Duck Head Apparel Co., Inc. v. Hoots

• Decision Date: 17 February 1995
• Citation: Duck Head Apparel Co., Inc. v. Hoots, 659 So.2d 897 (Ala. 1995)
• Parties: DUCK HEAD APPAREL COMPANY, INC. v. Ken HOOTS, et al. Ken HOOTS, et al. v. DUCK HEAD APPAREL COMPANY, INC. 1931146, 1931171.
• Court: Alabama Supreme Court

Page 897

659 So.2d 897

DUCK HEAD APPAREL COMPANY, INC. v. Ken HOOTS, et al.

Ken HOOTS, et al. v. DUCK HEAD APPAREL COMPANY, INC.

1931146, 1931171.

Supreme Court of Alabama.

Feb. 17, 1995.

On Application for Rehearing April 7, 1995.

William J. Baxley of Baxley, Dillard, Dauphine & McKnight, Birmingham, Oakley W. Melton, Jr. and Joseph C. Espy III of Melton, Espy, Williams & Hayes, P.C., and T.W. Thagard, Jr. and David R. Boyd of Balch & Bingham, Montgomery, for appellant.

Richard Jordan, Randy Myers and Benjamin L. Locklar of Richard Jordan and Randy Myers, P.C., Montgomery, for appellees.

ALMON, Justice.

Duck Head Apparel Company, Inc., appeals from a judgment awarding damages against it on the plaintiffs' claims alleging breach of contract, fraud, and suppression. The plaintiffs, Ken Hoots, Terry Long, and Bill Pace, are former sales representatives for Duck Head. The allegations of wrongful conduct concern Duck Head's failure to pay sales commissions to the plaintiffs. The plaintiffs presented substantial evidence that Duck Head's officers and managerial employees, through various improper actions, avoided paying substantial commissions owed to the plaintiffs, while fraudulently representing that the commissions would be paid and suppressing activities undertaken to make it appear that the commissions were not due and owing. The principal issues are whether the circuit court erred in ordering no larger a remittitur of punitive damages than it ordered or in denying the motion for remittitur as to the mental anguish damages awarded on the counts alleging fraudulent misrepresentation and suppression. Duck Head also argues that the court erred in excluding evidence at the hearing held pursuant to Hammond v. City of Gadsden, 493 So.2d 1374 (Ala.1986); that the plaintiffs presented insufficient evidence of reliance on the alleged suppression; that there was insufficient evidence of the amount of damage under the contract claim; and that the court erred in refusing to dismiss the claim under Ala.Code 1975, § 8-24-1 et seq.

The plaintiffs cross appeal, arguing that the circuit court erred in sealing the record, in amending its Hammond order, and in ordering a partial remittitur of the punitive damages.

Duck Head Apparel Company, Inc., is the successor to O'Brien Brothers, Inc., as owner of a trademarked line of apparel bearing a duck head as trademark. Ken Hoots began working for O'Brien Brothers in 1983 as an independent sales representative for the territory of Alabama, Georgia, and Florida. Hoots began developing the territory, paying his own expenses and earning a five per cent commission on his sales. He testified that the first year he worked he sold less than $1,000,000 in goods, earning about $50,000 in commissions but incurring expenses of $20,000-$30,000. Hoots had substantial increases in sales each year, and he testified that these increases came "by hard work." In 1984, with the approval of O'Brien Brothers, he hired Terry Long to work as a Duck Head sales representative in Georgia. In 1986, Hoots and Long lost Florida from their territory, except that Hoots retained Stein Mart stores, which ordered through the company's headquarters in Jacksonville, Florida. Hoots testified that he kept the Stein Mart account because he had opened it and had increased the number of Stein Mart stores selling Duck Head clothing from 5 to 47.

Initially, O'Brien Brothers marketed a limited line of Duck Head clothing. Hoots testified that he suggested to David Baseheart, the sales manager for O'Brien Brothers, that the company add some colorful items:

"For example, the basic pant that started to become popular with the young people, we only did it in khaki, navy, and olive. I went to Dave Baseheart one day and told him we needed some more things to sell; that I had a suggestion that we, rather than do the basic colors, put a little flare to it. Let's do it for spring. For example, do a canary, a taupe, and a light blue. Dave suggested that we maybe couldn't do that because we had a smaller warehouse in Nashville and he said we just can't stock all of this merchandise. I said, well, Dave, we don't have to stock it; just stock the basic items. We will take these new colors; you make up some samples, and we will go out and book it and ship it and forget it; then we will do three more colors next season. So we did, and it was very successful. From there we started adding colors to the shorts, and then we began to add tops, both knit and woven."

Hoots also testified that he changed the practice of marketing of Duck Head clothing from small country stores by establishing accounts with major department stores such as Gayfers, Parisian, Rich's, and Macy's. Hoots's sales increased dramatically every year--$984,000 in 1984, $2,114,000 in 1985, $3,468,000 in 1986, $4,405,000 in 1987, $5,679,000 in 1988, $7,619,000 in 1989, $9,950,000 in 1990, and $17,010,000 in 1991. Sales from Alabama and Georgia constituted a substantial portion, apparently more than a third, of the sales of Duck Head clothing throughout this period. Bill Pace started selling Duck Head clothing in January 1991 in an arrangement similar to Long's arrangement with Hoots. Hoots did business under the name Hoots & Associates, with Long's and Pace's sales credited to Hoots's account and with Hoots paying Long and Pace from the commission checks he received.

In December 1988 Delta Woodside Industries, Inc., bought O'Brien Brothers, Inc. Delta Woodside formed Duck Head Apparel, Inc., as a subsidiary corporation and marketed the Duck Head clothing through that corporation. In 1989, Danny Stanton was made president of Duck Head Apparel. ¹ In September 1990, Mark Schwarb came to work for Duck Head and was made vice president for sales and marketing in early 1991. In April 1991, Schwarb sent a letter to the sales representatives informing them that the commissions would be reduced from 5% to 4 or 3%, depending on the account. Sales to new specialty stores were allowed higher commissions but Hoots and Long testified that the market was so saturated in their territory that this provision meant little to them. All orders received by Duck Head by May 1 were to receive the old 5% commission rate, but problems arose with orders being incorrectly credited at the new rates.

In August, Schwarb told Hoots that he would not receive credit for Stein Mart orders after August 20, because Stein Mart was being made a "house account" that did not pay commissions. Also in the spring and summer of 1991 problems arose with commissions on orders from J.C. Penney stores that were transmitted electronically by the stores. The salesmen complained that they were not receiving commissions on these orders, and they testified that when they told this to the Duck Head managers and officers, the response was "we'll look into it," but that the commissions were never paid.

On November 1 or 2, 1991, a sales meeting took place in which Schwarb and Stanton informed each representative individually that Duck Head Apparel would no longer pay commissions to independent sales representatives, but would hire employee sales representatives, paying a salary plus a certain amount for expenses and a 1/2% commission. This offer was memorialized in a memorandum from Mark Schwarb on November 5, which stated the following:

"In the event that a sales representative resigns prior to June 28, 1992, commissions at the current schedule will be paid on all orders booked prior to resignation and shipped through June 28, 1992. Orders booked prior to resignation and shipped after June 28, 1992, will be paid at 1/2 percent of net sales amount."

This representation was important to the salesmen, because the orders were booked a season in advance; in the fall of 1991, the salesmen were booking orders for shipment in the spring of 1992. The compensation offered to Hoots, Long, and Pace constituted a substantial pay cut, and they unanimously decided to terminate the relationship rather than become salaried employees. Their resignations had an effective date of November 30, and they continued to book orders until then. At trial, each of the three testified that he decided to quit immediately, rather than working through the end of June and monitoring the shipments to make sure he received proper credit, and that in deciding to do this, he relied on the representation that they would be paid commissions at the existing rates.

There was evidence that by November 1991 Duck Head had already begun tampering with orders submitted by Hoots, Long, and Pace to prevent them from receiving the commissions they were due. Stacey Shipley and Stacy Kitchens worked in the customer service department at Duck Head and were responsible for the accounts served by Hoots, Long, and Pace. They received orders from the sales representatives and entered the information into Duck Head's computers. They both testified that they began noticing on their computer screens orders that had been submitted by Hoots, Long, and Pace but that were shown as credited to a "house account," which paid no commission, or to a "resignation account" for Hoots & Associates, which paid no commission. Shipley testified that she began noticing this before Hoots, Long, and Pace had resigned. Later, they also noticed that commissions for Hoots & Associates' orders were credited on some computer entries to other salesmen who came to work after Hoots, Long, and Pace resigned. Both Shipley and Kitchens testified that they ultimately noticed "hundreds" of such questionable alterations of orders.

Shipley testified that she told her supervisor, Suzanne Barckow, and asked her why the changes had been made, but Shipley said, "She told me that was not my job; I had a job to do, and I was not to worry about that." She also told another supervisor, Sandy Campus, and was told "It was none of my business." Finally, she told the manager of customer service, Ken Grindle, who...