Newton Mfg. Co. v. Clemmons
| Decision Date | 10 June 2015 |
| Docket Number | No. 14–1131.,14–1131. |
| Citation | 868 N.W.2d 202 (Table) |
| Parties | NEWTON MANUFACTURING COMPANY, Plaintiff–Appellee, v. Doyle CLEMMONS, d/b/a Maxxstar, LLC, Defendant–Appellant. Doyle Clemmons, d/b/a Maxxstar, LLC, Counterclaim Plaintiff, v. Newton Manufacturing Company, Defendant to Counterclaim. |
| Court | Iowa Court of Appeals |
Whitney C. Judkins of Fiedler & Timmer, P.L.L.C., Urbandale, and Brett Charhon and Martin C. Robson of Charhon Callahan Robson & Garza, PLLC, Dallas, TX, for appellant.
Christopher P. Jannes of Davis, Brown, Koehn, Shors & Roberts, PC, Des Moines, for appellee.
Heard by TABOR, P.J., and BOWER and McDONALD, JJ.
This case involves a series of contracts between Newton Manufacturing Company (Newton), an Iowa business specializing in promotional materials, and Doyle Clemmons, an independent contractor from Texas who sold Newton's products. Their working relationship broke down in 2012 when Clemmons placed orders with a local competitor. Thereafter, Newton terminated its June 2012 sales agreement with Clemmons, effective November 2012. At the time of the termination, Clemmons owed Newton more than $58,000 in incentives Newton had advanced under the parties' previous contracts. Newton sued to recover the incentive balance, and Clemmons, as an affirmative defense, claimed Newton materially breached the 2012 sales agreement, excusing his own performance. Clemmons also counterclaimed for unpaid commissions involving a software product. The district court ruled Clemmons owed Newton for the incentives, Newton owed Clemmons unpaid commissions for the software product for November and December 2012, and Newton's failure to pay those two months of commissions was not a material breach. The court rejected Clemmons's “assignment” counterclaim. Finding no error, we affirm.
Newton produces promotional materials for sales purposes with its business divided between “core” business and “corporate programs.” The “core” business includes one-time orders for items such as coffee mugs, pens, calendars, or tee shirts. The “corporate-program” offers website products. Newton entered agreements with independent contractors to sell its products and paid them commissions.
A. Newton–Clemmons Contracts. On January 1, 2004, Newton and Clemmons, who was doing business as sole proprietorship Maxxstar, entered into the first of their three written contracts. The 2004 contract was for four years, until December 31, 2008, and established a commission and bonus schedule for Clemmons. Under this contract, Newton advanced Clemmons $150,000 as a one-time “Initial Incentive” and also advanced a one-time “Volume Incentive” of $35,000, or $185,000 in total incentive payments. These payments were in consideration for Clemmons (1) providing Maxxstar's customer list to Newton, (2) supplementing the customer list, and (3) granting Newton “exclusive relationships with the client accounts named therein.” The parties agreed “any violation of this right of exclusivity will constitute a material breach of this Agreement.”
As for repayment of the incentives, for each contract year in which Clemmons achieved his annual sales goals, Newton would annually amortize or reduce “$37,000 of the $185,000 sum.” If Clemmons failed to achieve his sales goal in any contract year, no amortization would occur for that contract year. If the contract was terminated before the incentives had been fully amortized, Clemmons agreed to pay Newton the unpaid incentive balance.
In 2008 Clemmons and Newton entered into their second contract for another four years, from July 1, 2008, to June 30, 2012. This contract recognized Clemmons had not achieved the sales goals necessary to fully amortize the 2004 contract's incentive payments, and Newton agreed to pay Clemmons “a one-time incentive payment of $185,000 (the “Initial Incentive”) less the unamortized balance from the [2004] sales agreement of $18,500” or $166,500. As before, the incentive was in consideration of Clemmons providing his customer list and granting Newton “exclusive relationships with the client accounts named therein.” Under this contract, the incentive balance would be amortized at $46,250 per year if Clemmons achieved his sales goals. As before, Clemmons agreed to repay Newton any unpaid incentive balance.
B. Merge 9i Contracts. In the meantime, Paragon Consulting of North Florida, LLC (Paragon) developed the concept and process for a software application, PB2.9, a performance-improvement program for employers. The program could be customized to reward employees with points for achieving goals relevant to the employer's specific business, such as attendance, production, and safety. In 2008 Newton worked with Paragon to further develop and sell the software application, and Newton and Paragon subsequently entered into an “intellectual property license and purchase agreement” (L & P contract). While Newton and Paragon jointly developed the branding for the program, Newton developed and owned “software to collect participant points, design and print scorecards, and provide management reporting.” Newton also designed and owned “software to interface with clients, maintain performance improvement program websites, and administer point redemptions.” Newton became the sole owner of the trademark, Merge 9i, associated with the performance-improvement program. Unlike Newton's other products, the sale of Merge 9i required a more intensive, more detailed, and more technical sales campaign. Additionally, Newton needed to offer substantial customer service after the sale.
Newton agreed to pay its sales personnel a commission based on the “points awarded” under a Merge 9i contract between Newton and the employer-company. On June 16, 2009, Clemmons and Jim Burt of Houston, Texas, signed an agreement to evenly split commissions for their first two sales of Merge 9i contracts on Newton's behalf. Newton was not a signatory to this agreement. Burt had a personal relationship with David Russell, the president of IFCO, a pallet manufacturer. Burt introduced Russell to Clemmons, and Clemmons's post-introduction efforts resulted in IFCO's initial interest in the Merge 9i program. Clemmons's active involvement in procuring the IFCO sales contract then ended, and Burt, Newton's upper management, and Paragon's Peter and Robin Krstovic held meetings with IFCO's upper management to close the sale. On September 18, 2009, Newton and IFCO executed a three-year contract licensing IFCO to use the Merge 9i program. The Newton–IFCO contract was the first sale under the Clemmons–Burt commission-split contract.
Under the Newton–IFCO contract, Newton provided post-sale administrative services, such as assigning points to employees, providing IFCO with monthly points statements, processing employee redemption orders, and preparing billing statements. Either party could terminate the contract by providing sixty days written notice to the non-terminating party. Thus, IFCO could end the contract if it was unhappy with the program or with Newton's administration of the program.
Burt spent significant time servicing the IFCO contract, while Clemmons did not. Clemmons admitted that because Burt, Larry Bayliss of Newton, and Krstovic of Paragon were servicing the contract, IFCO “remained a client of Newton.”1 Under the IFCO contract, Newton invoiced IFCO on a monthly basis for “points awarded,” IFCO paid Newton, and Newton then paid the sales commission. Despite Newton's belief Burt was entitled to the entire IFCO sales commission, Newton directly paid Clemmons his percentage under the Burt–Clemmons contract.
C. Third Newton–Clemmons Contract. During the second Newton–Clemmons contract, Clemmons was not meeting his sales goals; consequently, Newton amortized only a small portion of the 2008 sales contract's incentive balance. On April 1, 2010, Newton and Clemmons executed an addendum stating Newton would not amortize $46,250 for the year 2009 and also stating Clemmons still owed Newton more than $150,000 of the previously advanced “initial incentive.”
With the 2008 Newton–Clemmons contract set to expire on June 30, 2012, Clemmons, assisted by counsel, sent Newton a proposal for a new sales contract in early May 2012. Clemmons proposed the 2004 and 2008 agreements be “mutually terminated” with the parties having “no further obligations,” including his incentive debt. Clemmons believed he could increase his income by taking his business “direct” and therefore proposed to “cease selling core business, printing and promotional items” while continuing to market the Merge 9i program. Although Clemmons proposed Newton “will continue to pay Clemmons for all existing Merge 9i contracts (IFCO ... ), for the life of the contract and on any contract renewals in the future,” this language was not included in the final 2012 contract with Newton.
At the end of May 2012, Newton's treasurer, Jeffrey Stolp, responded with a draft contract recognizing Clemmons's obligation to repay Newton the unamortized incentive balance of $63,571.72. Newton agreed Clemmons could continue to market Merge 9i and proposed twenty-five percent of his Merge 9i commissions, for the first time, be used to reduce the incentive balance. This term was included in the final contract. Finally, Stolp included a margin comment on the Merge 9i commission paragraph, paragraph 3(a): “Our intent is to pay commissions through the life of the client contract not the [Newton–Clemmons] Sales Agreement.” The language in the comment was not included in the final contract, but paragraph 3(a) was not changed in the final contract.
On June 12, 2012, Newton and Clemmons executed the sales agreement at issue, which varied significantly from the Clemmons draft:
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