Baylor Miraca Genetics Laboratories, LLC v. Thomas Brandon Perthuis

Court of Appeals of Texas·Decided December 3, 2020·No. 01-19-00095-CV·Published

Opinion

Opinion issued December 3, 2020

In The

Court of Appeals

For The

First District of Texas

made after January 2017. The jury found that BMGL breached the commission agreement, and the trial court rendered judgment on the jury verdict. BMGL appeals, arguing in multiple issues that the trial court erred (1) in construing the commission agreement and in charging the jury; (2) in excluding evidence of its commission policy and practice; and (3) in the alternative, that no evidence supported the jury’s findings. In a cross-appeal, Perthuis argues in his sole issue that the trial court erred in denying his request for attorney’s fees under Civil Practice and Remedies Code Chapter 38.

Because we conclude that the trial court erred in construing the commission agreement and in instructing the jury, we reverse the judgment of the trial court and render judgment that Perthuis take nothing.

Background

Perthuis was a National Sales Manager for Baylor College of Medicine’s genetics lab when, in late 2014, Baylor College of Medicine entered a joint venture with Miraca Holdings, Inc. to form a new entity to conduct clinical genetics diagnostic activities. In connection with the joint venture, the newly formed entity, Baylor Miraca Genetics Laboratories (BMGL), offered Perthuis the position of Vice President of Sales & Marketing. Regarding compensation, the Employment Offer Letter stated:

Your annual base salary will be $145,000 effective April 1, 2015.

Your commission will be 3.5% of your net sales. . . . In addition, you

will be eligible to receive a retention bonus. More information on your retention bonus is included in the enclosed Retention Agreement.

The offer further stated that Perthuis’s employment would be “at-will,” “which means that you or BMGL may terminate your employment at any time for any reason, with or without cause, and with or without notice.” Finally, the offer stated, “If you accept this offer, your employment will be subject to the Company’s personnel policies and practice, which will initially be substantially similar to current Baylor policies.”

Following the creation of the joint venture in 2015, Perthuis worked for BMGL as the Vice President of Sales and Marketing. He procured sales from several companies by securing what the parties referred to as “channel partners”— companies that agreed to purchase large volumes of genetic tests from BMGL under long-term contracts. For example, in 2015, Perthuis participated in negotiating a Laboratory Services Agreement (LSA) on behalf of BMGL with a company called Natera. The LSA provided that Natera would use its own sales staff to sell the tests under its own brand, and BMGL would provide “analytical services,” or processing of genetic specimens. The LSA further provided that BMGL would meet certain obligations regarding the formatting of test results and timing for reporting certain test results. Natera agreed to pay an “exclusivity fee” in exchange for BMGL’s agreement not to perform certain genetic tests for Natera’s direct competitors, and Natera was obligated to meet minimum purchase

requirements to maintain this exclusivity. Natera also agreed to make a “pre- payment” of $1,000,000 for anticipated analytical services. The LSA stated that if the agreement was terminated by either party prior to Natera “ordering and taking delivery of $1,000,000 of Analytical Services, BMGL shall refund to Natera the remaining balance of the $1,000,000 pre-payment.” The LSA further provided that BMGL would be obligated to refund the exclusivity fee if it terminated the agreement within twelve months of the agreement’s effective date. The LSA set out terms for generating purchase orders, pricing for various genetic tests that varied depending on volume, invoicing and payment, and billing.

Perthuis testified that he did not receive any commission when the LSA was signed; rather, he collected commissions on sales made to Natera under this LSA throughout 2015 and 2016. He testified that BMGL calculated commissions quarterly based on the revenue from tests that had been ordered, performed, and billed to the proper account. He further explained that commissions were determined by totaling his revenue for a particular quarter, adjusting that amount for “bad debt” or particular clients’ failure to pay 100% of their bills, and then multiplying that by his commission percentage.

In the fall of 2016, Perthuis was involved in negotiating a second amendment and extension of the Natera LSA. By the end of 2016, the negotiations on the amendment were nearing completion, and all material terms were in place

by early January 2017. BMGL then terminated Perthuis on January 23, 2017. The next day, on January 24, 2017, BMGL signed the amended Natera LSA with an effective date of January 30, 2017.

The Second Amended LSA added a new section, obligating BMGL to “develop and validate a non-invasive prenatal multi-gene sequencing screen” called “PreSeek.” The Second Amended LSA also adjusted the terms for payment of “undisputed invoices,” set out terms for exclusivity and prepayment of fees related to the PreSeek screening tests, and added new provisions regarding the minimum purchase requirements set out in previous LSAs. Natera purchased tests and analytical services under this contract after it became effective on January 30, 2017. Because Perthuis had been terminated, other BMGL personnel provided services to Natera. Just a few months after Perthuis’s termination, BMGL personnel negotiated a Third Amendment to the Natera LSA without Perthuis’s participation and that amendment became effective on April 3, 2017. Other companies, including Progenity, Fleury, and NIPT, were similarly recruited by Perthuis while he worked for BMGL and then continued to make purchases from BMGL after he was terminated by BMGL in January 2017 and eventually went to work for one of BMGL’s direct competitors.

At trial, BMGL asserted that the commission agreement in the Employment Offer Letter entitled Perthuis to a commission on his net sales and that he was only

entitled to commissions while he was employed by the company. It presented evidence that, following his termination, it paid him commission due on his sales through his last day. For example, an email sent by Perthuis on the day he was terminated stated, “My offer says I get 3.5% of my sales. I have sold during these 20+ days in January. Can you please make sure this payment is included?” Perthuis then testified that BMGL paid him commissions “until January 23rd,” but it did not pay anything after his termination on January 23, 2017.

Perthuis asserted at trial that he was the procuring cause of all sales to Natera and other channel partners he procured, including all sales during the nearly two-year period between his termination on January 23, 2017 and the time of trial in the fall of 2018. BMGL’s sales reports showed that the “net sales” to the four accounts procured by Perthuis totaled approximately $44 million during the time between January 23, 2017, and September 30, 2018, so Perthuis argued that he was entitled to more than $1.5 million in sales commissions.

The trial court submitted the question of whether BMGL breached its commission agreement with Perthuis to the jury. The charge stated:

Perthuis’ “sales” included all sales for which he was the procuring cause.

A “procuring cause” of a sale is the principal and immediate cause of the sale. It need not be the sole cause, and an agent is said to be the procuring cause of a sale when his acts have so contributed to bringing about the sale that but for his acts the sale would not have been accomplished.

The fact that Mr. Perthuis was discharged by BMGL prior to the time a sale was completed does not bar his right to a commission if he was the procuring cause of the sale.

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Baylor Miraca Genetics Laboratories, LLC v. Thomas Brandon Perthuis, (Tex. Ct. App. 2020).

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