R3 Composites Corp. v. G&S Sales Corp., No. 19-2290

• Decision Date: 01 June 2020
• Docket Number: No. 19-2290
• Citation: 960 F.3d 935
• Parties: R3 COMPOSITES CORP., Plaintiff-Appellee, v. G&S SALES CORP., Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

960 F.3d 935

R3 COMPOSITES CORP., Plaintiff-Appellee,

v.G&S SALES CORP., Defendant-Appellant.

No. 19-2290

United States Court of Appeals, Seventh Circuit.

Argued January 22, 2020

Decided June 1, 2020

Rehearing En Banc Denied June 29, 2020^*

Larry L. Barnard, Attorney, James B. Hike, Attorney, Carson, LLP, Fort Wayne, IN, for Plaintiff-Appellee.

Randall J. Gillary, Attorney, Law Offices of Randall J. Gillary, P.C., Troy, MI, Jill M. Wheaton, Attorney, Dykema Gossett PLLC, Ann Arbor, MI, for Defendant-Appellant.

Before Wood, Chief Judge, and Sykes and Hamilton, Circuit Judges.

Hamilton, Circuit Judge.

The central issue in this case is whether R3 Composites Corporation owes G&S Sales Corporation any additional sales commissions for work G&S did as a representative for R3. The parties agreed on a written contract. The critical term dealing with sales commissions did not show any agreement on commission rates. It said instead that the parties would try to agree on commission rates on a job-by-job, customer-by-customer basis. Everyone agrees that the original "agreement to agree" would not have been enforceable by itself, but the parties did in fact later agree on commission rates for each customer and went forward with their business.

The district court granted summary judgment for manufacturer R3, relying primarily on the original failure to agree on commission rates. We reverse. A reasonable jury could find that the later job-by-job commission agreements were governed by the broader terms of the original written contract. The rest of the case is rife with factual disputes that cannot be resolved on summary judgment.

I. Facts for Summary Judgment and Procedural Background

A. The Parties and Their Agreement

R3 molds custom fiberglass parts for a variety of industrial applications. G&S was an independent sales representative for R3. The relationship began in 2010, when R3 owner Roy Carver III met Steven Stefani in the course of R3’s acquisition of some hydraulic presses. In early 2011, Carver and Stefani began to discuss the possibility of Stefani working as a sales representative for R3. Stefani then brought in his business contact Mark Glidden. By the end of January 2011, Glidden and Stefani had formed G&S Sales Corp. The company, a Michigan corporation, was owned jointly by Stefani and his wife, Patricia Stefani. Glidden styled himself as G&S’s managing partner.

In February 2011, Carver, Stefani, and Glidden had agreed on major parameters of their business relationship. They executed an agreement called a "Non-Disclosure Agreement" ("the NDA") that expressed their mutual understanding. Much of the NDA governs the confidential technical information about R3’s business that Glidden and Stefani would learn as the business relationship evolved. Various provisions defined what constituted confidential information, specified how Glidden and Stefani were to handle this information, listed exceptions to the stated restrictions on disclosure, and said that Glidden and Stefani would not gain any intellectual property rights simply by virtue of the information disclosed.

One paragraph is central here. Paragraph 12.2, "Commission," said in full:

If G&S obtains jobs for R3, the parties will attempt to develop an agreement whereby G&S is paid a commission with a guideline being a 5% commission with the precise commission rate to be negotiated on a job-by-job basis. A commission will also be paid for any and all extensions, renewals, subsequent phases, or additional terms of any such job obtained by G&S for R3, the amount of which to be determined on a job-by-job basis. Any commissions to be paid to G&S in this Section 12.2 are predicated upon G&S fulfilling all of its obligations under this Agreement, including without limitation, those provisions of Section 12.3 immediate following.

Paragraph 12.3 provided in part that G&S would not interfere with "any existing R3 jobs by attempting to transfer such work to other molders."

Paragraph 13, "Termination," provided: "Either party may, at any time, terminate this Agreement effective upon written notice to the other party. Notwithstanding such termination, the obligations of each party as set forth in Sections 2, 3, 4, and 12 of this Agreement shall survive termination of this Agreement." (Section 2 defined "confidential information;" section 3 placed restrictions on use of that information; and section 4 established that neither party could hire employees of the other without consent for two years after the last disclosure of confidential information.) No other provisions of the contract governed the commissions R3 would pay G&S.

After the parties signed the NDA, G&S brought a significant sales lead to R3: a company called Aquatic Bath. Over several months, G&S and R3 worked together to win Aquatic Bath’s business. Aquatic Bath and R3 signed a contract on July 8, 2011, with an initial term of three years. The Aquatic Bath business seemed like a sure thing as early as May 2011. That’s when R3’s Carver offered G&S’s Glidden the position of Plant Manager at R3’s plant so that he could work on production for the Aquatic Bath contract. Glidden accepted the position and began work at R3 on June 1, 2011. In a choice that seems to lie at the heart of this lawsuit, Glidden maintained his role at G&S while also working for R3. Stefani and Glidden discussed the potential for conflicts of interest, but they ultimately agreed that Glidden could continue in both roles.

The Aquatic Bath business did not prove as lucrative as R3 and G&S had hoped. In a series of emails between February and July 2012, R3’s Carver and G&S’s Stefani debated the appropriate commission rate and the prospects for the Aquatic Bath account. They ultimately agreed to a 3 percent commission once monthly sales reached $600,000, which G&S says happened around March 2013. During this time, G&S continued to provide leads to R3, resulting in business from several other customers: Janesville Acoustic, Trivector, Max Secure, and American Stonecast. The parties agree on this much. Their accounts diverge beginning with events in 2014.

B. The Dispute Over Commissions and the Termination

In 2014, Aquatic Bath, the most lucrative account, changed its purchase order procedures. Rather than using a blanket purchase order, as it had previously, Aquatic Bath began to issue individual purchase orders. It also changed the way raw materials were supplied, though the parties dispute exactly how. R3 says its agreement with Aquatic Bath did not require Aquatic Bath to buy materials and parts from R3. Aquatic Bath decided to begin providing its own sheet molding compound and began paying R3 only for its molding work. Carver spoke with Glidden about paying G&S its commission rate on only the reduced amounts Aquatic Bath paid R3 for only the molding work—not on the full price of the products, which would have included the costs of materials. R3 recognized that the change reduced G&S’s total commissions, but R3 says the reductions were entirely above-board because Glidden had agreed to the change on behalf of G&S.

G&S sees things differently, and because we are reviewing a grant of summary judgment for R3, we must give G&S the benefit of conflicting evidence and reasonable inferences from the evidence. First, G&S characterizes the 2014 R3–Aquatic Bath purchase agreement in quite different financial terms. In G&S’s telling, R3 was to buy the sheet molding compound from Aquatic Bath (instead of receiving it for free), complete its molding work, then sell the products back to Aquatic Bath at full price, rather than charging only for the molding work. G&S contends it was entitled to commissions representing 3 percent of the full price of the finished products, not just the price of the molding work alone. The change in buying practices was cutting its commissions by nearly 50 percent, amounting to hundreds of thousands of dollars. Glidden, perhaps wearing two hats at once, told G&S of the new arrangement. According to G&S, though, those emails misrepresented the nature of the R3–Aquatic Bath relationship, resulting in underreporting and underpayment of commissions.

G&S and R3 also disagree about the calculation of commissions on two other accounts, for Janesville Acoustics and Trivector. According to G&S, as these accounts’ profitability fluctuated, Glidden, in his capacity as R3’s Plant Manager, began by deciding how much commission he wanted to pay G&S each month, then instructed R3’s CFO to doctor the underlying sales figures to produce the desired result. R3 does not substantially dispute this but says that its CFO believed that Glidden had the authority, in his capacity as G&S’s managing partner (a title that Stefani disputes), to change commission rates. For purposes of R3’s summary judgment motion, we must assume that Glidden did not have authority from G&S to agree to these changes and did not disclose these changes to Stefani.

On June 24, 2015, R3 invoked the termination clause of the NDA. G&S stopped looking for new business for R3. Under the terms of Paragraphs 13 and 12.2 of the NDA, R3 continued to pay commissions to G&S on existing jobs, though the parties dispute whether R3 paid the appropriate amounts. G&S reminded R3 in a July 10, 2015 letter that its commission payment obligations survived the termination of the agreement, per the terms of Paragraph 13 of the NDA. During the year following termination, R3 and G&S attempted to negotiate a new agreement but were not able to do so. Negotiations broke down for good in September 2016. According to G&S, R3’s payment of August 2016 was insufficient and did not reflect the full amount of commissions then due for May and June 2016. R3 stopped making payments altogether in September 2016.

C. This Lawsuit

This lawsuit began when R3 filed a complaint in an Indiana state court on October 21, 2016. The complaint sought a declaratory judgment on two points: first, that the NDA was enforceable and that R3 had already...