Rep goes toe-to-toe with manufacturer — and wins every round

Promoting the sale of electrical insulation used in power transmission and distribution lines is undoubtedly a seductive enough field all by itself. But mix in a lawsuit over unpaid commissions and a flailing attempt to dismiss it, and soon, the same way sex and violence sells movie tickets, the enchantment with electrical insulation sales becomes palpable. The electrical insulation sales channel can be viewed as a boxing ring, and in one corner stands the manufacturer, Sediver USA, Inc. In the other corner is the challenger, independent manufacturers’ rep D’Ewart Representatives, LLC. Here’s the tale of the tape.

After getting knocked down, the rep counterpunches

The parties entered into a series of sales rep agreements that were, as is so often the case, heavily tilted in the manufacturer’s favor. D’Ewart served as the Northwest rep until getting flattened by Sediver in January 2022. While Sediver had the contractual right to terminate, D’Ewart claimed it underpaid certain commissions due and altogether failed to pay other commissions. To collect these commissions, D’Ewart filed suit in the federal court in Seattle asserting breach of contract and violations of the Washington Sales Representatives Act. (As an aside, most states have sales rep statutes, and unfortunately for D’Ewart, Washington’s is among the weakest, providing for no exemplary damages.)

The manufacturer seeks a “TKO”

Sediver fought back by moving to dismiss D’Ewart’s complaint. Motions to dismiss are typically raised at the beginning of the case before the parties engage in the discovery process, where evidence is gathered to support their positions. Accordingly, the standard to prevail on a motion to dismiss is quite high, essentially requiring Sediver to score a knockout to prevail on its motion. Its motion argued that the allegations of underpayment were implausible when the 1 percent sales commission at issue was properly paid as a split commission. “But this is not so clear to the Court,” ruled Judge John C. Coughenour, because the formula used by Sediver depended on unexplained “territorial considerations.” In actuality, it appeared Sediver inferred from the contract that a 1 percent rate “best captured the project’s territorial implications.” The judge, however, ruled “it is black letter law” that he cannot rely on inferences to grant a motion to dismiss. Undeterred, Sediver took another shot. Relying on the agreement’s pro-manufacturer terms, Sediver pointed to its contractual right to unilaterally set the applicable commission rate. A contract provision such as this should give all reps pause. Consider how the parties agreed on specific commission rates in their agreement, but another clause tucked into the same document gave the principal the right to undo the agreed-upon rates and set a new rate all by itself. Suffice it to say reps are well-advised to keep such terms out of their contracts to the extent possible.

The ref breaks up the clinch

Fortunately, in Washington state, like in most states, contracts are subject to an implied duty of good faith and fair dealing. This meant Sediver was required to exercise its right to set the commission rates in a good faith manner. The complaint pleaded that Sediver violated this duty, and that was enough for Judge Coughenour, who ruled Sediver cannot rely on this unilateral contract right for purposes of a motion to dismiss.

On to the next round

Unable to knock down the contract claim, Sediver launched some haymakers at D’Ewart’s sales rep act claim. After a termination, the Washington rep statute requires principals to pay all earned commissions due within 30 days of receiving payment, and to pay all commissions that the rep was responsible for regardless of when the sale occurs. Unlike most other state statutes, Washington’s does not include a provision awarding double or treble damages upon a violation.

D’Ewart apparently invoked the statute merely to provide an alternative cause of action against Sediver, and not because it offered any greater relief. Yet, Sediver still jabbed away, based upon the statutory language limiting its application to a sales rep who solicits wholesale orders. Sediver claimed the complaint pleaded the parties’ sales relationship was not a wholesale one. Again, the Court read it quite differently, finding Sediver’s argument “ignores allegations contained in the Complaint and the agreement’s plaint terms.” The judge refused to entertain an argument “based on nothing more than Defendant’s version of the facts here.”

In a “final salvo” against the Washington rep statute, Sediver argued it should not apply because the parties’ most recent agreement predated its effective date. And indeed, the parties’ contract states it was “dated as of August 8, 2019,” well before the statute’s June 11, 2020 effective date. D’Ewart, however, actually signed the agreement on September 20, 2020, months after the relevant terms of the sales rep act took effect.

Trying to fight closer to home

Sediver’s final blow involved changing tactics. If it couldn’t prevail in seeking a dismissal, Sediver wanted to fight in a more convenient ring and sought to transfer the action from Seattle to Little Rock, Arkansas. To do so, Sediver invoked what it referred to as the rep contract’s “forum selection clause.”

When parties agree in a contract to a provision mandating that disputes get litigated in a specific forum, courts will usually enforce these terms. Such clauses must make a designated forum as the exclusive venue, not an optional venue, to be taken seriously.

The term that Sediver pointed to in its contract with D’Ewart hardly used mandatory language. Instead, it read: “jurisdiction and venue in the courts governing Arkansas shall be appropriate for any and all matters and disputes arising” under the contract. “Appropriate” and “exclusive” are not even cousins. In the words of Judge Coughenour: “In the Court’s view, this is permissive—not restrictive. It provides that an Arkansas court may be used—not must be used.”

The action remained in Seattle, where D’Ewart would get its day in court. Rather than score the knockout it needed to escape D’Ewart’s allegations of withholding commissions due, Sediver got pounded on its motion to dismiss, losing every round.

D’Ewart would live to fight another day in its battle to get fairly paid.

Adam J. Glazer is a partner in the law firm of Schoenberg Finkel Beederman Bell & Glazer LLC, and serves as general counsel to ERA. He is also a regular contributor to The Representor, and participates in Expert Access, the program that offers telephone consultations to ERA members.

You may contact Adam Glazer at 312-648-2300 or by email at [email protected].

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