SIXTH DIVISION October 5, 2007
No. 1-05-4070
CLINTON IMPERIAL CHINA, INC., d/b/a ) Appeal from the Harris Potteries, ) Circuit Court of ) Cook County Plaintiff-Appellant, ) ) v. ) ) LIPPERT MARKETING, LTD. and JEFFREY ) LIPPERT, ) ) Defendants-Appellees ) ) (Lippert Marketing, Ltd., ) ) Counterclaimant and Cross-Appellant; ) ) Clinton Imperial China, Inc., d/b/a ) Harris Potteries, and Robert Harris, ) Honorable ) Robert E. Gordon, Counterdefendants and Cross-Appellees).) Judge Presiding
JUSTICE McNULTY delivered the opinion of the court:
A sales agent helped a manufacturer find a retail
distributor for its products. The manufacturer agreed to pay the
agent a commission on its sales to the distributor for a period
of five years. As the distributor preferred to communicate
directly with the manufacturer, the agent did not provide the
customary services of a sales representative. After paying
commissions for more than a year, the manufacturer sued the agent
to recover commissions paid after the agent stopped providing
services. The agent countersued for commissions on all products
the distributor agreed to purchase, even those ordered after the
end of the agreed five-year period. The trial court found that
the failure to provide customary services did not warrant 1-05-4070
forfeiture of commissions. The court awarded the agent
commissions promised on all products the distributor ordered from
the manufacturer during the agreed five-year period. We affirm
the judgment entered against the manufacturer for those
commissions.
BACKGROUND
In January 1995, Robert Harris, president of Harris
Potteries (Potteries), met Jeffrey Lippert, president of Lippert
Marketing (Marketing), at a trade show. Lippert told Harris he
knew of a major distributor who might want to purchase unglazed
stoneware products from Potteries. A few months later Harris and
Lippert signed an agreement for Marketing to act as sales
representative for Potteries. The agreement provided that "The
Pampered Chef shall be exclusively assigned to [Marketing] and
may not be reassigned to another sales representative or become a
house account without the express consent of Lippert." A letter
dated July 14, 1995, established Marketing's commissions at 10%
of Potteries' sales to The Pampered Chef (Chef).
Chef instituted a policy of direct communication with
manufacturers. Potteries designated Lippert as the person to
service Chef's account. Chef's president called Harris and told
him that Chef preferred to communicate directly with
manufacturers. Harris called Lippert and told him Potteries
would accommodate Chef, so Harris would assume responsibility for
contact with Chef.
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Partly because of Marketing's reduced role, Potteries
renegotiated its contract with Marketing. In August 1995
Potteries and Marketing signed a document entitled "SALES
REPRESENTATION AGREEMENT." The agreement provided:
"2. [Potteries] agrees to engage and [Marketing]
agrees to supply all or some of the consulting
marketing and sales services of [Marketing] as an
independent agent as such services, generally available
to the public, may pertain to ceramic product for sale
by [Potteries] to The Pampered Chef Ltd. account.
3. [Potteries] acknowledges that [Marketing] has been
the procuring agent of The Pampered Chef, Ltd., account
*** and agrees to make [Marketing] the exclusive agent
of said account during the term of this agreement. A
copy of the July 5, 1995 AGREEMENT BETWEEN HARRIS
POTTERIES AND THE PAMPERED CHEF, LTD., of which
[Marketing] initiated and consulted on [Potteries']
behalf, is attached hereto and incorporated by
reference herein. ***
***
5. For and in consideration of [Marketing's] procuring
The Pampered Chef, Ltd. account for [Potteries] and
rendering consulting marketing and sales expertise to
[Potteries, Potteries] will pay compensation to
[Marketing] as a percent of [Potteries'] annual
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collected sales (including sales up to December 31,
2000 but collected afterwards) to The Pampered Chef,
Ltd. as follows[:]
from January 1, 1996, to December 31, 2000,
$0 to $20,000,000 of sales 5%
20,000,001 to 30,000,000 of sales 2%
over 30,000,000 1%
6. [Marketing] will be paid on paid invoices of all
orders placed by The Pampered Chef, Ltd. [Potteries]
will pay said commissions to [Marketing] by the end of
the month following the month during which payment is
received by [Potteries]. ***
* * *
11. This agreement shall terminate on December 31,
2000. [Potteries] may sell to The Pampered Chef, Ltd.
after the expiration of this agreement on December 31,
2000 without any further compensation being paid to
[Marketing]."
The July 5 agreement between Potteries and Chef, referenced
in Potteries' agreement with Marketing, provided:
"[Chef] agrees to buy from [Potteries], and
[Potteries] agrees to make and sell to [Chef], a
minimum of 700,000 pieces in total during each of the
calendar years 1996 through 2000."
In December 1995 Chef sent Potteries a proposed amendment to
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the July 5 agreement. According to the proposal, Chef would
purchase a minimum of 3.5 million pieces each year from 1997
through 2000. In January 1996 Potteries and Marketing amended
their August 1995 agreement by adding a limitation on Marketing's
right to represent competitors of Potteries. But the amendment
allowed specific relief:
"If, however, [Potteries] is unable to
manufactur[e] sufficient quantities to meet at least
70% of the requirements of The Pampered Chef, Ltd., as
detailed in the Agreement Between Harris Potteries and
The Pampered Chef, Ltd. dated 7/5/95 and any addendums
*** which has to date been amended stating the minimum
required quantity is 3,500,000 pieces per calendar year
beginning with 1997, then *** [Marketing] will be
permitted to seek or solicit, or cause others to seek
or solicit other vendors or manufacturers to supply
unglazed stoneware to The Pampered Chef, Ltd."
In March 1996 Harris signed an amendment to Potteries'
agreements with Chef, but this amendment called for a minimum of
only 2 million pieces of unglazed stoneware per year, rather than
the 3.5 million pieces Chef initially proposed. In 1997 Chef and
Potteries signed a further amendment in which Chef and Potteries
agreed that, because of decreased demand for Potteries' products,
Chef would decrease its annual purchases, but it would extend the
term of the agreement to reach the same sales total of 8 million
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pieces. Chef promised to purchase about 1 million pieces per
year, but it would continue purchasing from Potteries at that
rate at least through 2004.
Potteries paid commissions to Marketing on its sales to Chef
each month. Despite the reduction in amounts sold, Marketing
never exercised its right to contact manufacturers of products
that competed with Potteries' products.
In 1995 Lippert secretly recorded a conversation he had with
an officer of Chef. When Chef found out about the recording, it
sent Lippert a letter informing him that he would "no longer be
allowed on the premises" of Chef. Marketing then sued Chef for
tortious interference with Marketing's relationship with
Potteries.
In 1998 Potteries sent Marketing a fax asking Marketing to
recommend a manufacturer for soup tureens Chef sought. Marketing
responded that it knew a manufacturer and would work with
Potteries on the project if Potteries would sign a new agreement
for Marketing to act as Potteries' sales representative.
Potteries replied that in their contract Marketing promised to
provide ongoing services. If Marketing refused to provide such
services, Potteries should not have any duty to pay commissions
to Marketing. Potteries last paid Marketing a commission for
April 1998.
In July 1998 Potteries sued Marketing for breach of
contract. Potteries sought to recoup amounts it paid Marketing
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as commissions after Marketing stopped providing customary
services expected from sales representatives. Marketing
countersued for breach of contract, fraud, and violation of the
Sales Representative Act (820 ILCS 120/0.01 et seq. (West 1998)).
In the fraud count, Marketing alleged that Harris, as an officer
of Potteries, falsely represented that Chef agreed to purchase
3.5 million pieces from Potteries each year. In reliance on that
misinformation, Marketing signed the amendment dated January
1996, limiting its right to represent Potteries' competitors.
Marketing sought relief both from Potteries and from Harris
individually in the fraud count. Only the fraud count included
any request for relief from Harris personally.
The parties moved for summary judgment on both the complaint
and the counterclaim. Potteries supported its motion with the
deposition of Harris, who swore that since July 1995 he provided
100% of sales representative services to Chef. Harris described
at length the services he expected from sales representatives and
he swore that Marketing could have provided some of those
services despite Chef's request for direct communication with
Potteries. Potteries also presented the deposition of Lippert,
who admitted that he did not try to contact any of Potteries'
competitors after he discovered that Potteries would not make 70%
of the 3.5 million pieces promised in the January 1996 agreement.
The court denied most of the motions, but it granted
Potteries summary judgment on the fraud count of Marketing's
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counterclaim. For purposes of the motion, the court assumed that
the misrepresentation concerning the quantity of assured sales
induced Marketing to sign the January 1996 amendment restricting
its right to represent Potteries' competitors. The court found:
"The January 10, 1996 addendum, however, did not
guarantee [Marketing] a certain amount of commissions.
It merely stated that [Potteries] had a current
agreement with [Chef] for a minimum of 3.5 million
pieces a year and that if [Potteries] was unable to
manufacture 70% of that amount *** [Marketing] would be
free to solicit other vendors. Jeffrey Lippert
testified that when he learned that [Potteries] was not
going to manufacture 70[%] of the 3.5 million he chose
not to solicit any other vendors. ***
Any damages sustained by the false statement would
be business opportunities lost by [Marketing] as a
result of being induced to enter into the January 10,
1996 agreement. [Marketing] has not alleged any such
damages. Summary judgment is appropriate."
At trial the parties agreed on Potteries' total orders from
Chef through December 2000 and through December 2004. The
parties presented conflicting evidence on the extent of the
services Marketing could provide Potteries for sales to Chef
after Chef expressed its preference for communicating directly
with Potteries. Potteries contended that it owed no commissions
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after Marketing breached the sales service contract by taping a
conversation with Chef and by suing Chef. The parties also
presented extensive evidence concerning the negotiations that led
to their contracts. The court allowed the testimony as parol
evidence concerning the meaning of the several contracts at
issue.
In its order disposing of the case, the court said:
"Lippert's wrongful and inappropriate taping
episode and lawsuit against *** Chef did not affect or
impair any of [Potteries'] sales to *** Chef; in fact,
they increased substantially to such an extent that
[Potteries] had to seek a larger facility and their
entire manufactured output was purchased by *** Chef.
*** [Potteries] initially entered into the
contract with [Marketing] in July of 1995 to obtain ***
Chef as a customer. ***
*** [Marketing] was supplying all of the
consulting, marketing and sales services pertaining to
the ceramic products for sale to *** Chef. The benefit
[Potteries] desired was the business of *** Chef and
they did not lose that benefit under the August
agreement. *** [T]hey executed the August agreement
with full knowledge that [Marketing] would have little
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or no involvement with the *** Chef account. ***
[Potteries] offered no evidence in this case of
any damages that they sustained as a result of
[Marketing's] failure to provide the services that they
claim. They ask for the return of commissions paid,
but have shown no evidence of out of pocket or other
compensatory damages as a result of Lippert's
inappropriate and wrongful taping of the conversation
with an employee of *** Chef which caused Lippert to be
barred from their premises. ***
If this court would find that [Marketing's]
failure to perform services was a material part of the
contract[, Marketing] would have to forfeit the
commissions that were owed to [it] and the commissions
[it] received after [Lippert] was barred from ***
Chef's premises. As a result, the party failing to
perform would suffer a great forfeiture under the facts
and circumstances of this case.
*** There is no excuse for [Lippert's] behavior.
*** [Marketing's] breach was a minor breach of the
contract not a material breach that would discharge
[Potteries] from paying commissions."
The court awarded Marketing a 5% commission on all orders
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Potteries received by December 31, 2000, but it denied
Marketing's request for commissions on all 8 million pieces sold
to Chef by December 31, 2004, under the 1997 amendment to the
agreement of July 5, 1995, between Potteries and Chef. The court
also denied the claim under the Sales Representative Act. The
court held:
"[T]here was no evidence of willful/wanton conduct
on the part of [Potteries]. But more importantly[,]
*** [Marketing] was not a sales representative for
[Potteries] on the *** Chef account once *** Chef
refused to accept [Lippert] as [Potteries']
representative and barred him from their premises as a
result of Lippert's wrongful conduct. *** The
commissions in this case accrued after [Marketing]
ceased being a[n] active sales representative."
The court awarded Marketing a judgment against Potteries and
Harris in the amount of $1,290,790.90, as the 5% commission due
on sales from April 1998, when Potteries stopped paying
commissions, through December 2000.
In a petition for rehearing, Potteries claimed that the
court had analyzed the case improperly, without reference to
Marketing's duties as Potteries' agent. Marketing also
petitioned for modification of the order. The trial court held:
"Lippert's actions *** were not a material violation
and *** the conduct of Lippert was not deliberate or
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willful, even though the taping was wrong and illegal.
*** [T]he law of Agency does not bar recovery upon such
evidence ***. *** [T]here was no willful or deliberate
act by Lippert that would cause harm to the principal."
The court denied the motions for reconsideration and for
modification of the judgment. Potteries and Harris appeal and
Marketing cross-appeals.
ANALYSIS
Potteries argues first that Marketing breached the August
1995 contract by covertly taping a conversation with an officer
of Chef, by suing Chef, and by failing to provide services
Potteries requested in 1998. Our supreme court established the
applicable principles:
"[W]hen one breaches a fiduciary duty to a
principal the appropriate remedy is within the
equitable discretion of the court. While the breach
may be so egregious as to require the forfeiture of
compensation by the fiduciary as a matter of public
policy [citation], such will not always be the case.
Punitive damages are permissible where a duty based on
a relationship of trust is violated, the fraud is
gross, or malice or willfulness is shown; such an award
is not automatic." (Emphasis in original.) In re
Marriage of Pagano, 154 Ill. 2d 174, 190 (1992).
When an agent acts in willful or deliberate breach of the
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fiduciary duty of loyalty to the principal, the agent "could not
expect compensation *** for the period of time in which the agent
was disloyal." R.K. Ray Sales, Inc. v. Genova, Inc., 133 Ill.
App. 3d 98, 102 (1985). In deciding whether the agent has
forfeited its right to compensation, the court may consider "the
seriousness and timing of the violation; the willfulness of the
breach; the potential for, or actual harm to the principal; and
whether the agent completed a divisible portion of his contract
duties before the breach occurred for which compensation can be
determined." Rockefeller v. Grabow, 136 Idaho 637, 643, 39 P.3d
577, 583 (2001).
Here, Marketing provided essentially no services after July
1995, largely because Chef wanted no such services, and not due
to disloyalty to Potteries. Suing Chef and taping the
conversation probably offended Chef, but Chef apparently did not
hold the offense against Potteries, whose sales to Chef rose
sharply after the incidents. Moreover, no evidence indicates
that Lippert acted from a motive of disloyalty to Potteries when
he recorded the conversation and sued Chef. The trial court
found that Lippert acted solely to protect his interests as a
sales agent and not in derogation of any interest of Potteries.
Before the breaches, Marketing had already performed the most
essential part of its duties by bringing Potteries and Chef
together. Under these circumstances the trial court found
insufficient grounds for forfeiture. We cannot say that the
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trial court abused its discretion.
Next, Potteries argues that the court misconstrued the
contract and therefore miscalculated the amount due. Because the
court heard evidence concerning the meaning of the contract
provisions, we will overturn the findings of fact only if they
are contrary to the manifest weight of the evidence. Marathon
Plastics, Inc. v. International Insurance Co., 161 Ill. App. 3d
452, 459-60 (1987). The court awarded Marketing a 5% commission
on all sales to Chef made between April 1998 and December 2000,
even though the total sales in that period exceeded $25 million.
Potteries argues that the court should have awarded Marketing
only 2% of the sales in excess of $20 million. Marketing answers
that the court should have awarded it 5% of all sales through
December 2004, because Chef in 1997 agreed to purchase 8 million
units, and it did not complete the purchase until December 2004.
The contract provides:
"[Potteries] will pay compensation to [Marketing] as a
percent of [Potteries'] annual collected sales
(including sales up to December 31, 2000 but collected
afterwards) to The Pampered Chef, Ltd. as follows.
over 30,000,000 1%."
We must construe the contract as a whole, giving effect to all
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its terms. First Bank & Trust Co. of Illinois v. Village of
Orland Hills, 338 Ill. App. 3d 35, 40 (2003).
The court awarded Marketing 5% of the total sales because
the sales for each calendar year from 1996 through 2000 never
exceeded $20 million. Marketing argued, and the trial court
held, that commissions would fall to 2% under the contract only
if Potteries sold more than $20 million worth of goods to Chef in
a single calendar year. We agree with the trial court's
interpretation of the contract. The contract requires payment of
a 5% commission on "annual collected sales" up to $20 million.
The specification of the contract's duration, from January 1,
1996, through December 31, 2000, simply establishes the five
years for which Potteries must pay the 5% commission.
Marketing, on the cross-appeal, claims that Potteries owes
it commissions for all of the 8 million pieces eventually sold,
because Chef promised, in the amendment Potteries and Chef signed
in 1997, to purchase the 8 million pieces, and therefore
Marketing qualifies as the procuring cause for the orders for all
8 million pieces. See Solo Sales, Inc. v. North America OMCG,
Inc., 299 Ill. App. 3d 850, 852 (1998); Technical
Representatives, Inc. v. Richardson-Merrell, Inc., 107 Ill. App.
3d 830, 833 (1982). However, the rule requiring commission
payment to the procuring cause of a sale does not apply when a
contract expressly governs the terms for payments and the
contract's duration. See Solo Sales, 299 Ill. App. 3d at 852;
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Technical Representatives, 107 Ill. App. 3d at 833. The contract
here establishes explicit terms for its termination with payment
for pieces sold by December 31, 2000, even if Potteries collected
payments thereafter. The court awarded Marketing commissions on
all pieces Chef ordered by December 31, 2000.
If we accept Marketing's interpretation of the contracts and
find that Potteries sold all 8 million pieces, within the meaning
of its contract with Marketing, at the time it signed the 1997
amendment to its agreement with Chef, then the court should have
counted all of the sales in 1997's annual collected sales, and
therefore it should have awarded only 2% commissions on sales in
excess of $20 million. That is, Marketing's claim for
commissions on all 8 million pieces conflicts with its own claim
for 5% commissions on all the sales because sales never exceeded
$20 million in any calendar year.
We agree with the trial court's construction of the
contract. Potteries sold the pieces, for purposes of
establishing Marketing's right to a commission, only when Chef
ordered the pieces. Chef had not ordered all 8 million pieces by
December 31, 2000. Under the explicit terms of the contract,
Potteries owed Marketing commissions only on the pieces ordered
by that date.
Next Marketing argues that the court should have awarded it
attorneys fees and punitive damages on the claim under the Sales
Representative Act. That act defines a sales representative as
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"a person who contracts with a principal to solicit orders and
who is compensated *** by commission." 820 ILCS 120/1(4) (West
1998). Before Marketing entered the August 1995 contract at
issue here, Chef had already informed Potteries that it would
contact Potteries directly, rather than Marketing, for orders and
service. Thus, at the time of the contract at issue, Marketing
had no responsibility for soliciting orders. Under the
definition in the Sales Representative Act, Marketing did not
qualify as a sales representative. The court correctly entered
judgment in favor of Potteries on the claim under the Sales
Representative Act.
Finally, Marketing asks us to reverse the summary judgment
entered on the fraud count. We review the issue de novo.
Delaney v. McDonald's Corp., 158 Ill. 2d 465, 467 (1994). To
establish a cause of action for fraud, Marketing must show that
Potteries intended to induce Marketing to act when Potteries made
a false statement of material fact, and Marketing's reasonable
reliance on the statement caused it to suffer damages. Connick
v. Suzuki Motor Co., 174 Ill. 2d 482, 496 (1996). Marketing
presented evidence that Harris falsely told Marketing that
Potteries had a contract with Chef for 3.5 million pieces per
year for four years. Marketing also presented evidence that
could support a finding that Marketing reasonably relied on that
statement when it signed the document in which it agreed not to
represent Potteries' competitors. However, the agreement imposed
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no limit at all on Marketing if Potteries failed to sell Chef 70%
of the 3.5 million promised pieces. Thus, when Potteries failed
to sell that amount, Marketing could freely represent any of
Potteries' competitors without breaching the agreement.
Marketing's decision, independent of the agreement, not to
contact any such competitors cannot create compensable damages.
Cases in which courts have awarded parties damages measured
by the benefit of the bargain do not conflict with the trial
court's decision here. See Kleinwort Benson North America, Inc.
v. Quantum Financial Services, Inc., 285 Ill. App. 3d 201 (1996);
Four "S" Alliance, Inc. v. American National Bank & Trust Co. of
Chicago, 104 Ill. App. 3d 636 (1982). In those cases the
plaintiffs spent substantial sums of money in reliance on the
defendants' false representations. Because Marketing here gave
up nothing in reliance on the alleged false representation, it
suffered no recoverable damages. See Geske v. Geske, 343 Ill.
App. 3d 881, 886 (2003). The trial court correctly granted
Potteries and Harris summary judgment on the fraud count.
Marketing sought a judgment against Harris personally only
in the fraud count, and the trial court had granted Harris
summary judgment on that count before trial. Thus, the trial
court faced no claim against Harris personally when it entered
the judgment against Potteries and Harris. Accordingly, we
reverse the judgment insofar as the court entered it against
Harris personally. See Hoopingarner v. Peric, 28 Ill. App. 3d
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53, 57 (1975).
Although Marketing did not fully comply with its promises in
its contract with Potteries, the trial court did not abuse its
discretion when it decided that the breaches did not require
forfeiture of Marketing's commissions. Because Potteries'
"annual collected sales" never exceeded $20 million, the contract
required payment of a 5% commission on all items Chef ordered
from Potteries by December 31, 2000. The express terms of the
contract give Marketing no right to commissions on pieces ordered
thereafter. Marketing no longer acted as a sales representative
to Chef, within the meaning of the Sales Representative Act,
after Chef specified that it would order items directly from
Potteries without Marketing's intervention. Because Marketing
did not give up anything in reliance on Potteries' alleged
statements, the trial court correctly entered judgment in favor
of Harris and Potteries on the fraud count of Marketing's
counterclaim. As Marketing did not seek a judgment against
Harris in any other count of the counterclaim, we reverse the
judgment entered against Harris. In all other respects, we
affirm the judgment of the trial court.
Affirmed in part and reversed in part.
O'MALLEY and O'MARA FROSSARD, JJ., concur.
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