Latex foam sales rep Kevin Callinan, a fixture in the mattress industry, was starting to contemplate retirement. Shevick Sales Corp. (SSC), owned by industry acquaintance Karl Shevick, sold latex mattress toppers. Fully transparent, Callinan shared with Shevick how he had another 2-3 good years left before he planned to hang up his sales bag, and a relationship took shape.
The contract
In the fall of 2017, the two agreed Callinan would start promoting a certain SSC latex product known as Earthfoam. Callinan sought to confirm their agreement by e-mailing Shevick that, during the first year of the relationship, he would invoice SSC for $15,000 monthly, and receive a 2.5 percent commission on certain products and 7 percent on others, plus $3,500/month for expenses such as travel, phone and meals.
For the second year and beyond, Callinan wrote “5% on all sales until retired,” and suggested, “After retirement, TBD, 2 percent? Duration?”
Shevick countered the next day: “To address the expenses issue in the first year, I would like to bump your commission to 5% rather than add $3500/month. This should add some extra money to cover expenses.” He confirmed the $15,000 stipend for the first year and proposed commission payments of 5 and 7 percent.
Beyond the first year, Shevick offered $3,500 per month for business expenses while maintaining the 5 and 7 percent commissions. He also wrote: “After retirement, TBD, 2% Duration (on customers brought in during your time working)? We can discuss this further.”
Callinan accepted these terms, and proceeded to represent SSC from October 2017 to March 2018, when he and Shevick both worked the SSC booth highlighting Earthfoam at an industry trade show. Following the show, Shevick told Callinan his services were no longer required.
The modification
Shevick dropping this bomb led to several conversations with Callinan, culminating in two more e-mails sent in April 2018. First, Callinan seemed to pour his heart out in an April 2, 2018 e-mail sent under the subject line “Separation Agreement.” His e-mail read in full:
“Thank you for arranging the April consulting payment. Please confirm that this will continue through (including) September 2018. For the 5% sales commission to be paid ongoing starting with March 2018 sales through what period of time? Is the 2% retirement commission part of your thought process beyond the 5% payments? It is my understanding that you will provide me a list of current and potential customers that will be included in these 5% commission payments including existing customers, customers that I spoke with at [the trade show] or invited into our space. I am just trying to get a handle on my future income that we both agree to now and avoid misunderstandings later. No lawyers need to be involved. Our gentlemen’s agreement is fine.” Two days later, Shevick responded:
“Yes, this will continue until September. The 5% commission will continue until September 2019. The 2% commission would kick in after that. Anything qualifying for the 2% commission has to be related to something that you were working on or that you had set up.”
Shevick’s e-mail added that he would supply a list of leads from the trade show and would “mark who we would include in the 5% commission,” which would only be existing customers and those Callinan brought into the booth. “If someone you didn’t know randomly walked into the booth and you talked to them for a few minutes, I would not include that.”
The e-mail closed with an ominous statement: “Clearly, there is an element of my discretion in all of this, but I do intend to be fair and am happy to discuss any issues that you have.”
Had “fairness” actually prevailed, neither a lawsuit nor this column would have followed. Instead, Shevick e-mailed Callinan on June 11, 2018 informing that SSC was done making any payments. The pretense devised was that Callinan had “interfered with Company customers, shared proprietary and confidential information of the Company’s suppliers with third parties,” etc.
Shevick even had the nerve to demand the immediate repayment of funds tendered to him under the “Separation Agreement.” Incongruously, Shevick made several commission payments from November 2018 to March 2019.
The lawsuit
Callinan filed suit in Chicago against Shevick and SSC in early 2019, alleging breach of contract and a violation of the Illinois Sales Representative Act, which enables reps to recover up to three times the amount of unpaid commissions, plus attorney’s fees and costs. The defendants disputed whether an enforceable contract even existed and whether the Sales Rep Act applied to the facts presented.
The trial court ruled in Callinan’s favor on both counts, and awarded the unpaid commissions and interest thereon, plus exemplary damages, attorney’s fees and costs under the Sales Rep Act, for a total award of almost $330,000. Naturally, the defendants appealed.
The recent decision of the Illinois appellate court first considered the defendants’ argument that it had no obligation to commission Callinan once he stopped making sales because the September 2017 and April 2018 e-mails did not amount to an enforceable contract. Defendants contended that the e-mail terms were not sufficiently definite and did not include a fixed term for the contract.
The September 2017 e-mails
While the essential terms of a contract must usually be identified, the appellate court recognized that “a contract may be enforced even though some terms may be missing or left to be agreed upon.” The court then found that “the September 2017 e-mails set forth sufficient detail to enable the trial court to ascertain the scope of the parties’ agreement.”
Some terms were left to be agreed upon as defendants maintained, but the basic structure and terms were clear: “namely, that plaintiff was entitled to a monthly sum plus commission payments for the first year, followed by a largely commission-based payment structure until his retirement, at which point he would be eligible for residual commissions for a period of time.” Thus, the September e-mails comprised a contract.
The April 2018 e-mails
SSC disputed that the April 2018 e-mails modified the original September 2017 agreement. Contracts and modifications both require an offer, acceptance and consideration by both parties. SSC asserted the April 2018 e-mails “were gratuitous and lacked consideration,” and therefore were not a valid modification.
Under Illinois law, “consideration” is sufficient to support finding a contract exists if comprised of “any act or promise which is of benefit to one party or disadvantage to the other.”
Per the September 2017 agreement, Callinan was eligible for residual commissions for an undefined period of time consistent with the law that “a party may be entitled to commissions on sales made after the termination of a contract.” Even after termination, SSC could still owe commissions under the original contract.
After Callinan proposed different terms “to get a handle on my future income,” the parties agreed to a different payment structure, including limiting post-termination commissions, which amounted to “less than he had been entitled to under the September 2017 agreement.” This comprised adequate consideration.
SSC also contended that the April 2018 modification was not valid based on Shevick’s language that “there is an element of my discretion in all of this.” The argument went that because the parties disagreed about the meaning of the alleged modification, no “meeting of the minds” occurred, and no binding modification was formed.
The appellate court did “not find this argument persuasive.” The “only reasonable interpretation of this language” was that Shevick had discretion as to which customer sales were commissionable at 5 percent, and the court found “no basis for SSC’s contention that the entire agreement was even arguably subject to Shevick’s ‘discretion’.” The April 2018 agreement formed a valid modification of the September 2017 agreement.
The Sales Rep Act
Seeking to avoid the Illinois Sales Rep Act’s exemplary damages and attorney’s fees remedies, SSC argued it did not apply because the trial court ruled the parties’ agreement never terminated. The appellate court, however, ruled this contention “misinterprets the trial court’s findings.”
Although the trial court’s language “arguably could have been more precise,” the appellate court relied upon its ruling that, after the trade show, Shevick “determined to terminate the parties’ contract and terminate his association with the plaintiff.” The balance of the trial court’s findings addressed how that termination was carried out, not whether the agreement terminated.
The Sales Rep Act protects “sales representatives” who are not timely paid commissions due under contracts with their “principals.” SSC sought to escape its reach by arguing the April 2018 e-mails terminated the contractual relationship. Once this argument was rejected, the court found the principal/sales rep relationship was intact even after the modification, and the Act’s provisions, including exemplary damages and attorney’s fees, squarely applied.
Conclusion
The trial court’s award in favor of Callinan was affirmed in all respects, and SSC learned the importance of standing behind e-mails exchanged with a sales rep, which can indeed form a valid and enforceable contract.
Adam J. Glazer is a partner at the law firm of SFBBG 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.
You may contact Adam Glazer at 312-648-2300 or email him at [email protected].
