Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—E.D. Mich: Failure to establish breach of contract defeated Minnesota Sales Representative Commission Act claim, (Jul 28, 2015)

By Michael Menzhuber, J.D., LL.M.

A sales manager’s claim that his former company failed to compensate him adequately for his involvement in a particular sale, in violation of the Michigan Sales Representative Commission Act (SRCA), was dismissed by the federal district court in Detroit. The court dismissed the SCRA claim for failure to establish a breach of the sales and commission agreement (Dybowski v. VCE Company, LLC, July 24, 2015, Battani, M.).

Background. In June 2013, Michael Dybowski was hired as a regional sales manager by VCE Company, LLC, to sell vBlock computer network systems manufactured by VCE. In addition to providing Dybowski with a client prospect list, VCE assigned him to assist in finalizing a deal with OnStar that had been in progress for approximately a year.

Dybowski’s compensation included a salary and “incentive compensation” in the form of sales commissions. His sales quota was $10 million, but that amount was prorated because he began work mid-year. The Commission Plan (Agreement), which established the terms and conditions for earning commissions included a “windfall clause,” authorizing VCE’s CEO, senior vice-president, or vice-president to reduce commission amounts in circumstances where: (1) the sales quota was set too low; (2) the representative “walks into” very large sales already in progress; or (3) where the sale was originated or led by one of VCE’s parent companies such that the representative played a limited role.

In December 2013, several opportunities with OnStar were closed. Because the value of the deals, which amounted to over $16 million, exceeded Dybowski’s sales quota by 50 percent, an automatic review of his commission on these opportunities was triggered under the “windfall clause.” Upon review, it was recommended that Dybowski be credited with 75 percent of the sales revenue because: (1) VCE’s parent company had gotten the work and had led the transactions; and (2) Dybowski was assigned to the deal after it was well under way. VCE followed the recommendation and credited Dybowski’s sales quota accordingly.

VCE also did not credit Dybowski with any quota credit or commission for another OnStar sale on the basis that it was an unexpected deal, which was explicitly subject to adjustment under the “windfall clause.” The sale was determined to be an unexpected deal because Dybowski failed to properly forecast it and the deal was, therefore, booked without knowledge of his involvement. Dybowski subsequently resigned from VCE and filed a complaint that alleged a breach of contract and violation of the Michigan SRCA.

Breach of Contract. After first determining that the parties’ intent could be discerned from the clear and unambiguous language of the Agreement, the court determined that the “windfall provision” gave VCE the right to review and reduce Dybowski’s commission. The court found that: (1) the final decision to reduce Dybowski’s commission was made per the “windfall clause; (2) the value of the OnStar deal exceed 50 percent of Dybowski’s annual sales quota; and (3) VCE’s parent company was significantly involved in the deal, which was well in progress when Dybowski became involved. The court also determined that VCE had the contractual right to not pay Dybowski for the other OnStar sale because he failed to forecast it or report his involvement in the deal.

The court noted that the “windfall clause” did not provide any guidelines regarding the exact amount by which a commission may be reduced and that such broad discretion could create the potential for abuse. However, given the extent of Dybowski’s involvement and the fact that his commission was only reduced 25 percent, the court could not say that the reduction of his commission was a patently inequitable abuse of discretion.

Dybowski argued that the “windfall clause” was supplanted by the “Commission Payment & Quota Schedule” which discussed the crediting of 100 percent of the commission amount. The court disagreed because it found that this clause was merely a schedule describing when commission payments are to be made and did not conflict with the “windfall clause.”

Dybowski also argued that VCE was obligated to notify him, in writing, of the reduction of his OnStar sales commission and that, in the absence of this notice, it could not enforce the “windfall clause.” The court disagreed because the plain terms of the Agreement authorized VCE to alter commissions and quota credit “with or without prior notice, and either retroactively or prospectively.”

Michigan Sales Representative Commission Act. The court noted that a SRCA claim is fully premised on the merits of a breach of contract claim. Because Dybowski’s breach of contract claimed failed, the court determined that his SRCA claim also failed.

The case is No. 2:14-cv-12282.

Attorneys: Steven A. Matta (Matta Blair, PLC) for Michael Dybowski. Kyle A. Petersen (Seyfarth Shaw LLP) for VCE Company LLC.

Companies: VCE Company LLC

Cases: FranchisingDistribution MichiganNews