Jury delivers complete victory for sales rep (as deadline looms)

Adam Glazer

by Adam Glazer
ERA General Counsel

Your author was on trial in late August 2022 with this issue’s deadline fast approaching. Fortunately, the federal jury returned a quick verdict in favor of the plaintiff sales rep, simultaneously furnishing this article’s content and enabling The Representor’s deadline to be (nearly) met.

Many sales reps will see themselves in this tale. The prevailing plaintiff, Thompson Corrugated Systems (TCS), was a father and son team who reluctantly went along with their principal’s changing demands and contract deviations because they valued the relationship and believed in the quality of the product and its strong potential in the marketplace.

Then, when the principal went too far – much too far – TCS finally pushed back. Hard.

Agreement reached

It was approximately 2004 when TCS reached an oral agreement to represent Engico, an Italian manufacturer of corrugated box machinery. These custom-built, multimillion-dollar euro machines are so intricate and immense that Engico can only produce two per year for worldwide distribution. The terms of the Engico-TCS agreement were somewhat sparse: eight percent commission on all sales into North America, a continent on which Engico had never made sales and was virtually unknown. TCS also relied on the well-known Code of Ethics promulgated by the Manufacturers’ Agents National Association, or MANA, the cross-industry association of sales reps and manufacturers. MANA’s code includes provisions calling upon manufacturers to refrain from unilaterally changing the terms of sales rep agreements, and to specifically avoid reducing commission rates without sales reps’ consent. Fred Thompson, Sr., recalled that Engico’s president, Rinaldo Benzoni, agreed to the MANA code at the beginning of their relationship. Benzoni would alternatively refer to the Code of Ethics as “a beautiful document” and claim to have never read it. It was undisputed that TCS sent this “beautiful document” to Engico several times, pointing out it contained the essential terms of the parties’ agreement, and Engico never repudiated it.

Agreement performed

Both Fred Sr. and Fred Jr. worked diligently to pioneer the expansive territory for Engico and effected the first sale of an Engico machine in 2005 to a Kansas paper company. Then the Great Recession and the global manufacturing slowdown struck, the market eroded, and Engico approached TCS about changing the commission terms to a less lucrative sliding scale. To enable its principal to withstand the challenging economic conditions, TCS agreed to the sliding scale – limited to the next three sales. When a second Engico machine was sold in 2017 to a Nebraska paper company, TCS was paid at the sliding scale commission rate. In 2018, Benzoni met with the Thompsons and the parties discussed termination for the first time. The parties agreed to amend their oral agreement by having it terminate at the end of 2021, when Fred Sr. was considering retiring.

Agreement breached

By 2019, the Kansas paper company was ready to replace its 12-year-old machine with a newer Engico, but Benzoni cut TCS out of this transaction and dealt directly with the purchaser.

Relying on the parties’ agreement that TCS would receive commissions on all sales into North America, a term he frequently reminded Engico of, Thompson was not overly concerned about this move, and invoiced Engico at the sliding scale commission rate for this sale. In response, Engico acknowledged its obligation to commission TCS on the sale but issued no payment.

Despite the agreed 2021 termination date, by May 2019 Engico informed TCS it had selected a successor rep and termination would now occur at the end of 2019. Reluctantly, TCS accepted this new termination date.

Then, Enigco demanded that TCS provide a list of its “hot prospects,” and promised to “protect” TCS by paying commissions should any company on that list purchase a machine before year end. TCS complied by furnishing the list two days later.

In August 2019, Benzoni scheduled a meeting with TCS at the offices of its new rep firm. Fred Sr. traveled to Indiana for the meeting, believing he would finally receive the overdue commission payment on the third machine, and that they would discuss transitioning the line at year end consistent with their recent amendment.

Upon arrival, however, Fred Sr. discovered it was a sandbag.

Rather than arrange for an orderly transition process, Benzoni informed Fred that the new rep firm was taking over effective immediately, and TCS would get paid only on sales it directly produced to its “hot prospects” before the end of the year.

For good measure, Benzoni dropped a third bomb on TCS. As Benzoni later recounted, he informed Fred Sr. that Engico would only commission TCS on the third sale, a sale to a customer it indisputably secured, if TCS agreed to assert no further claims.

Fred Sr. not only rejected these demands, he also left the meeting and headed home.

His abrupt departure spooked Benzoni, who proceeded to lawyer up. TCS soon received a letter from Engico’s counsel documenting the termination, and thereby confirming its breach of the parties’ agreement, and offering to pay only an insulting 50 percent of the commission due on the sale to the Kansas customer. A follow-up letter from its attorney reduced Engico’s offer to 45 percent – and demanded a release in exchange. Engico paid no commission on this sale to TCS or anyone else.

Agreement honored (by TCS)

As far as TCS was concerned, its contract with Engico rendered all sales into North America commissionable through the end of 2019, so it continued to perform. When one of its “hot prospects” heated up by expressing high interest in purchasing the used machine Engico bought back from the Kansas paper company, TCS did everything it could to get Engico to react during 2019, including e-mailing, calling and personally discussing this customer’s interest.

Alas, Engico not only waited until the first few days of 2020 to proceed with this sale, it also structured a sham transaction to make it appear the purchaser was actually the successor sales rep, whose name was decidedly not on TCS’s “hot prospects” list. While the new rep testified it did re-sell the machine, it admitted that TCS brought in the customer. Moreover, the successor rep never took title or possession of the machine, and the used machine shipped directly from the Kansas paper mill to TCS’s customer in Pennsylvania.

Meanwhile, another sale took place in October 2019 to a customer TCS had previously called upon, and who informed Fred Sr. that it would not purchase from a manufacturer without a service technician in the U.S. Although this was duly reported to Engico, no technician was dispatched stateside until the successor rep was in place. TCS was not aware of this sale when it occurred, but notably, this sale was the fourth following the sliding scale amendment.

Agreement litigated

Filed in the U.S. District Court for the Southern District of Illinois, TCS’s complaint sought to recover for breach of the parties’ oral contract, and also sought exemplary damages under the Illinois Sales Representative Act.

Engico responded by throwing everything it had up against the judicial wall to see if anything might stick but found only Teflon. Engico’s motions to transfer the case, to dismiss for summary judgment, to bar TCS’s expert witness and to limit evidence were all denied on the way to trial. Meanwhile, the judge granted summary judgment in favor of TCS on the 2018 sale to the Kansas paper company.

Further, Engico made no real effort to settle the dispute, so a jury was empaneled in tiny Benton, Ill., hometown of actor John Malkovich. Engico flew in its two witnesses from Italy, who attempted to testify against a native father and son using a time-consuming translator, until the judge discerned both spoke English, and relegated the translator to stand-by duty.

The evidence presented at trial showed the parties originally agreed that, in exchange for TCS’s “pioneering” efforts, Engico would pay an eight percent commission on all sales made into North America. The jury then heard that the only three amendments to the oral agreement were: 1. Changing the commission rate after the first sale to the sliding scale for the next three machines; 2. Enabling the agreement to terminate after 2021, when Fred Sr. planned to retire; and 3. Moving up the termination date to the close of 2019.

Accordingly, the jury had little difficulty concluding that the agreement to commission TCS on all North American sales through 2019 was still in effect when Engico’s October 2019 sale took place, even though TCS did not directly participate in that sale. It had even less trouble seeing through the Engico smokescreen around the sale that, on paper, was made to its new sales representative that technically didn’t close until the first days of 2020. This sale too was deemed fully commissionable to TCS.

Because this machine comprised the fourth sale by Engico since the parties agreed to the sliding scale, TCS sought its eight percent commission per the parties’ original agreement. Benzoni testified that the sliding scale rate remained in effect and he never agreed it applied only to the next three sales, a position that proved inconsistent with other testimony and e-mails admitted at trial. The jury awarded an eight percent commission on this sale.

Agreement validated

After finding Engico breached the parties’ oral agreement, the jurors were tasked with deciding whether exemplary damages were warranted under the Illinois statute. The judge instructed them to apply the same standard that governs punitive damages in Illinois, a notoriously high standard, and yet the bar was met in this case.

Evidence of hiding sales and manipulating the process to avoid an unmistakable commission obligation, coupled with a lack of candor on the witness stand from Engico’s witnesses, and the failure to pay any commissions on the three sales at issue – even the 2019 sale on which the judge had awarded summary judgment – convinced the jury to apply the full reach of the sales rep statute. And, in the nick of time.

Post-deadline, attorney’s fees, costs and prejudgment interest are expected to get added to the judgment.

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 adam.glazer@sfbbg.com.