Sky Systems v . Sentech Archit. CV-12-37-PB 8/27/12

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW HAMPSHIRE

Sky Systems of Plymouth, NH, LLC

v. Case N o . 12-cv-37-PB Opinion N o .

Sentech Architectural Systems, LLC

MEMORANDUM AND ORDER

Beginning in 2007, Sky Systems of Plymouth, N H , LLC (“Sky”)

served as an independent sales representative for the Texas-

based Sentech Architectural Systems, LLC (“Sentech”), and was

responsible for a sales territory encompassing various

Northeastern states. In January 2012, Sentech terminated its

arrangement with Sky. Claiming that it has not received all of

the commissions to which it is entitled, Sky now brings suit

against Sentech. In addition to contract damages, Sky seeks

treble damages and attorneys’ fees based on Sentech’s alleged

violations of the Texas Sales Representative Act and its New

Hampshire cognate. Sky moves for summary judgment, and, for the

reasons below, I deny its motion. I. BACKGROUND

Sky is a limited liability company based in New Hampshire.

The company has no employees, and its president and sole member

is Ernest Coupe. Sentech is a limited liability company whose

principal place of business is Austin, Texas. Sentech designs

structural glass systems, which have been incorporated into

buildings such as the Freedom Tower in downtown Manhattan and

the Newark International Airport.

In 2007, pursuant to an oral agreement, Sentech engaged Sky

as an independent sales representative. Sky solicited orders

for Sentech products and was compensated by Sentech through the

payment of commissions. On August 1 6 , 2010, Sky and Sentech

formalized their arrangement by entering into a written Sales

Representation Agreement (“Agreement”). Doc. N o . 1-1. By the

terms of the Agreement, Sky was granted the exclusive right to

sell Sentech’s products in a defined territory encompassing New

England and northern New York State.

Clauses 5 and 6 of the Agreement address commissions and

commission payments, specifying that commissions

shall be computed on the gross amount of the invoice (including change orders) rendered by the Company and paid for by the Purchaser. In no event shall the 2 commission be computed on an amount in excess of the amount received by the Company . . . . The Representative’s commission shall be reduced a pro rata amount[] when final settlement is made with a Purchaser on other than a full payment basis . . . .

¶ 5 . As to timing, the Agreement specifies that commission

payments “shall be made only after the Products are paid for by

the Purchaser,” id. ¶ 5, and “[a]ll payments of commissions

shall be made within thirty days of receipt of payment by the

Company,” id. ¶ 6.

Termination is addressed by clauses 2 and 1 5 . Under the

former, either party may terminate the Agreement “at any time

without cause . . . upon 15 days’ advance written notice to the

other party[.]” Id. ¶ 2 . Clause 1 5 , whose meaning is disputed

by the parties, is titled “Rights Upon Termination of This

Agreement,” and reads, in its entirety:

Upon termination of this Agreement, the Company shall pay the Representative commissions for orders and contracts accepted by the Company prior to the effective date of such termination, regardless of when shipments are made or invoices tendered. Upon termination of this Agreement, all trade names, patents, designs, drawings, engineering or other data, photographs, samples, literature, and sales data of every kinds [sic], shall remain the property of the Company, and the Representative shall return all such property in its possession with reasonable promptness along with copies of any confidential information which it may have other than the regular exchange of business correspondence.

3 Id. ¶ 15 (emphasis added).

On January 1 0 , 2012, Sentech notified Sky that it would be

terminating the Agreement. After receiving the notice, Sky

demanded that Sentech make full payment of all outstanding

commissions within fifteen days. Pointing to the most recent

“Commission Statement” that had been supplied by Sentech, which

listed nine projects for which commissions remained payable, Sky

requested $73,968.60. That amount represents the sum total of

the figures listed for each project under the “Remaining

Commission Payable” heading of the Commission Statement.1

Sentech rejected Sky’s demand. Instead, it continued to

pay Sky commissions on a rolling basis as it received payment

from its customers. Where projects listed on the Commission

Statement were cancelled or where purchasers where unable to

make payment, the commissions paid to Sky were withheld or

reduced accordingly. Sky asserts that as of May 3 0 , 2012,

ongoing commission payments had reduced the outstanding balance

owed from $73,968.60 to $65,031.29.

Invoking this court’s diversity jurisdiction, Sky brought

1 Sentech notes that to avoid any confusion going forward, it has changed its Commission Statements by inserting the word “Anticipated” into the “Total Commission Payable” and “Remaining Commission Payable” headings. Brown Aff. ¶ 5 , Doc. N o . 32-3.

4 suit on February 1 , alleging that Sentech’s failure to pay the

full $73,968.60 by January 25 constituted a breach of the

Agreement. Sky’s complaint (Doc. N o . 43) contains nine counts,

including a contract claim; two quasi-contract claims for unjust

enrichment and quantum meruit; an unfair trade practice claim

under New Hampshire law; and five claims arising out of the

statutes governing sales representatives and commissions in

Texas, New Hampshire, Massachusetts, New York, and Connecticut.

Sky now moves for summary judgment, but only addresses the

contract claim and the claims under the New Hampshire and Texas

Sales Representative Acts.

II. STANDARD OF REVIEW

A summary judgment motion should be granted when the record

reveals “no genuine dispute as to any material fact and that the

movant is entitled to judgment as a matter of law.” Fed. R.

Civ. P. 56(a). The evidence submitted in support of the motion

must be considered in the light most favorable to the nonmoving

party, drawing all reasonable inferences in its favor. See

Navarro v . Pfizer Corp.,

0 , 94 (1st Cir. 2001).

A party seeking summary judgment must first identify the

absence of any genuine issue of material fact. Celotex Corp. v . 5 Catrett,

1 7 , 323 (1986). The burden then shifts to

the nonmoving party to “produce evidence on which a reasonable

finder of fact, under the appropriate proof burden, could base a

verdict for i t ; if that party cannot produce such evidence, the

motion must be granted.” Ayala-Gerena v . Bristol Myers-Squibb

Co.,

6 , 94 (1st Cir. 1996); see Celotex,

.

III. ANALYSIS

A. Sales Representative Statute Claims

Sentech challenges the applicability of the Texas Sales

Representative Act (“TSRA”), Tex. Bus. & Com. §§ 54.001-54.006,

and the corresponding New Hampshire statute,

-E:1-6, on a number of grounds. Among other things,

Sentech argues that the statutes only cover arrangements where a

wholesaler sells a product to a retailer for resale, and that

neither its products nor its business model fit such a scheme.

I need not engage in that fairly complex and fact-intensive

inquiry, however, because the statutes cannot cover the

arrangement between Sentech and Sky for very simple reasons.

The TSRA applies only when a sales representative is

engaged to solicit orders within the state of Texas. PennWell 6 Corp. v . Ken Assoc., Inc.,

(Tex. App.

2003) (holding that “[b]y the express terms of this provision

[now § 54.002], the TSRA has no application to the sales

representative relationship between Ken and PennWell because . .

. . Ken was not authorized t o , and did not, solicit orders

within the state of Texas”); see Tex. Bus. & Com. § 54.002(a)

(“A contract between a principal and a sales representative

under which the sales representative is to solicit wholesale

orders within this state must . . . .” (emphasis added)). Sky’s

sales territory did not include Texas, and therefore, Sentech

cannot be liable under the Texas statute. Though Sky cursorily

argues that the choice-of-law clause in the Agreement --

specifying that Texas law governs the Agreement’s construction –

- bears on the issue, that contract clause is irrelevant to

whether a cause of action exists under the TSRA.

Nor does the relevant New Hampshire statute apply to Sky

and Sentech’s relationship in light of the New Hampshire Supreme

Court’s holding that it only covers sales representatives who

are natural persons. Addressing the legislature’s use of the

term “individual” to define a “sales representative,” in

contrast to its use of the traditionally broader term “person”

to define a “principal,” the court held that the legislature 7 intended to “limit[] ‘sales representatives’ to natural

persons.” John A . Cookson C o . v . N.H. Ball Bearings, Inc.,

5 2 , 357-58 (2001). Sky is a limited liability

corporation, not a natural person, and so it cannot claim the

protection of the New Hampshire statute. Sky’s attempts to

factually distinguish its case from the underlying facts of

Cookson are unavailing because the decision unambiguously sets

out a generally applicable rule that is based on the court’s

construction of the statute.

B. Contract Claim

The contract claim presents a somewhat more difficult

question. The parties agree that the Agreement is to be

interpreted according to Texas law in light of its choice-of-law

clause. Doc. N o . 1-1 at 4 . Accordingly, I first set out the

relevant principles of Texas contract law.

“The primary concern of a court in construing a written

contract is to ascertain the true intent of the parties as

expressed in the instrument.” Nat’l Union Fire Ins. C o . of

Pittsburgh, P a . v . CBI Indust., Inc.,

1 7 , 520 (Tex.

1995). “To achieve this objective, [a court] must examine and

consider the entire writing in an effort to harmonize and give

effect to all the provisions of the contract so that none will 8 be rendered meaningless.” J.M. Davidson, Inc. v . Webster,

(Tex. 2003). “No single provision taken alone

will be given controlling effect; rather, all the provisions

must be considered in reference to the whole instrument.”

If a contract is “so worded that it can be given a certain

or definite legal meaning or interpretation, then it is not

ambiguous and the court will construe the contract as a matter

of law.” Coker v . Coker,

9 1 , 393 (Tex. 1983). If,

however, there are “two or more reasonable interpretations after

applying the pertinent rules of construction, the contract is

ambiguous, which creates a fact issue on the parties’ intent.”

Columbia Gas Transmission Corp. v . New Ulm Gas, Ltd.,

(Tex. 1996). “For an ambiguity to exist, both

interpretations must be reasonable.”

(emphasis in

original).

The disputed language in the Agreement is the first

sentence of clause 1 5 , which reads: “Upon termination of this

Agreement, the Company shall pay the Representative commissions

for orders and contracts accepted by the Company prior to the

effective date of such termination, regardless of when shipments

are made or invoices tendered.” Doc. N o . 1-1 ¶ 1 5 . I begin my

analysis by setting out each party’s position on the meaning of 9 that sentence.

Sky contends that this sentence governs the timing of

commission payments, and that Sentech was obligated, “upon

termination of the agreement,”

to make a final payment to

Sky in the amount of the outstanding commissions due. Under

this reading, clause 15 serves as an exception to the general

timing rule. That general rule, set out in clauses 5 and 6, is

that commission payments must be made within 30 days of the

purchaser’s payment and “shall be made only after the Products

are paid for by the Purchaser.”

¶¶ 5 , 6. In the event of

termination, however, Sky urges that clause 15 becomes effective

and accelerates commission payments such that Sentech would

immediately owe Sky commissions on all of its accepted contracts

and orders, regardless of whether the purchaser of the order had

yet made payment.

Reading the contract in this manner, the amount payable to

Sky upon termination would be calculated by applying the

appropriate commission multiplier (5% of sales under $1 million

and 4.5% of sales over $1 million) not to the amount paid by the

purchaser on the project, but to the anticipated total sales

figure for each project. See

¶ 5 , ex. § III. The amount

would be independent of whether the project was subsequently 10 cancelled, whether the sales figure accurately represented the

final sum a customer paid to Sentech, and even whether Sentech

was ever paid at all for its work.

Sentech counters by arguing that clause 15 is not an

exception to the general rule governing timing of payments, but

acts only to establish that termination of the Agreement does

not divest Sky of its entitlement to commission payments for

orders and contracts accepted by Sentech prior to the

termination. Sentech reasons that because clause 15 uses the

term “commission,” it must incorporate the meaning of that term

as set out in clause 5 : “Commissions shall be computed on the

gross amount of the invoice . . . paid for by the Purchaser. In

no event shall the commission be computed on an amount in excess

of the amount received by the company.” Id. ¶ 5 . Because

commissions cannot be computed prior to a customer’s payment,

there simply is no commission due where the customer has yet to

pay Sentech. Under Sentech’s reading, the benefit conferred on

Sky by clause 15 is the right to commissions that accrue in the

future, no matter if the date of shipment or the date an invoice

is tendered is subsequent to the date of Sky’s termination.

I conclude that Sentech’s interpretation is the correct

one. Although clause 1 5 , when viewed in isolation, might be 11 understood to govern the timing of commission payments due upon

termination, when the clause is viewed in light of the entire

Agreement, Sentech’s interpretation is the only reasonable

construction.

Clause 15 states that “the Company shall pay the

representative commissions,” but the clause itself does not

define what constitute “commissions.” Therefore, to understand

exactly what it is that shall be paid under clause 1 5 , one must

look to other provisions of the contract. Clause 5 , in

conjunction with the commission schedule attached to the

Agreement, define commissions and explain how they are computed.

Clause 5 explicitly defines a commission as a percentage of the

amount paid to Sentech by a purchaser; indeed, the clause twice

states that a commission only exists in relation to purchaser

payments. It first states that a commission is based on the

“gross amount . . . paid for by the purchaser,” and then

reaffirms that “[i]n no event shall the commission be computed

on an amount in excess of the amount received by the Company.”

Doc. N o . 1-1, ¶ 5 .

With the definition of “commission” so fixed by clause 5 ,

it would be nonsensical to read clause 15 in the manner

suggested by Sky. That interpretation would require that 12 Sentech, immediately upon termination of the Agreement, make

commission payments to Sky for those sales for which it has not

yet received customer payment. Under the clear language of

clause 5 , however, commissions can be calculated only as a

function of purchaser payment. Sentech cannot then pay Sky

commissions based on customer payments not yet made, whether

immediately upon termination or at any other time, because those

commissions are not yet susceptible to calculation.2

The meaning of clause 15 urged by Sentech –- that in the

event the Agreement is terminated, Sky maintains its right to

receive commissions that accrue in the future –- must therefore

be the correct interpretation.3 It is the only plausible

interpretation of the provision that that can be harmonized with

the explicit denotation of what constitutes a “commission” in

2 Another way to look at it would be to say that where a purchaser has not yet rendered payment, the purchaser has paid $ 0 . Where a purchaser has paid $ 0 , the commission due Sky is $0. 3 Sky argues that Sentech’s construction is inconsistent with standard canons of contract interpretation because it renders clause 15 meaningless. Because the Agreement does not elsewhere indicate whether Sky retains the right to receive commissions when shipments are made or invoices are tendered after its termination, the argument is without merit.

13 clause 5. 4 See J.M. Davidson,

(explaining the

need to harmonize all of a contract’s provisions).

In sum, the Agreement, when looked at as a whole, cannot

support Sky’s interpretation. I conclude that the Agreement is

unambiguous5 insofar as it does not require that Sentech,

immediately upon termination, pay to Sky the maximum possible

commission that might accrue based on contracts and orders

accepted by the termination date.

4 Furthermore, this interpretation avoids certain absurd results that would have been possible if Sky terminated the Agreement. For example, if Sky solicited a particularly large sale on a project that it knew a purchaser was unlikely to be able to make full payment o n , it could protect its anticipated commission by terminating the Agreement. Because the Agreement does not distinguish between a termination initiated by Sky and a termination initiated by Sentech, Doc. N o . 1-1 ¶¶ 2 , 1 5 , under Sky’s reading of clause 1 5 , termination would be a means to immediately receive the entirety of a commission that might otherwise never materialize. 5 Because the Agreement is not ambiguous, I need not consult extrinsic evidence to discern its true meaning. I would note, however, that neither party asserts that the Agreement is ambiguous, and neither party references the existence of any parol evidence that would bear on the meaning of the disputed provision in the event I was to find ambiguity. Additionally, although there is an ongoing discovery dispute, neither party contends that resolution of the discovery issues would in any way bear on the question of contract interpretation addressed by this order. 14 IV. CONCLUSION

The only reasonable interpretation of the disputed

provision is the one urged by Sentech. Sky’s motion for

judgment (Doc. N o . 25) is denied.

SO ORDERED.

/s/Paul Barbadoro Paul Barbadoro United States District Judge

August 2 7 , 2012

cc: Seth W . Brewster, Esq. A . Robert Ruesch, Esq. James C . Wheat, Esq.

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