United States District Court, E.D. Wisconsin
DECISION AND ORDER
William C. Griesbach, District Judge United States District
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
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.
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.
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.
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.
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.
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.
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)).
Breach of Contract
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. ...