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Northern Group, Inc. v. Tech 4 Kids Inc.

United States District Court, E.D. Wisconsin

December 30, 2019

NORTHERN GROUP INC., Plaintiff,
v.
TECH 4 KIDS INC., Defendant.

          DECISION AND ORDER

          William C. Griesbach, District Judge United States District Court.

         This action arises out of a 2008 oral agreement between a toy manufacturer, Tech 4 Kids Inc. (T4K), and a company hired to help drive sales for the toys produced, Northern Group Inc. Northern Group alleges it is owed post-termination commissions from T4K for sales made and payments received from customers whose orders were obtained through Northern Group's efforts. Northern Group asserts claims of breach of contract, breach of the implied duty of good faith and fair dealing, and violations of Wisconsin's statute regarding the payment of commissions to independent sales representatives, Wis.Stat. § 134.93. It also seeks relief under the procuring cause doctrine. The court has diversity jurisdiction based upon 28 U.S.C. § 1332. Presently before the court is T4K's motion for summary judgment. For the following reasons, the motion will be denied.

         BACKGROUND

         T4K was in the business of manufacturing toys and had a difficult time getting its products into United States retailers. Def.'s Proposed Findings of Fact (DPFOF) ¶ 2, Dkt. No. 49; Pl.'s Proposed Findings of Fact (PPFOF) ¶ 2, Dkt. No. 55. In 2008, Brad Pedersen of T4K contacted Olen Rice, Northern Group's president, requesting that Northern Group assist T4K in its efforts to develop its business in the United States. DPFOF ¶¶ 3-4. Northern Group and T4K formed an oral agreement by which Northern Group would represent T4K before toy retailers as its sales representative. Id. ¶¶ 5-6. Northern Group understood that it would be in a “pioneering mode, ” meaning that T4K had no business and that it would take a number of years before T4K generated sales and Northern Group earned commissions. Id. ¶ 8. T4K would compensate Northern Group for its efforts through a commission, which was calculated as a percentage of orders that T4K's retail customers paid. Id. ¶ 16. Northern Group agreed to accept a 5% rate on sales of T4K's products procured by Northern Group. Id. ¶ 7. The parties did not discuss the duration of the agreement or what would happen upon termination of the agreement by any party. Id. ¶¶ 9-10.

         Once hired by T4K, Rice began calling on key retail partners, such as Kmart, Walgreens, Kohl's, Fleet Farm, Shopko, and Menards, to try to schedule opportunities to present T4K products. PPFOF ¶ 7. The sales process began with Northern Group representatives traveling to the retailer to present the product line, submit quotes, and provide samples. Id. ¶ 12. The retailer reviewed the products presented and finalized their selections. Id. Once the products were selected, Northern Group worked with the retailer to develop the standardized store layout that dictated where the product would be located in the store, commonly referred to as a planogram. Id. ¶ 14. Northern Group also worked with the retailer to build out inventory plans, establish shipment dates for initial orders, and establish inventory flow plans to predict the amount of product for the life of the program. Id. ¶¶ 13, 17. Once the planogram was confirmed, the store reserved space for the product in each of its locations and made a commitment to buy T4K products. Id. ¶ 15. The commitment did not specify any quantity of product to be purchased. The discussions related to setting the planogram, developing the business plan, and testing the product all occurred long before orders were generated. Id. ¶ 16. Rice began working with retailers twelve to fifteen months in advance of when retailers would carry the products in their stores. Id. ¶ 10. The lag time between a retailer selecting a product for its planogram and receiving shipments was caused by the fact that the manufacturer had to go to Asia, secure raw materials, schedule manufacturing, and test the product. Id. ¶ 11.

         Historically, T4K paid Northern Group its commission only after the retailer to whom T4K goods had been shipped had paid T4K for those orders. DPFOF ¶ 17. The commission was calculated on a quarterly basis for orders which shipped in that quarter, and only paid to Northern Group by T4K upon T4K's receipt of payment by the customer. Id. ¶ 18. Not once in the entire life of the relationship between Northern Group and T4K was Northern Group paid anything by T4K at the point it secured a commitment from a retailer to sell T4K's products. Id. ¶ 14. In 2015, Northern Group and T4K agreed that the commission rate for Northern Group would be reduced from 5% to 4% for paid orders that shipped after January 1, 2016. Id. ¶ 15.

         On October 18, 2016, Pederson informed Rice during a telephone conversation that Northern Group was terminated as T4K's sales representative, effective immediately. Id. ¶ 19. Pederson later expressed to Rice that T4K had elected to terminate its relationship with Northern Group because Rice was establishing a new company to compete with T4K. Id. ¶ 24. Rice disputes that his business competed with T4K. Pl.'s Reply to DPFOF ¶ 24, Dkt. No. 54. T4K hired David Appleby of Millennium Sales Group to be the new sales representative for Northern Group's account. T4K had hired Appleby before communicating the termination decision to Northern Group. PPFOF ¶ 29.

         After T4K notified Northern Group that it was terminating the representation pursuant to the oral agreement, Steve Beilman of T4K communicated with Rice to determine a cutoff date for shipments and programs Northern Group would be paid commission on. DPFOF ¶ 20. T4K offered to pay commissions for all orders on Northern Group accounts through December 31, 2016, and initial set orders in Spring 2017. PPFOF ¶ 21. Rice viewed the offer to pay on orders through the end of the year as effectively meaningless, because retailers already had their products in stock for the holidays and would not place new orders, and requested that commissions be paid on the programs already in place that were scheduled to run through 2017-2018. Id. ¶¶ 22-23.

         T4K only paid commissions for existing reorders of T4K's products that occurred in 2016 and did not pay any commissions for orders in 2017. Id. ¶ 33. Northern Group claims the parties had an ongoing agreement that Northern Group would be paid for the work it did to secure business for T4K. Id. ¶ 31. At the time of termination, Northern Group had secured programs set to run in 2016-2017 with Fleet Farm, Shopko, Kmart, and Walgreens. Id. ¶¶ 25, 30. T4K did not pay any commissions for the life of the programs secured by Northern Group. Id. ¶ 33. Although Northern Group asserts that it performed significant work to secure commitments for 2017 and 2018, T4K maintains that Northern Group did not secure business for 2018 because T4K did not have 2018 product to show potential retailers. Id. ¶ 32. T4K received $2, 412, 403.03 from sales to Northern Group accounts in 2017, which equates to $120, 620.15 in commissions if calculated at 5% of total sales. Id. ¶ 34. T4K also admits it received $701, 724.35 from sales to Northern Group accounts from January 1, 2017, through August 31, 2018, which equates to $35, 086.22 in commissions if calculated at 5% of total sales. Id. ¶ 35.

         LEGAL STANDARD

         Summary judgment is appropriate when the movant shows that there is no genuine issue of material fact and that the movant is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(a). In deciding a motion for summary judgment, the court must view the evidence and make all reasonable inferences that favor them in the light most favorable to the non-moving party. Johnson v. Advocate Health & Hosps. Corp., 892 F.3d 887, 893 (7th Cir. 2018) (citing Parker v. Four Seasons Hotels, Ltd., 845 F.3d 807, 812 (7th Cir. 2017)). The party opposing the motion for summary judgment must “submit evidentiary materials that set forth specific facts showing that there is a genuine issue for trial.” Siegel v. Shell Oil Co., 612 F.3d 932, 937 (7th Cir. 2010) (citations omitted). “The nonmoving party must do more than simply show that there is some metaphysical doubt as to the material facts.” Id. Summary judgment is properly entered against a party “who fails to make a showing to establish the existence of an element essential to the party's case, and on which that party will bear the burden of proof at trial.” Austin v. Walgreen Co., 885 F.3d 1085, 1087-88 (7th Cir. 2018) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986)).

         ANALYSIS

         A. Breach of Contract

         Northern Group alleges that T4K breached the oral agreement by failing to pay Northern Group for commissions it believes it was entitled to receive. To recover for breach of contract under Wisconsin law, the plaintiff must establish “(1) a contract between the plaintiff and the defendant that creates obligations flowing from the defendant to the plaintiff; (2) failure of the defendant to do what it undertook to do; and (3) damages.” Brew City Redevelopment Group, LLC v. The Ferchill Group, 2006 WI.App. ...


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