John E. McDonald Jr. v. Scitec, Inc.

2013 ME 52, 2013 WL 2352429, 2013 Me. LEXIS 53

• Court: Supreme Judicial Court of Maine
• Decided: May 30, 2013
• Status: Published

Opinion

MAINE SUPREME JUDICIAL COURT Reporter of Decisions Decision: 2013 ME 52 Docket: BCD-12-269 Argued: April 10, 2013 Decided: May 30, 2013

Panel: SAUFLEY, C.J., and ALEXANDER, LEVY, SILVER, MEAD, GORMAN, and JABAR, JJ.

JOHN E. McDONALD JR.

v.

SCITEC, INC., et al.

MEAD, J.

[¶1] John E. McDonald Jr. appeals from a judgment entered in the Business

and Consumer Docket (Nivison, J.) in favor of Scitec, Inc., on McDonald’s

complaint alleging that Scitec continued to owe him commissions on sales that it

made to an established customer, a company known as Avaya, after Scitec

unilaterally terminated McDonald’s commission agreement. The court’s judgment

(1) denied McDonald’s motion, made pursuant to M.R. Civ. P. 50(b), for judgment

as a matter of law following a jury verdict in favor of Scitec on the issue of

whether Scitec was required to continue paying McDonald Avaya-derived

commissions after terminating the agreement; and (2) found in favor of Scitec on

McDonald’s statutory claim that commissions were due him pursuant to the Illinois

Sales Representative Act (ISRA), 820 Ill. Comp. Stat. Ann. §§ 120/0.01-3 2

(West, Westlaw through P.A. 98-7 of the 2013 Reg. Sess.). Scitec asserts that

McDonald’s right to commissions ended when it unilaterally terminated the

agreement.

[¶2] We conclude that the agreement unambiguously requires Scitec to

continue paying commissions to McDonald on sales it makes to Avaya for as long

as those sales continue, unless McDonald’s future conduct triggers one of the

explicit provisions in the agreement that allows Scitec to stop paying commissions.

For that reason, we must vacate the court’s order denying McDonald’s

M.R. Civ. P. 50(a) motion for judgment as a matter of law made at the close of the

evidence at trial.1 Because we conclude that McDonald prevails on his breach of

contract claim, we do not reach his claim made pursuant to the ISRA.

I. BACKGROUND

[¶3] The historical facts are not disputed. Scitec, Inc., founded by Dr. Bing

Sun in 1993 and owned solely by him, is a major supplier of hotel telephones. In

1 M.R. Civ. P. 50(a) provides, in part:

In an action tried to a jury, a motion for judgment as a matter of law on any claim may be made at any time before submission of the case to the jury. . . . The court may grant the motion as to any claim if the court determines that, viewing the evidence and all reasonable inferences therefrom most favorably to the party opposing the motion, a jury could not reasonably find for that party on an issue that under the substantive law is an essential element of the claim. 3

April 2002, McDonald and Scitec2 entered into a commission agreement. Its

central provision specified that when Scitec sold its products to “contacts” that

McDonald introduced to Scitec and Scitec pre-approved, McDonald would be paid

a commission:

The Company shall pay McDonald an amount equal to five percent (5%) of the product sales only . . . paid to the Company by the Contacts, up to the gross amount of $5,000,000, paid to the Company within the prior twelve month period. For all gross amounts over $5,000,000 paid to the Company by the Contacts, within the prior twelve-month period, the Company shall pay to McDonald four percent (4%) of such amounts. . . . Payment for gross amounts paid to the Company by any Contacts shall continue until the earlier of five (5) years after this Agreement is terminated upon mutual agreement or the Contact receives any amounts from a competitor of the Company as the result of an introduction by McDonald to the competitor for a product that McDonald has introduced for the Company.

A separate confidentiality provision also provided a condition pursuant to which

the Company’s obligation to pay McDonald would cease:

A violation of this Section [making certain information confidential] shall give the Company the right to immediately terminate this Agreement with McDonald and to make no payment on any sale made after the termination of this Agreement.

[¶4] Scitec does not contend that McDonald violated either the noncompete

or confidentiality clauses in these provisions. The agreement also contains a

survival clause, which states that the commissions and confidentiality clauses

2 Scitec, Inc., eventually merged with another company, Telematrix, Inc., and then changed its name to Cetis, Inc. All three entities were named as defendants in McDonald’s complaint. This opinion refers to them collectively as Scitec. 4

“shall survive any termination or expiration of this Agreement.” A choice of law

clause provides that the agreement is governed by Illinois law.3

[¶5] The “contact” relevant to this case is Avaya. Pursuant to the

agreement, from January 2004 through Scitec’s termination of the agreement on

April 8, 2010, Scitec paid McDonald $562,086.19 in commissions on its sales to

Avaya. Scitec terminated the agreement on the day that McDonald served it with a

complaint claiming that Scitec owed him commissions on sales it made to another

company.4 Although Scitec continued to sell to Avaya after terminating the

agreement, it has not paid McDonald any commissions on those sales. The parties

stipulated at trial that the unpaid commissions, if owed, would amount to

approximately $83,201.25, plus interest.

[¶6] After Scitec terminated the agreement, McDonald amended his

complaint to allege six counts; only Count III, claiming breach of contract for

failure to pay commissions, is relevant to our discussion here. In October 2011,

the court denied Scitec’s motion for summary judgment on Count III. On

December 12 and 14, 2011, the case was tried to a jury on the issue of whether

3 The parties agree that their contractual relationship is controlled by Illinois law. Accordingly, we apply Illinois law to resolve substantive issues, and Maine law to procedural matters. See Stenzel v. Dell, Inc., 2005 ME 37, ¶ 7, 870 A.2d 133 (“When a contract contains a choice of law provision, we generally will interpret the contract under the chosen state’s laws.”). 4 Scitec’s decision to terminate its contractual relationship with McDonald was based solely upon Scitec’s owner taking offense at the fact that McDonald commenced a lawsuit against the company for commissions in a transaction unrelated to this matter. 5

McDonald was due commissions resulting from Scitec’s post-termination sales to

Avaya.

[¶7] At the close of the evidence, McDonald moved for judgment as a

matter of law on Count III pursuant to M.R. Civ. P. 50(a). The court denied the

motion after finding that the agreement was ambiguous, and that it was for the jury

to decide what the parties intended concerning ongoing commissions in the event

of a unilateral termination. On the single issue before it, the jury answered “no” to

the question: “Has [McDonald] proved by a preponderance of the evidence that

[Scitec] is required under the terms of the parties’ contract to pay [McDonald]

commissions on Avaya sales made after the termination of the parties’ contract?”

Based on the jury’s verdict the court entered judgment for Scitec on Count III.

[¶8] McDonald filed a post-trial motion pursuant to M.R. Civ. P. 50(b),

asking the court to set aside the jury verdict as unsupported by the evidence and to

enter judgment in his favor on Count III. The court denied the motion, and this

appeal followed.

II. DISCUSSION

[¶9] “We review de novo the denial of a motion for judgment as a matter of

law pursuant to M.R. Civ. P. 50.” State v. Price-Rite Fuel, Inc., 2011 ME 76, ¶ 11,

24 A.3d 81. The threshold issue in this appeal is whether the commission

agreement is ambiguous concerning whether McDonald was due commissions on 6

sales made by Scitec to Avaya after Scitec unilaterally terminated the agreement.

If the agreement is unambiguous, meaning that it is not “reasonably susceptible to

different interpretations,” then we review the agreement “de novo and interpret it

according to the plain meaning of the language used.” Camden Nat’l Bank v. S.S.

Navigation Co., 2010 ME 29, ¶ 16, 991 A.2d 800 (alteration and quotation marks

omitted); see Thompson v. Gordon, 948 N.E.2d 39, 47 (Ill. 2011) (same).

[¶10] We conclude that the agreement is not ambiguous with regard to

commissions due and owing on completed transactions. The commissions clause

is clear and straightforward—McDonald is due commissions on ongoing sales

made by Scitec to Avaya unless the agreement was terminated by mutual

agreement or McDonald had violated the noncompete or confidentiality clauses,

neither of which occurred. Because the agreement is unambiguous concerning the

issue decided by the jury, the trial court erred in assigning to the jury the task of

interpreting the agreement in light of the parties’ intent instead of applying the

agreement’s plain language and granting McDonald’s motion for judgment as a

matter of law at the close of the evidence.5 See Whalen v. Down East Cmty. Hosp.,

2009 ME 99, ¶ 15, 980 A.2d 1252 (stating that the interpretation of unambiguous

contract provisions is a question of law); Thompson, 948 N.E.2d at 47 (stating that 5 We emphasize that we do not look behind the jury’s verdict to reach this result; rather, we conclude that the question of what the parties intended in the event of Scitec’s unilateral termination of the agreement should not have been submitted to the jury because the language of the agreement is unambiguous as to the result in that situation. 7

a court can consider extrinsic evidence of the parties’ intent if contract language is

ambiguous).

[¶11] Scitec argues that the commissions clause is ambiguous because it

addresses what would occur if the agreement was terminated by mutual consent,

but says nothing about what would occur if it was terminated unilaterally. The

contract, however, is not silent on this issue. The commissions clause states that

Scitec “shall pay McDonald” commissions on its ongoing sales to Avaya, and that

those payments “shall continue” unless one of two stated events occurred. Neither

did. To further emphasize this point, the contract explicitly provides that the

commissions clause “shall survive any termination or expiration of this

Agreement.”

[¶12] Scitec further argues that the separate confidentiality provision applies

in the case of a mutual termination of the agreement—in which case payments for

completed transactions would continue in effect for five years—but would be

rendered a nullity in the case of a unilateral termination because McDonald’s right

to commissions would immediately end. In fact, the confidentiality clause

supports McDonald’s position because it demonstrates that the parties knew

perfectly well how to terminate ongoing commissions in a specific situation when

they so chose—“[a] violation of this [confidentiality] Section shall give the

Company the right . . . to make no payment on any sale made after the termination 8

of this Agreement”—but did not employ similar language in the case of a unilateral

termination of the agreement for other reasons. See Thompson, 948 N.E.2d at 47,

51 (stating that “[a] contract must be construed as a whole, viewing each provision

in light of the other provisions”; also stating that “there is a presumption against

provisions that easily could have been included in a contract but were not”). The

commissions clause anticipates McDonald’s ongoing entitlement to commissions

in the case of a unilateral termination, and the agreement protects Scitec in that

event by penalizing McDonald for a breach of confidentiality for as long as that

entitlement lasts.

[¶13] Scitec’s assertion that the survival clause does not create an obligation

on its own to pay ongoing commissions similarly misses the mark. Like the

commissions clause, the language of the survival provision is straightforward:

“Section[] 2 [the commissions clause] . . . shall survive any termination . . . of this

Agreement.” As we have concluded, the commissions clause entitles McDonald to

ongoing Avaya-derived commissions, and the survival clause plainly states that

that obligation survives “any termination” of the agreement, including Scitec’s

unilateral termination, unless one of the two events set out in the commissions

clause occurs. Because neither event occurred, McDonald’s entitlement to

commissions survives. 9

[¶14] Finally, Scitec asserts that requiring it to pay ongoing commissions to

McDonald violates the Illinois rule concerning contracts of indefinite duration.

Pursuant to Illinois law, “Contracts of indefinite duration are terminable at the will

of either party.” Jespersen v. Minn. Mining & Mfg. Co., 700 N.E.2d 1014, 1016

(Ill. 1998). Scitec’s argument, however, fails to appreciate the distinction between

the agreement itself and the obligation to pay commissions created by the

[¶15] It is not contested that Scitec was free to unilaterally terminate the

open-ended agreement prospectively, thereby foreclosing the possibility that

McDonald would become entitled to commissions on Scitec’s future sales to

customers who were not yet approved “contacts.” What Scitec could not do, under

Illinois law or by the agreement’s plain terms, is unilaterally end McDonald’s

entitlement to commissions based on performance rendered before the agreement

was terminated, unless (1) McDonald violated the noncompete or confidentiality

clauses, or (2) Scitec stopped selling its products to Avaya.

[¶16] Jespersen is illustrative of the principle that contracts of indefinite

duration are terminable at will concerning prospective performance. In that case,

an auto parts dealer’s distribution agreement was unilaterally terminated without

cause when the company that entered into the agreement was purchased by another

company. Id. at 1015-16. The Illinois Supreme Court held that because the 10

agreement provided that it “shall continue in force indefinitely” it was an

“agreement at will, which means [the parties] could terminate the agreement for

any reason or no reason without committing a breach of contract.” Id. at 1016,

1017 (quotation marks omitted). The Court explained its reasoning by observing

that

perpetual contracts are disfavored. “Forever” is a long time and few commercial concerns remain viable for even a decade. Advances in technology, changes in consumer taste and competition mean that once[-]profitable businesses perish—regularly. Today’s fashion will tomorrow or the next day inevitability fall the way of the buggy whip, the eight-track tape and the leisure suit. Men and women of commerce know this intuitively and achieve the flexibility needed to respond to market demands by entering into agreements terminable at will.

Id. at 1017 (citation omitted).

[¶17] This rationale underpinning the Illinois rule concerning perpetual

contracts is fully applicable to the Scitec-McDonald agreement looking forward, in

that either party was free to terminate their agreement of indefinite duration when

it no longer suited their interests—the law would allow neither to be locked into

the agreement forever. Looking backward, however, to transactions wherein one

party has fully performed and all that remains is for the other party to tender

payments as they become due, the Jespersen rationale has no applicability.

[¶18] Moreover, beyond these principles of Illinois law, given the plain

language of the agreement and the absence of an explicit provision to the contrary, 11

we do not construe the agreement to allow Scitec to stop paying commissions at its

whim after McDonald fully performed his obligation to make an introduction to

Scitec that resulted in commissionable sales.6 The commissions clause here is akin

to other common types of contracts that may be terminated by a party

prospectively, leaving intact that party’s obligation to pay for pre-termination

performance. Here, McDonald had already done all that the agreement required

him to do to earn commissions on Scitec’s sales to Avaya, as evidenced by the fact

that Scitec had been paying those commissions for six years prior to terminating

the agreement.

[¶19] Because the commission agreement unambiguously required Scitec to

pay commissions to McDonald on sales it made to Avaya after Scitec unilaterally

terminated the agreement, McDonald was entitled to judgment as a matter of law

on his breach of contract claim.

The entry is:

Judgment as to Count III vacated. Remanded for entry of a judgment on Count III in favor of John E. McDonald Jr. in the amount of $83,201.25, plus interest as called for in the agreement.

6 Under Scitec’s interpretation, it could have, after McDonald made the introduction to Avaya and the two companies agreed to purchase and sale terms, unilaterally terminated the agreement before any sales were completed, resulting in McDonald being entitled to no commissions at all after doing everything the agreement required him to do. 12

On the briefs:

Michael J. Donlan, Esq., and Seth S. Coburn, Esq., Verrill Dana, LLP, Portland, for appellant John E. McDonald, Jr.

Randall B. Weill, Esq., and Jonathan G. Mermin, Esq., Preti Flaherty Beliveau & Pachios, LLP, Portland, for appellees Scitec, Inc., Telematrix, Inc., and Cetis, Inc.

At oral argument:

Michael J. Donlan, Esq., for appellant John E. McDonald, Jr.

Randall B. Weill, Esq., for appellees Scitec, Inc., Telematrix, Inc., and Cetis, Inc.

Business and Consumer Docket docket number CV-2010-37 FOR CLERK REFERENCE ONLY