The Fall edition of this Legally Speaking column reported on the verdict delivered in the summer of 2023 in favor of an ERA rep given the pseudonym Rigorous Electronics Performers, LLC or REP. A suburban Philadelphia jury found that Manipulating Financial Results, Inc. or MFR (also a pseudonym) owed REP over $600,000 in unpaid commissions.
The jury determined that MFR breached the parties’ rep agreement, which called for REP to receive a 5 percent commission on all sales into its territory. As part of its verdict, the jury also rejected the defense contention that the contract enabled MFR to reduce commissions on self-designated “windfall projects.” This laughable argument by MFR led the all-female jury to form a post-trial chat group named the “Windfall Gals.”
Of course, obtaining the jury verdict was just the first step. Beyond the contract claim, REP also asserted the right to recover exemplary damages, costs and attorneys’ fees, as well as pre-judgment interest on the unpaid commission dollars. Now that the jury had found MFR failed to pay the commissions due, it was time for REP to press its claims under the New Jersey Sales Representative Rights Act.
The rep statute
With the verdict for REP successfully reached (in less than two hours) and reported on last issue, it’s time to consider some of the other significant questions presented, beyond the jurors’ unusual choice to stay in touch on social media after their jury service ended, and to name their chat group after a failed defense argument. For example, why did REP sue in Pennsylvania, but invoke the New Jersey rep statute?
Faithful readers may recall this column previously described the non-waivable New Jersey rep statute as the nation’s best. It enables a cheated sales rep to recover quadruple the unpaid commissions, plus attorneys’ fees and costs. Moreover, unlike many other state statutes, New Jersey’s doesn’t leave the amount of the award to the court’s discretion. The quadrupling of unpaid commissions and awarding attorneys’ fees is automatic upon a showing the statute was violated.
Pennsylvania’s sales rep statute, meanwhile, is serviceable, but not nearly as rep-friendly as its neighbor to the East. The Keystone State requires a sales rep to show the principal acted “willfully,” and leaves the amount of exemplary damages to the discretion of the court in “an amount not to exceed” three times the unpaid commissions.
Accordingly, it was an easy decision to pursue REP’s recovery under the New Jersey statute, which was made possible because the orders driven by REP on MFR’s behalf came primarily from New Jersey. Although MFR contested the rights of a Pennsylvania-based rep to invoke the Garden State’s rep statute, the court ruled that REP had properly pled its case based upon the significant level of commissionable sales made into New Jersey. Importantly, New Jersey’s statute does not limit its application
The limited defense effort
Faced with a statute essentially providing for automatic quadrupling of unpaid commissions, MFR could not attempt the manufacturer’s usual arguments against awarding exemplary damages when the matter is discretionary with the court, such as attempting to show an absence of “intent,” malicious or otherwise, to deprive the sales rep of hard-earned commission dollars.
Instead, MFR belatedly contended that Pennsylvania’s law should apply because REP was based there, but that even if the New Jersey statue was applicable, only sales made into New Jersey should be eligible for quadrupling. The Court, however, agreed with REP that the New Jersey rep statute was properly invoked, and further that its language enabled an award on all relevant sales, not just New Jersey sales.
The final award
As a result, the award entered by the trial court swelled to over $2 million, and the Court invited REP to submit evidence of its attorneys’ fees, costs and interest, which would tack on hundreds of thousands more. With this, MFR finally had enough. Following entry of this order, and facing a difficult appeal, MFR agreed to settle the dispute for well over $2 million.
The Windfall Gals delivered the initial eye-opening message to MFR about exploiting its rep by withholding earned commissions, and then the Pennsylvania judge hammered it home by adding an additional three times the amount of the award in statutory damages, while indicating attorneys’ fees, costs and interest would follow.
The “treat your sales reps fairly” message was delivered in full for this particular sales rep, and now the message has to reach the larger community of industry players.
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.
Please contact Adam Glazer with any questions at (312) 648-2300 or e-mail at [email protected].