When family agreement is breached, neither rep’s wife nor principal gets off “scott”-free

Adam Glazer, Attorney, SFBBG

As Mary Karr, author of “The Liars’ Club,” aptly put it: “A dysfunctional family is any family with more than one person in it.” However true the observation, rarely does such dysfunctionality wind up in federal court. Yet in 2024, two married sales reps sued a sales rep sibling and sister-in-law essentially for their ingratitude, and also for breaching an agreement. For good measure, these dysfunctional family members even dragged their manufacturer into court with them.

The dysfunctionality

Sales reps Ed and Maripat Scott, husband and wife, operate Great Scott National Sales, Inc. Ed’s brother Jim Scott, also a rep, approached Ed and Maripat in 2017 about working with them as an independent contractor, but wanted to maintain his longtime relationship with Howard Products, Inc. The family soon entered into a written sales representative agreement providing that Great Scott would support Jim’s efforts with Howard and would receive compensation in the form of 30 percent of the commissions.

The parties understood that Jim suffered from a debilitating health condition that would result in his inability to continue working. This led them to also enter into the seemingly inconsistent “Scott Family Agreement” where Ed and Maripat orally agreed to forego taking any commissions on the Howard Products business while Jim was active, in exchange for the account getting turned over to them once Jim’s medical condition sidelined him.

In addition to Jim, Ed and Maripat, at least five other family members were aware of this oral agreement. In reliance on its terms, Ed and Maripat assisted Jim with the Howard account and trained his wife, Cheryl Scott, to step in when Jim was unable to continue, all without compensation. During this time, the commission dollars went to Jim and Cheryl.

Family betrayal and response

Jim’s advancing medical condition ended his sales rep career in the spring of 2023. Cheryl was then approached by another family member who recommended she retire and turn the account over to Great Scott, as agreed. Instead, she stated she wanted to give the Howard contract to her son. Mother and son soon formed another rep company, the Scott Legacy Group, and convinced Howard to send the commission payments directly to Cheryl.

In response, Great Scott, Ed and Maripat filed suit against Cheryl, Jim and Howard Products in federal court in Chicago. They sought to recover their losses when the Howard business was not transferred upon Jim stepping aside. The plaintiffs brought claims against Jim and Cheryl for breach of contract and breach of fiduciary duty, and against Howard Products for violating the Illinois Sales Representative Act.

The sales rep act claim

As most reps know, sales rep protection statutes in many states seek to level the playing field with deeper-pocketed principals by providing powerful protections to reps who do not timely receive their full commissions, including the potential to recover exemplary damages and attorneys’ fees.

To avoid facing such liability, Howard moved to dismiss, contending plaintiffs failed to allege it was in the business of selling a tangible product, as the Illinois Sales Rep Act requires. The argument gained little traction, however, when the federal judge recognized that “Plaintiffs need not specifically plead what Howard Products’ products are or how they are made, produced, or transported to successfully plead an ISRA claim.”

By pleading that Jim had a long-term relationship with Howard that he sought to continue by affiliating with Great Scott, and that Ed and Maripat helped set up vendor portals at various trade shows that included “product descriptions, packs, images, and online selling details,” plaintiffs had adequately set out a “reasonable inference” that Howard was in the business of producing a tangible product under the ISRA.

Howard also challenged whether the plaintiffs properly pled they were a “sales representative” within the meaning of the statute, which defines the term as “a person who contracts with a principal to solicit orders and who is compensated in whole or in part by commission.” The point attempted was thatJim was the “sales representative,” not plaintiffs.

As recounted by the court, the complaint alleged that: (1) together, Jim, Ed and Maripat, as agents of Great Scott, had negotiated an agreement with Howard, (2) Howard paid monthly commissions to Great Scott for the work they and Jim performed, and (3) Ed and Maripat performed extensive work on the Howard accounts, including “preparation and execution of appropriate forms, insurance, vendor portal submissions, booth set-up, and booth sales.” This showed a “principal” and “sales representative” relationship sufficient to preserve the ISRA claim.

The breach of contract claim

Cheryl challenged the contract claim directed against her, starting by pointing out the complaint did not expressly plead she was a party to the contract between Great Scott and Jim. Yet, such could be “reasonably inferred” from its allegations, according to the court.

Plaintiffs did allege that the oral contract required Jim and Cheryl to “cooperate with Ed and Maripat to ensure that the Howard Products’ line, and all of the related accounts, would be transferred to Great Scott” upon Jim’s inability to keep working. The complaint further alleged that plaintiffs trained Cheryl in “hardware channel verbiage so she could reply to correspondence from Howard Products,” and that she was responsible for communicating on Jim’s behalf and to “look out for Jim’s interest in the Scott Family Agreement.”

As if this was not enough, the court made much of the allegations relating to another family member approaching Cheryl to suggest she consider retiring and turn the Howard account over to Ed and Maripat. Her rejection was clear: “No, I’m thinking of giving it to the kid.”

The court found “two things can be inferred from this exchange.” First, Cheryl was acting pursuant to the Scott Family Agreement evidenced by the relative recommending she “retire.” Secondly, Cheryl was aware of the oral agreement to turn over the Howard account and sought to renege on its terms by instead giving it to her son.

Considered as a whole, these allegations made it plausible that Cheryl was a party to the contract and further that she breached the contract by refusing to transfer the accounts to Great Scott.

The breach of fiduciary duty claim

Fiduciary duties are owed only in certain relationships, not every time two or more parties enter into a contract. By alleging Cheryl was a member of the joint venture between the parties, plaintiffs suggested that the relationship existed, but Cheryl disputed this in her motion.

The complaint included allegations that Cheryl received payment for services provided to Howard through Great Scott pursuant to the Scott Family Agreement. Together with alleging that the parties shared control and management of the Howard Products account, from which they shared profits, the court determined the complaint adequately alleged Cheryl owed a fiduciary duty to the plaintiffs. And by claiming she withheld funds owed to other members of the joint venture, plaintiffs alleged the fiduciary duties owed were breached.

The dysfunctionality will continue

Accordingly, the motions to dismiss from Howard Products and Cheryl Scott were denied in late May 2025. The Scott family fight would continue. Perhaps the court’s ruling will actually calm the waters and enable the parties to discuss settlement. More likely, the case will progress through the discovery process where the Scotts will get to take (figuratively) swings at each other before their family fight is ultimately set for trial. While such an outcome would prove undesirable, it would confirm Jerry Seinfeld’s sage observation that, “There is no such thing as fun for the whole family.”