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No new trial for broker terminated for low sales; failure to terminate sooner not waiver

By Marjorie Johnson, J.D.

A verdict in favor of a company that terminated its contract with a broker who undisputedly failed to meet his minimum sales requirements for four consecutive years was upheld since the evidence supported the jury’s determination that it did not waive the minimum requirements by failing to terminate him sooner. Affirming denial of a new trial of the broker’s breach of contract claim, the Seventh Circuit noted that the contract stated that the company could only terminate the contract if the broker violated its provisions (thus leading it to hold in an earlier appeal that it was not terminable at will), but did not require it to do so (Burford v. Accounting Practice Sales, Inc., March 13, 2017, Hamilton, D.).

Fails to meet sales requirements. The broker began working as an independent contractor for Accounting Practice Sales (APS) in 2003. He was assigned an exclusive sales territory, which over the next several years grew in geographic scope. His brokerage contract included a “minimum yearly sales volume” requirement, which he undisputedly did not meet for four consecutive years. Then in March 2010, the owner had a “heart-to-heart” with him about his poor performance. Nevertheless, the broker failed to meet the minimum requirements again in 2010 and 2011. As a result, APS terminated his contract in early 2012.

Loses at trial following appeal. The broker brought the instant action claiming that APS breached his contract by terminating it without the requisite good cause. APS moved for summary judgment on grounds that the contract was terminable at will, and the district court granted the motion. The Seventh Circuit reversed, finding that the contract’s provision that “APS cannot terminate this agreement unless it is violated by [the broker]” meant that the contract was not terminable at will. The case was remanded for trial, and a jury found in favor for APS.

“Mend the hold.” The Seventh Circuit rejected the broker’s assertion that APS should not have been allowed to assert its defense that it terminated his contract for good cause since it didn’t advance that argument on summary judgment. His theory was a variation of the “mend-the-hold” doctrine in Illinois law, which essentially prevents a party from trying to change its position or theories at a late stage in the dispute. His argument failed, however, because APS had argued from the beginning both that it had terminated his contract for good cause and that the agreement was terminable at will. The fact that it moved for summary judgment on only one of those theories did not mean that it was precluded from raising the other at trial.

Excluded document was cumulative. The district court also did not abuse its discretion by refusing to admit a document that the broker claimed showed that APS had previously waived its right to enforce its minimum yearly sales requirement. That issue was not in dispute as APS admittedly had not enforced the minimum yearly sales volume in the past. Instead, the issue at trial was whether APS’s earlier failure to enforce the sales requirement amounted to an implicit waiver of its right to enforce the requirement later. Since the point of the non-admitted document was thus already established, the court did not unreasonably exclude it as cumulative.

No waiver of right to enforce sales requirement. Finally, the broker failed to show that the jury’s verdict was contrary to the weight of the evidence on the crucial issue of whether APS waived its right to enforce the minimum sales requirement by not terminating him sooner. Notably, the contract explicitly gave APS the option to terminate the contract if the broker failed to meet certain thresholds, but did not require it to do so. Indeed, in the prior appeal, the circuit court determined that APS could terminate the contract only if the broker violated it, reasoning that finding “a decisive difference between saying A may terminate if B breaches and saying that A may terminate only if B breaches.” This distinction was made to show that APS could fire the broker only for cause and not at will.

Those same contractual terms illustrated the point that “saying that A may terminate if B breaches does not mean A must do so immediately or else lose forever the right to terminate,” explained the Seventh Circuit. Indeed, the broker’s theory of the contract “would lead to perverse results,” as a non-breaching party would need to terminate the contract promptly if any material breach was made or forever waive the right to do so. “Such a draconian approach would destabilize commercial relationships where breaches may be tolerated for a host of reasons,” including “human reasons” described by APS’s owner here.

For instance, APS’s owner testified that he did not terminate the broker’s contract earlier because he wanted to be fair and give him a chance to improve. He also noted that the broker had received surgery in one year and that another year was a bad economic time for everyone. Thus, he gave him multiple chances to improve before their “heart-to-heart” in 2010 before his termination in early 2012. The jury was not required to accept the owner’s explanation, but its determination that APS did not waive its right to terminate the broker was not contrary to the weight of the evidence.

Benefits to tolerating poor performance. The Seventh Circuit also noted that its ruling was consistent with its reasons for finding that the contract was not terminable at will in the broker’s earlier appeal. It made “good sense” for him and APS to agree that he would have an exclusive territory and that his contract could be terminated only for cause. If such an agreement were not made, APS could have waited until he built up his territories and then terminated his contract, thus “grabbing for itself all the fruit of his labors.” In this regard, “neither courts nor juries should quickly find waiver when the manufacturer or upstream company tolerates poor performance but ultimately loses patience and terminates the contract for the exclusive territory.”