission payments (Count IV); 4) punitive damages (Count V); and 5) violations of the Illinois Sales Representative Act, 820 111. Comp. Stat. 120/0.01 to 120/3 (LEXIS through 2011 Legis. Sess.) (Count VI). The Court (Humphrey, C.J.) dismissed Count II, a breach of contract claim for unlawful termination of the commission agreement, in a prior order. The Court heard oral argument on the pending motion on September 20,2011.
II. DISCUSSION
A party may obtain summary judgment if there is no genuine dispute as to any material fact and the party is entitled to judgment as a matter of law. M.R. Civ. P. 56(c). To withstand a defendant's motion for summary judgment, "the plaintiff must establish a prima facie case for each element of her cause of action. If a plaintiff does not present sufficient evidence on the essential elements ... the defendant is entitled to a summary judgment." Blake v. State, 2005 ME 32, ¶ 4, 868 A.2d 234, 237 (quotation marks omitted). For purposes of summary judgment, a "material fact is one having the potential to affect the outcome of the suit." Burdzel v. Sobus, 2000 ME 84, ¶ 6, 750 A.2d 573, 575. A factual issue is genuine when there is sufficient supporting evidence for the claimed fact that would require a fact-finder to choose between competing versions of the facts at trial. Inkel v. Livingston, 2005 ME 42, ¶ 4, 869 A.2d 745, 747. If ambiguities in the facts exist, they must be resolved in favor of the non-moving party. Beaulieu v. The Aube Corp., 2002 ME 79, ¶ 2, 796 A.2d 683, 685.
Defendants seek partial summary judgment on McDonald's remaining claims for commissions with respect to Teledex and on any claims for commissions for transactions that occurred after the termination date of the Agreement (April 8, 2010). Although Defendants also requested summary judgment on Count VI, in which McDonald alleges violations of the Illinois Sales Representative Act, 820 111. Comp. Stat. 120/0.01 to 120/3, Defendants make no reference of the Act in their supporting memorandum of law. Particularly in the absence of a substantive argument on the application of the Act, the Court is not convinced that summary judgment is appropriate on Count VI.
Because McDonald presented a substantive argument in his opposition to the motion, Defendants addressed the argument in their reply memorandum.
A. Commissions on transactions with Teledex
Defendants seek partial summary judgment on whether McDonald is entitled to commissions on any transactions with Teledex. The record establishes that Teledex was an approved Contact under the Agreement. Pursuant to the Agreement, Scitec agreed to "pay McDonald an amount equal to five percent (5%) of the product sales only . . .paid to [Scitec] by the Contacts, up to the gross amount of $5,000,000" within the prior 12-month period. (Defs.' Supp. S.M.F. ¶ 15; Pl.'s Opp. S.M.F. ¶ 15 (emphasis added).) Defendants argue that although Scitec approved Teledex, Scitec never sold any products to Teledex or manufactured any products for Teledex. Citing the language of the Agreement, which they contend is clear and unambiguous, Defendants argue that there "has never been a commissionable event giving rise to any obligation to pay any commissions to McDonald on account of any sales by Scitec or Cetis to Teledex." McDonald contends that the Agreement is ambiguous. In support of his argument, McDonald relies in part on the Court's decision on Defendants' motion to dismiss Count II.
First, the Court is not persuaded that the law of the case doctrine establishes that the pertinent contract language is ambiguous. The law of the case doctrine "is an articulation of the sound policy that a trial judge should not in the same case overrule or reconsider the decision of another trial judge." Anderson v. O'Rourke, 2008 ME 42, ¶ 13 n.l, 942 A.2d 680, 684. The doctrine "relates only to questions of law, and it operates only in subsequent proceedings in the same case." Blance v. Alley, 404 A.2d 587, 589 (Me. 1979). McDonald argues that in its decision on the motion to dismiss Count II, the Court (Humphrey, C.J.) determined that the Agreement was ambiguous. The court disagrees. The issue presented in the motion to dismiss was whether the Agreement could be read to include commission payments to McDonald for sales of both products and services from a Contact to Scitec. On that narrow issue, the Court determined that the contract language was ambiguous because the parties used inconsistent terminology regarding the scope of the Agreement. The Court did not conclude that the entire agreement was ambiguous, nor did the Court address the issue squarely here: whether a sale to a Contact is a prerequisite to McDonald earning a commission.
Illinois law governs the Agreement, but McDonald has argued "law of the case" under Maine principles, to which Defendants did not object. The court will thus consider McDonald's law of the case arguments pursuant to Maine law.
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With respect to the Agreement, McDonald maintains that "product sales" could include transactions between related entities, such as Teledex and Scitec. At oral argument, McDonald explained that TMX Funding, a subsidiary of Telematrix and the entity that acquired Teledex's debt, is now in fact Teledex. Telematrix subsequently merged with Scitec to form Cetis, and Cetis is now selling Teledex-branded telephones. McDonald argues that there must have been some sale between Teledex/TMX and Scitec/Cetis, thus qualifying the acquisition of Teledex/TMX as a commissionable event under the Agreement.
The principles of contract interpretation under Illinois law are familiar:
The primary objective in construing a contract is to give effect to the intent of the parties. A court must initially look to the language of a contract alone, as the language, given its plain and ordinary meaning, is the best indication of the parties' intent. Moreover, because words derive their meaning from the context in which they are used, a contract must be construed as a whole, viewing each part in light of the others. ... If the language of the contract is susceptible to more than one meaning, it is ambiguous. In that case, a court may consider extrinsic evidence to ascertain the parties' intent.Gallagher v. Lenart, 874 N.E.2d 43, 58 (111. 2007) (citations omitted); accord Coastal Ventures v. Alsham Plaza, LLC, 2010 ME 63, ¶ 26, 1 A.3d 416, 424. Viewed in the context of the entire Agreement, the payment provision unambiguously provides that before any commission is due to McDonald, a Contact must pay Scitec money in exchange for products or services. The record fails to establish the existence of any such qualifying sale between Teledex and Scitec. Although McDonald argues that the Agreement's scope is more than just "sales," the language of the Agreement is unambiguous. "[T]he language of a contract alone ... is the best indication of the parties' intent." Gallagher, 874 A.2d at 58. Because McDonald has not shown any sale (regardless of the form) in which Teledex paid Scitec or its successor for products or services or raised an issue of material fact as to the existence of such a sale, there was no commissionable event with respect to Teledex. Accordingly, Defendants are entitled to summary judgment on that issue. See Blake, 2005 ME 32, ¶ 4, 868 A.2d at 237.
II. Commissions on Transactions Occurring After the Termination of the Agreement
Defendants also contend that partial summary judgment is warranted because the Agreement is clear on the circumstances under which McDonald is entitled to continue receiving commission payments after its termination. Section 2 of the Agreement states:
Payment for gross amounts paid to [Scitec] by any Contacts shall continue until the earlier of five (5) years after the Agreement is terminated upon mutual agreement or the Contact receives any amounts from a competitor of [Scitec] as the result of an introduction by McDonald to the competitor for a product that McDonald has introduced for [Scitec].(Defs.' Supp. S.M.F. ¶ 20; Pl.'s Opp. S.M.F. ¶ 20.) Defendants make two arguments in support of their argument that McDonald is not entitled to commissions after the date of the Agreement's termination. Defendants first argue that McDonald was only entitled to receive continued commission payments for five years after termination of the Agreement if the Agreement had been terminated by mutual agreement. Because Cetis unilaterally terminated the Agreement, Defendants contend there is no right to continued payment. Defendants also argue that because the contract is terminable at will, all provisions within the Agreement expired when Cetis terminated the Agreement. The Agreement also includes a survival clause, which provides: "Sections 2, 3, and 6-9 shall survive any termination or expiration of this Agreement." (Pl.'s A.S.M.F. ¶ 65; Defs.' Reply S.M.F. ¶ 65.)
Based on the record before the Court, summary judgment is not warranted on this issue. The Agreement contemplates two events could result in the termination of McDonald's right to continued commission payments: the passage of 5 years after mutual termination of the agreement; or a Contact receiving payment from a competitor of Scitec based on an introduction from McDonald. Upon review of the summary judgment record, the Court is not convinced either condition has been established. In particular, the record does not establish that the parties mutually terminated the Agreement, nor does the record establish that a Contact received payment from a competitor of Scitec based on an introduction from McDonald. Material facts remain in dispute, therefore, as to the circumstances under which McDonald's right to receive commissions was to end under the terms of the Agreement.
Based on the foregoing analysis, the Court orders:
1. The Court grants Defendants' motion for partial summary judgment in part and enters judgment in favor of Defendants Scitec, Inc., Telematrix, Inc., and Cetis, Inc. on Count I of the Second Amended Complaint, declaring that McDonald is not entitled to any commissions related to Teledex because there has been no commissionable event with respect to Teledex.
2. The Court denies Defendants' motion for partial summary judgment on all other issues and Counts of the Second Amended Complaint.
Pursuant to M.R. Civ. P. 79(a), the Clerk shall incorporate this Decision and Order into the docket by reference.
Justice, Maine Business & Consumer Court
Entered on the Docket: ____
Copies sent via Mail ____ Electronically
CV-10-37
John E. McDonald, Jr. v. Scitec, et al
Plaintiff: Michael Donlan - Verrill Dana
Defendants: Randall Weill - Preti Flaherty