Shank v. Hague, Inc.
| Decision Date | 20 September 1999 |
| Docket Number | No. 98-3225,98-3225 |
| Citation | 1999 WL 731932,192 F.3d 675 |
| Parties | (7th Cir. 1999) John M. Shank, Jr., and Access International Markets, Ltd., Plaintiffs-Appellants, v. William R. Hague, Inc., Defendant-Appellee |
| Court | U.S. Court of Appeals — Seventh Circuit |
Appeal from the United States District Court for the Eastern District of Wisconsin. No. 97-C-1002--Myron L. Gordon, Judge. [Copyrighted Material Omitted] Before Posner, Chief Judge, and Kanne and Evans, Circuit Judges.
This case arises out of an international distribution contract for the marketing and sale of a water conditioning product between the Defendant, William R. Hague, Inc. ("Hague"), and Michael Sieren and his company, WaterBoss International Marketing, Inc. (collectively "Sieren/WIM"). The Plaintiffs, John M. Shank, Jr. ("Shank"), and Access International Markets, Ltd. ("Access"), a corporation solely owned by Shank, contracted with Sieren/WIM to act as Sieren/WIM's international sales representative for the sale and distribution of this product. Plaintiffs subsequently filed suit against Hague alleging that Hague tortiously interfered with Plaintiffs' actual and prospective contracts and business relationships with members of an international distribution network created by Plaintiffs for the sale and distribution of water conditioning products. The district court granted summary judgment in favor of Hague concluding that Plaintiffs failed to raise a genuine issue of material fact regarding whether they had existing or prospective contracts with the members of the distribution network. Plaintiffs now appeal. For the reasons set forth below, we affirm the decision of the district court.
Hague is a corporation involved in the manufacture of, among other things, a water conditioning product called the WaterBoss. In 1989, Hague entered into two written agreements with Sieren/WIM for the marketing and selling of the WaterBoss. The first contract, referred to as the "Marketing and Sales Agreement," made Sieren/WIM responsible for the marketing and sale of the WaterBoss and related products in North America. The other contract, referred to as the "Distribution Agreement," made Sieren/WIM the exclusive distributor of the WaterBoss and related products in Europe, and later, in the Pacific Rim countries and Latin America. Hague began manufacturing the WaterBoss in 1991 and Hague and Sieren/WIM later agreed that the first operative year under both agreements would be the fiscal year ending January 31, 1993.
Under these contracts, Hague had no right to control the manner in which Sieren/WIM conducted their business activities and the agreements left Sieren/WIM with the discretion to hire sub-agents or contractors to assist them in marketing and selling WaterBoss products as they saw fit. Because Sieren/WIM did not have an existing international distribution network, Sieren/WIM contracted with Plaintiffs to act as their international sales representative and to sell WaterBoss products in the international market. The written agreement between Plaintiffs and Sieren/WIM granted Plaintiffs the exclusive right to solicit orders for WaterBoss products first within Europe and the Pacific Rim and later in all geographical areas except for the United States and Canada. Sieren/ WIM retained the right to set the prices and terms of sale for WaterBoss products and in all other respects reserved their rights under the Distribution Agreement to control the marketing and distribution policies for WaterBoss products in the international market. That agreement further provided that Shank and Access would operate as independent contractors, not as employees or sub-agents of Sieren/WIM. Sieren/WIM compensated Plaintiffs for their services in generating sales of WaterBoss products by paying Plaintiffs a commission on each sale they generated, provided the sale was accepted by Sieren/WIM. Although Hague was not a party to that agreement, Shank indicates that Hague was aware of and approved of the relationship between Plaintiffs and Sieren/WIM.
Shank maintains that he created the international distribution and sales network for WaterBoss products independently of both Sieren/WIM and Hague. This network eventually consisted of one sales representative, C.O.B. International S.A.R.I. ("COB") in France, which obtained several dealer agreements throughout Europe, and around fifteen distributors located throughout the remaining geographical area covered by the Distribution Agreement. Several of these contacts grew out of Shank's prior dealings with various principals associated with COB and certain of the distributors. For example, Shank indicated that he obtained COB as the sales representative as a result of his prior dealings with COB's owner, Joel Cobigo when both worked at another corporation. With respect to the distributors, Shank maintains that he knew of and dealt with many of them before he recruited them to distribute WaterBoss products and that the remaining distributors were otherwise procured through wholly independent action on his part. According to Shank, he and Access spent years and substantial sums of money developing, fostering, and maintaining this distribution network and Shank's relationship with the network's companies and principals. Shank also submits that he intended the network to distribute products other than, or in addition to, WaterBoss products.
However, Plaintiffs had no written contractual relationship with any member of the distribution network. Instead, COB and the distributors entered into written contracts directly with Sieren/WIM to sell and distribute WaterBoss products exclusively. Shank's efforts in procuring and maintaining the distribution network were rewarded by the receipt of commissions from Sieren/WIM upon the sale of WaterBoss products. Under the terms of the Distribution Agreement, Hague agreed to sell WaterBoss products to Sieren/WIM at cost plus thirty percent. Upon Hague's receipt of payment from a customer, it would pay Sieren/WIM the difference between the cost of the product plus thirty percent, and the sale price of the product. Sieren/WIM would then pay Access a commission out of the sums received from Hague. Access in turn was directed to pay its sales representative COB a commission from the sums received from Sieren/WIM to the extent it was involved in any sale. The distributors received no payment from either Sieren/WIM or Access because they functioned as the ultimate purchasers of the products.
Notwithstanding the written agreements between Sieren/WIM and the individual members of the distribution network, Plaintiffs claim to have had oral agreements with the members of the network for the members to act as Plaintiffs' representative and distributors, not just for WaterBoss products, but also for competing product lines which Access would distribute in the future. Moreover, while COB and the distributors executed written contracts with Sieren/WIM, Plaintiffs maintain that they and Sieren/WIM treated those agreements as being between Access and the representative and distributors and that in practice the members of the distribution network reported directly to and took directions principally from Shank and Access and would only secondarily contact Sieren/WIM. As evidence of that relationship, Shank indicated that he prepared customer invoices, received purchase orders from the members of the network, and prepared shop assembly instruction sheets, which gave Hague directions on how to build WaterBoss products to customers' specifications. Plaintiffs delivered the purchase orders, shop assembly instructions and other special instructions Plaintiffs received from members of the distribution network directly to Hague rather than Sieren/WIM. Plaintiffs also maintain that they had the authority and bore the responsibility to hire and fire international sales representatives and distributors. Under Plaintiffs' account of the working relationship between and among Sieren/WIM, Plaintiffs, and the members of the distribution network, Sieren/WIM played no substantive role in the distribution network's activities. Instead, Plaintiffs indicate that they were in charge of the distribution network--a network Plaintiffs submit belonged to them, not Sieren/WIM.
Hague terminated the Marketing and Sales Agreement in March 1997 after determining that Sieren/WIM was not fulfilling its contractual obligations under the terms of that contract. In June 1997, Sieren/WIM filed a lawsuit against Hague based upon Hague's termination of the Marketing and Sales Agreement. Because of the nature of the allegations leveled by Sieren/WIM in the complaint in that suit and other undisclosed actions taken by Sieren/ WIM, Hague began to question whether Sieren/WIM could in good faith act in Hague's best interests under the Distribution Agreement. To protect its goodwill and reputation in the international marketplace, Hague decided to cease selling WaterBoss products through Sieren/WIM under the Distribution Agreement. In a September 1997 letter, Hague formally notified Sieren/WIM that it would not renew the Distribution Agreement beyond its October 1997 anniversary date. The September letter further stated, however, that it was Hague's position that Sieren/ WIM terminated the Distribution Agreement in June 1997 when they filed suit against Hague because the allegations contained in Sieren/WIM's complaint established that Sieren/WIM did not intend to continue with the Distribution Agreement.
During the period beginning with Hague's termination of the Marketing and Sales Agreement and ending with the formal termination of the Distribution Agreement, Hague continued to manufacture WaterBoss products for international distribution and Hague continued to accept orders generated by Plaintiffs' international sales of these products. In July 1997, Hague contacted Shank regarding the...
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