Watkins Inc. v. Chilkoot Distrib. Inc.

• Decision Date: 13 September 2011
• Docket Number: No. 10–3127.,10–3127.
• Citation: 655 F.3d 802
• Parties: WATKINS INCORPORATED, Appellee,v.CHILKOOT DISTRIBUTING, INC., a foreign corporation; Cecile Willick; Lili J. Willick; Richard Willick, Appellants.
• Court: U.S. Court of Appeals — Eighth Circuit

655 F.3d 802

WATKINS INCORPORATED, Appellee,

v.CHILKOOT DISTRIBUTING, INC., a foreign corporation; Cecile Willick; Lili J. Willick; Richard Willick, Appellants.

No. 10–3127.

United States Court of Appeals, Eighth Circuit.

Submitted: May 11, 2011.Filed: Sept. 13, 2011.

Kay Nord Hunt, argued, Minneapolis, MN, Bridget Ann Sullivan, on the brief, Golden Valley, MN, for appellant.David Fulton Herr, argued, Dawn Christine Van Tassel, on the brief, Minneapolis, MN, for appellee.Before WOLLMAN, BYE, and SHEPHERD, Circuit Judges.SHEPHERD, Circuit Judge.

Chilkoot Distributing, Inc., Cecile Willick, Lili J. Willick, and Richard Willick (collectively the “Appellants”) appeal the district court's adverse grant of summary judgment in favor of Watkins Inc., on their claim for breach of a 1988 contract between the parties. The district court held that the 1988 contract had been superseded by a subsequent agreement between the parties, and thus the Appellants' claim for breach of the 1988 contract failed as a matter of law. Because we conclude that there is a genuine issue of fact as to whether the Appellants and Watkins mutually assented to enter a new contract, we reverse and remand.

I.

We review a district court's grant of summary judgment de novo, Mwesigwa v. DAP, Inc., 637 F.3d 884, 887 (8th Cir.2011), and we will affirm if “there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). We view the facts in the light most favorable to the nonmoving party, drawing all reasonable inferences in the nonmoving party's favor. Alpine Glass, Inc. v. Ill. Farmers Ins. Co., 643 F.3d 659, 666 (8th Cir.2011). The parties agree that Minnesota law applies.

Watkins manufactures personal care, household, and organic products. In addition to selling its products directly to large retailers, the company utilizes a direct-sale business structure whereby it enters into independent-contractor agreements with sales associates. The sales associates purchase Watkins products directly from the company, resell the products to retailers and individuals, and recruit new sales associates who also distribute Watkins products. The recruited associates are collectively referred to as the initial sales associate's “downline organization.” As an incentive to expand the downline organization, Watkins pays associates commission on downline sales. The company also includes downline sales in the associate's total sales volume, which is the basis for calculating the associate's discount on products purchased from Watkins for distribution.

In 1988, the Appellants signed a “Dealer Agreement” with Watkins (the 1988 Agreement) and became Watkins sales associates. The 1988 Agreement provided that it may be terminated by mutual written cancellation, by written notice sent by the Appellants to Watkins, or by Watkins if the Appellants engage in certain prohibited conduct. The 1988 Agreement incorporated Watkins' Code of Ethics and Rules of Conduct by reference, which included the compensation scheme for sales associates.

As the Appellants' business thrived in eastern Canada, they were successful in recruiting new sales associates and growing their downline organization. In 1990, the Appellants recruited astute salesman Paul Darveau, who, along with his downline associates, sold a high volume of Watkins insect repellant and spurred product distribution in Quebec. In 2000, the Appellants recruited the Lambert Group,¹ which likewise fared well in selling Watkins insect repellant. The Lambert Group's sales volume skyrocketed when it began marketing to mass-market retail outlets and large chain stores in Quebec. Because Darveau and the Lambert Group were part of the Appellants' downline organization, the Appellants received commissions and discounts based on these downline associates' substantial sales volume.

In 2006, Watkins sent the Appellants a letter with the salutation “Dear Watkins Associate(s),” and Watkins enclosed an “International Associate Agreement” (the 2006 Agreement) with the letter. The letter stated:

Periodically, we review records to ensure we have accessible and up-to-date contract documents. We have found that a number of documents have been archived during the last ten years, which makes it a challenge to have accessible contracts. We are requesting your support to provide us with updated and accurate data by filling out the enclosed International Associate Agreement.

We ask that you complete a new Agreement Form and return it to Watkins Incorporated by May 15, 2006. Should you have your original contract with up-to-date data, feel free to send us a copy of that document.

(Appellants' Add. at 14.) According to Watkins, it sent this letter to many of its Canadian sales associates out of necessity because a flood had destroyed its records database. The 2006 Agreement did not track the language of the 1988 Agreement, and in fact included vastly different terms. As relevant here, the 2006 Agreement provided that Watkins could unilaterally amend its corporate policies and procedures, and the associates would be bound by such amendments. Upon receipt of Watkins' letter, Cecile Willick contacted Watkins and spoke with one of its managers. Cecile asked the manager whether it was necessary to complete the form because Watkins had current contact information for the Appellants. The manager instructed Cecile that Watkins wanted all sales associates to complete the form to ensure that all its records were current. The Appellants completed the form with the appropriate information, signed it, and faxed it to Watkins in July 2006.

Also in 2006, the Lambert Group narrowed its focus to large retailers and increased its already high sales volume. This strategy began to hamper Watkins' own direct sales to large retail customers because of different price quotations provided for the same products by the respective sellers. In addition, the Lambert Group's designation as a “sales associate” meant Watkins sold its products to the Lambert Group at a discounted price while paying commissions to the Appellants and their upline sales associates. Because the Lambert Group's sales volume was higher than Watkins' projected sales volume for sales associates, Watkins deemed the Lambert Group's sales model irreconcilable with the direct-sale structure. Watkins attempted to negotiate a different, profitable compensation arrangement with the Lambert Group and the Appellants. The negotiations proved unsuccessful, and in 2009 Watkins changed the Lambert Group's seller status from “sales associate” to “manufacturer representative,” relying upon the clause in the 2006 Agreement which arguably permitted this unilateral change. The Lambert Group subsequently consented to the new designation and corresponding relationship with Watkins. The changed designation stymied the Appellants' entitlement to commissions on the Lambert Group's sales because only recruited “sales associates” were included in an associate's downline organization structure.

In May 2009, the Appellants sent a letter to Watkins alleging breach of contract and breach of good faith and...