Profit Pet v. Arthur Dogswell, LLC

• Decision Date: 07 May 2010
• Docket Number: No. 09-1228.,09-1228.
• Citation: 603 F.3d 308
• Parties: PROFIT PET; Bob Baran, Plaintiffs-Appellees, v. ARTHUR DOGSWELL, LLC, Defendant-Appellant.
• Court: U.S. Court of Appeals — Sixth Circuit

603 F.3d 308

PROFIT PET; Bob Baran, Plaintiffs-Appellees, v. ARTHUR DOGSWELL, LLC, Defendant-Appellant.

No. 09-1228.

United States Court of Appeals, Sixth Circuit.

Argued: January 12, 2010.

Decided and Filed: May 7, 2010.

COPYRIGHT MATERIAL OMITTED

ARGUED: Stephen S. Muhich, Dykema Gossett PLLC, Grand Rapids, Michigan, for Appellant. Loyst Fletcher, Jr., Law Office, Flint, Michigan, for Appellees. ON BRIEF: Stephen S. Muhich, Dykema Gossett PLLC, Grand Rapids, Michigan, for Appellant. Loyst Fletcher, Jr., Law Office, Flint, Michigan, for Appellees.

Before: MARTIN and WHITE, Circuit Judges; ZOUHARY, District Judge.^*

OPINION

ZOUHARY, District Judge.

INTRODUCTION

This is a contractual relationship gone to the dogs. It is a dispute between a pet supply manufacturer, Arthur Dogswell, LLC (Dogswell), and its Midwestern sales representative, Profit Pet. Dogswell terminated the contract between the parties after three years, and Profit Pet sued alleging (1) Dogswell terminated the contract without cause, as defined by the contract, and (2) Profit Pet was entitled to certain payments. After cross motions for summary judgment, the district court ruled at a hearing in Profit Pet's favor. The parties stipulated to an agreed damage amount based on the court's ruling, and judgment was entered in favor of Profit Pet in the amount of $209,039.56. Dogswell timely appealed. We have jurisdiction pursuant to 28 U.S.C. § 1291.

There are four issues in this case:

1. Did Dogswell terminate the contract "for cause" or "without cause," as those terms are defined in the contract?

2. Did Profit Pet breach the contract prior to the termination?

3. Is Profit Pet entitled to commissions on sales to "big box" stores located in its geographic sales territory?

4. Does the Michigan Sales Representative Commission Act (SRCA) apply to any payment owed to Profit Pet?

For the reasons described below, we AFFIRM the district court's rulings that the termination was without cause and that Profit Pet did not breach the contract, REVERSE the district court's holdings on big box commissions and the applicability of the SRCA, and REMAND the case for further proceedings consistent with this Opinion.

BACKGROUND

The Parties

Marco Giannini formed Dogswell in 2003. Dogswell manufactures and sells pet products including pet foods and treats. Bob Baran does business as Profit Pet. Profit Pet is a sales representative for pet product manufacturers.

The Agreement

In August 2004, Dogswell entered into a Representation Agreement ("Agreement") with Profit Pet, granting Profit Pet the exclusive right to represent Dogswell's products to distributors in eleven Midwestern states.¹ Section 8.1 of the Agreement permitted modification or amendment by a writing signed by the parties.

The Agreement set forth the relationship between the parties as one of principal and independent contractor, with explicit language that Dogswell was concerned solely with sales by Profit Pet, and not how Profit Pet conducted its business (Section 5). The parties agree the commission rate was 7%, although the rate was left blank in the Agreement. No language in the Agreement precluded Profit Pet from representing competitors' products.

The Agreement distinguished terminations "for cause" and "without cause," and listed three specific "for cause" scenarios (Section 7.1):

• Profit Pet fails to sell $60,000 worth of goods on a quarterly basis, beginning in the second full quarter of the Agreement;

• Commission of a felony in the course of performance of the Agreement; or

• Failure to cure within fifteen days from a good faith written notice of breach or default.

If none of these events occurred, then the termination would be "without cause." In addition, if Dogswell "terminates agency while Profit Pet is performing quarterly goals, Profit Pet is to receive 1 year's worth of commissions based on previous 6 month sales" (Section 7.2).

The March Toward Termination

The parties began conducting business under the Agreement in August 2004. On March 20, 2007, Giannini and Baran had a conversation, memorialized later the same day in an e-mail that described Dogswell's desired "key performance metrics." Dogswell requested a reduced commission rate, that Profit Pet hire more employees, file certain reports with Dogswell, set up a meeting for a Dogswell employee with Pet Supplies Plus, and acquire an invitation for Dogswell to a Pet Supplies Plus open house (Doc. No. 37, Ex. D).

Baran responded on April 17, 2007 by affirming his "satisfaction" with the current Agreement and rejecting the suggestion that he hire additional staff or take a reduced commission. Giannini replied immediately with another e-mail, reiterating his desire that Profit Pet work with Pet Supplies Plus, hire a new employee, and expand—"a major thing that we need to be added to continue to grow with you." He concluded the e-mail with: "I want to continue working with you, but if we are going to grow together, we need to have you grow your business. We have been growing our business ... We ask you to do the same with a larger staff." Baran e-mailed a response explaining that his "job is to sell," and that he was not in a position to hire a new employee.

Dogswell terminated the business relationship by e-mail on June 18, 2007, followed the next day with a letter indicating Dogswell would pay Profit Pet all commissions earned through the end of June. Neither communication referenced the Agreement.

ANALYSIS

Standard of Review

This Court reviews a grant or denial of summary judgment de novo. Saroli v. Automation & Modular Components, Inc., 405 F.3d 446, 450 (6th Cir.2005). Summary judgment is proper "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any, show that there is no genuine issue of material fact and that the moving party is entitled to a judgment as a matter of law." Federal Civil Rule 56(c).

The summary judgment standard does not change simply because the parties presented cross-motions. Taft Broadcasting Co. v. United States, 929 F.2d 240, 248 (6th Cir.1991). The fact that both parties have moved for summary judgment does not mean a court must grant judgment as a matter of law for one side or the other; rather, a "court must evaluate each party's motion on its own merits, taking care in each instance to draw all reasonable inferences against the party whose motion is under consideration." Id.

Termination Without Cause

The first bone of contention here is whether Dogswell provided the required notice to Profit Pet in order to terminate the contractual relationship "for cause." The Agreement (Section 7.1) provides for three circumstances where termination is for cause: failure to meet the sales obligation, commission of a felony, and failure to cure after good faith notice of breach or default. Dogswell admits Profit Pet was meeting its quarterly sales obligation and there was no felony. Therefore, the issue is whether Dogswell sent a "good faith written notice" of Profit Pet's "actual breach or actual default" (Section 7.1.2). If it did, then Profit Pet had fifteen days to cure the breach. If it failed to do so, Dogswell could have terminated the Agreement by written notice ten days after the failure to cure. There is no dispute that the time period was adequate, or that Profit Pet failed to do what Dogswell demanded.

The district court held Dogswell did not provide the required "good faith written notice" (TR 49-56). The district court found the language in the e-mails to be "perfectly consistent with an ongoing business dialogue, ... where one party would like to modify some terms of the agreement... but it doesn't specify default or breach as required under the notice and cure provision" (TR 52-53). This Court agrees. These e-mails request Profit Pet:

• lower the commission rate from 7% to 5%;

• hire employees so that it could "grow;"

• start filing certain business and customer reports; and

• attend a meeting with Pet Supplies Plus that a Dogswell employee could also attend, and acquire an invitation for Dogswell to attend a Pet Supplies Plus open house.

On their face, these e-mails are not notice of a breach.

Furthermore, Section 5 of the Agreement states:

Profit Pet is not an employee of Dogswell for any purpose whatsoever, but is an independent contractor. Dogswell is interested only in the results obtained by Profit Pet, who shall have sole control of the manner and means of performing under this Agreement. Dogswell shall not have the right to require Profit Pet to do anything which would jeopardize the relationship of independent contractor between Dogswell and Profit Pet.

Requests for Profit Pet to hire employees, set up meetings, or to file reports detailing its day-to-day operations do not describe or even imply a breach or default. Instead, they show Dogswell hounding Profit Pet to act contrary to Section 5 of the Agreement which clearly states Profit Pet "shall have sole control of the manner and means of performing."

Profit Pet's specific duties under the Agreement are limited to obtaining orders and "reorders" of Dogswell's products and services in the specified territory; "diligently" and "faithfully" working the territory in "an endeavor to secure business" for Dogswell (Section 4); and selling at least $60,000 worth of goods per quarter (Section 7.1). The e-mails specify no failure by Profit Pet to meet these or any other obligations under the Agreement. Indeed, the e-mails make no reference or citation to the Agreement.

Dogswell howls that the district court imposed a "hyper-technical notice requirement." Not so. The district court correctly held that a valid notice requires some reference to a breach with an opportunity for Profit Pet to cure. The e-mails contain no such reference. Because Dogswell failed to provide the required "good faith written notice" of breach or default, the termination of Profit Pet...