Chem-Trend, Inc. v. Newport Industries, Inc.

• Decision Date: 06 February 2002
• Docket Number: No. 00-1520.,No. 00-1518.,00-1518.,00-1520.
• Citation: 279 F.3d 625
• Parties: CHEM-TREND, INC., a Michigan Corporation, Plaintiff-Appellant, v. NEWPORT INDUSTRIES, INC., a Missouri Corporation, Defendant-Appellee, Joseph Cahan, an individual; Douglas J. Edington, an individual, jointly and severally; W.N. Shaw Company, a Missouri Corporation; and David Murphy, Defendants. Newport Industries, Inc., a Missouri Corporation, Counter Claimant-Appellant, v. Chem-Trend, Inc., a Michigan Corporation, Counter Defendant-Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

279 F.3d 625

CHEM-TREND, INC., a Michigan Corporation, Plaintiff-Appellant, v. NEWPORT INDUSTRIES, INC., a Missouri Corporation, Defendant-Appellee, Joseph Cahan, an individual; Douglas J. Edington, an individual, jointly and severally; W.N. Shaw Company, a Missouri Corporation; and David Murphy, Defendants.

Newport Industries, Inc., a Missouri Corporation, Counter Claimant-Appellant, v. Chem-Trend, Inc., a Michigan Corporation, Counter Defendant-Appellee.

No. 00-1518.

No. 00-1520.

United States Court of Appeals, Eighth Circuit.

Submitted: February 12, 2001.

Filed: February 6, 2002.

Bruce T. Wallace, Ann Arbor, MI, argued (Susan T. Cannell, on the brief), for plaintiff-appellant.

Anthony Gerard Simon, St. Louis, MO, argued, for defendant-appellee.

Before LOKEN, HEANEY, and BYE, Circuit Judges.

BYE, Circuit Judge.

Chem-Trend, Inc., appeals a judgment awarding Newport Industries, Inc., contractual commission damages in the amount of $109,182.23, to which the district court¹ added a statutory penalty ($100,000) and attorney's fees ($4,863.50) pursuant to the Michigan Sales Representatives' Commissions Act (MSRCA), Mich. Comp. Laws § 600.2961. Newport cross-appeals, contending the district court abused its discretion in determining the amount of attorney's fees. We affirm.

FACTUAL BACKGROUND

This case involving Michigan law finds its way into our circuit via a business relationship between a Michigan corporation (Chem-Trend) and a Missouri corporation (Newport). Chem-Trend manufactures and sells a number of chemical products including mold release agents — products that allow molded rubber and plastic pieces to be pulled from the molds which formed them. Joseph Cahan worked for Chem-Trend between 1977 and 1994, selling mold release agents as well as other Chem-Trend products. In 1994, Chem-Trend asked its salespersons to resign and become independent sales representatives. Cahan complied and formed Newport, which continued selling Chem-Trend products pursuant to an independent sales agreement. The sales agreement required Newport to maximize Chem-Trend sales within Newport's appointed territory. While the agreement did not prevent Newport or Cahan from representing Chem-Trend competitors, it did contain a confidentiality provision under which all product information was "only to be used by the Representative in the performance of services under this Agreement."

Chem-Trend originally allowed Newport to act as a nonexclusive sales representative in four states (Missouri, Arkansas, Iowa and Kansas) and portions of three others (Illinois, Mississippi, and Tennessee). In September 1996, however, Chem-Trend essentially cut Newport's territory in half, removing all of Iowa, Kansas, and Tennessee, and all of Mississippi except for one customer. Shortly thereafter, Cahan incorporated the W.N. Shaw Company to compete with Chem-Trend.

Shaw hired Douglas Edington, a Chem-Trend laboratory technician, and David Murphy, who had been Newport's salesman in Iowa before Chem-Trend removed that state from Newport's territory. Within months of incorporation, and despite having only rudimentary equipment, no formal testing procedures, and no chemists on staff, Shaw began selling substantial amounts of several mold release agents that were essentially identical to Chem-Trend products. Shaw sold its mold release agents primarily to former Chem-Trend customers located outside of Newport's designated territory. At the same time, Newport continued selling Chem-Trend products within Newport's designated territory, sometimes doubling and tripling projected sales forecasts.

In March 1997, Chem-Trend discovered Cahan's competing activities and suspected foul play. On March 24, Chem-Trend terminated Newport's independent sales agreement. About one month later, after discovering the extent to which Cahan had misappropriated trade secrets, Chem-Trend informed Newport that commission payments due under the sales agreement would no longer be made.

Chem-Trend sued Newport, Cahan, Edington, Murphy, and Shaw in federal district court alleging misappropriation of trade secrets, breach of fiduciary duty, breach of contract, fraudulent concealment, civil conspiracy, and several other claims. Newport counterclaimed for its unpaid commissions, alleging Chem-Trend triggered the statutory penalties of the MSRCA by intentionally failing to pay its commissions.²

The case proceeded to a jury trial in April 1999. Chem-Trend presented twenty separate claims — five each against Newport, Cahan, and Edington, four against Shaw, and one against Murphy. Newport presented its counterclaim for the unpaid commissions.

As to Newport, the jury found in Chem-Trend's favor on two of the five claims, for breach of fiduciary duty and fraudulent concealment. The jury rejected the three other claims against Newport, including the breach of contract claim, apparently concluding that Newport met its obligations under the independent sales agreement. The jury awarded Chem-Trend a total of $1,056,000 against all defendants, finding Newport responsible for 15% of those damages.

Despite Newport's breach of fiduciary duty and fraud, the jury found in Newport's favor on the counterclaim and awarded $109,182.23 in unpaid commissions. Because the jury also found Chem-Trend "intentionally failed to pay" Newport's commissions when due, the district court added a statutory penalty of $100,000 and attorney's fees pursuant to the MSRCA. The district court reduced Newport's requested fees because the counterclaim was only one of many claims in the case, and because one of Newport's attorneys, despite notice from the court, inadequately differentiated between the time spent prosecuting the counterclaim and the time spent defending against Chem-Trend's claims.

Chem-Trend challenges the counterclaim verdict on appeal, but failed to appeal from the adverse contract verdict. In its cross-appeal, Newport challenges the district court's reduction in the requested amount of fees.

DISCUSSION

Chem-Trend first argues the award of commission damages must be reversed because the jury's verdict on the underlying breach of contract claim is unsupported by the evidence. Chem-Trend argues the evidence is insufficient to support the contract verdict because the jury, having found Newport breached a fiduciary duty and committed fraud, was obligated to find that Newport breached its contractual obligations. In effect, Chem-Trend posits the adverse contract verdict is inconsistent with the favorable fiduciary duty and fraud verdicts.

Newport responds that Chem-Trend cannot challenge the commission damages indirectly through a challenge to the contract verdict because Chem-Trend failed to appeal the adverse contract verdict. We agree. Cf. Artis v. Francis Howell N. Band Booster Ass'n, 161 F.3d 1178, 1184 (8th Cir.1998) (holding an unappealed jury verdict on a claim mooted that part of the plaintiff's appeal demanding an entitlement to damages on that claim). In addition, to the extent Chem-Trend claims an inconsistency in the verdicts, Chem-Trend waived the challenge by failing to object before the district court discharged the jury. Williams v. KETV Television, Inc., 26 F.3d 1439, 1443 (8th Cir.1994).

Chem-Trend also argues the district court erred in construing the MSRCA to allow damages in favor of a sales representative who breaches a fiduciary duty and defrauds its principal. Newport responds that Chem-Trend actually alleges an instructional error disguised as a claim of erroneous statutory construction. Chem-Trend agreed to instructions which advised the jury that a breach of contract by Newport negated the counterclaim, but which allowed the jury to consider the counterclaim even if Newport breached a fiduciary duty or committed fraud. We agree with Newport. Because Chem-Trend failed to object to the district court's instructions, and failed to request an instruction indicating that a breach a fiduciary duty or a finding of fraud negated the counterclaim, this claim is waived. Therefore, our review of this issue is limited to the plain error standard of review. See Fed.R.Civ.P. 51; Cross v. Cleaver, 142 F.3d 1059, 1068 (8th Cir.1998).

Plain error review is "narrow and confined to the exceptional case where error has seriously affected the fairness, integrity, or public reputation of the judicial proceedings." Des Moines Bd. of Water Works Trs. v. Alvord, 706 F.2d 820, 824 (8th Cir.1983). The verdict should be reversed "`only if the error prejudices the substantial rights of a party and would result in a miscarriage of justice if left uncorrected.'" Rush v. Smith, 56 F.3d 918, 922 (8th Cir.1995).

To determine whether the district court plainly erred in instructing the jury, we must first explore whether Chem-Trend deserved an instruction indicating that a sales representative cannot recover unpaid commissions under the MSRCA when the representative defrauds its principal, or breaches a fiduciary duty owed thereto. The MSRCA itself provides scant guidance in determining whether a sales representative retains the benefit of the statutory remedy in those circumstances.³

Under Michigan common law, "[t]he general rule is that a broker forfeit[s] his right to compensation by misconduct, breach of duty, or wilful disregard, in a material respect, of an obligation imposed upon him by the law of agency." Sweeney & Moore v. Chapman, 295 Mich. 360, 294 N.W. 711, 712 (Mich.1940) (emphasis added). Acts of fraud or breaches of fiduciary duty are not always material however, so forfeiture of commissions is not always an appropriate remedy. Muglia v. Kaumagraph Corp., 64 F.3d 663, 1995 WL 492933, at *6-7 (6th Cir.1995) (unpublished table decision) (interpreting Michigan law and holding that a principal who failed to...