This week we present for your consideration two breach-of-contract cases: (a) an Eleventh Circuit decision regarding the payment of sales commissions pursuant a commission structure contract when the terms of the contract are ambiguous; and (b) an Alabama Supreme Court opinion concerning the plaintiff’s motion to compel arbitration.
Tangen v. Ideacom of the Gulf Coast, Inc., No. 14-11118 (11th Cir. 2014) (affirming judgment for payment of back-end sales commissions)
The Eleventh Circuit Court of Appeals affirmed the decision of the United States District Court for the Southern District of Alabama in a breach of contract case against Ideacom of the Gulf Coast, Inc. (“Ideacom”). Erlend Tangen worked as a sales representative for Ideacom from 2002 – 2011. Mr. Tangen’s two-part commission structure provided: (1) a 2.5% commission when a customer executed a sales contract; and (2) an additional 2.5% commission after the customer paid for the product. At issue in the case, was the back-end sales commissions relating to the sale of a communication system to a nursing home.
The terms of the commission structure between Mr. Tangen and Ideacom did not address whether the back-end commission would be paid if the representative resigned after entering into a sales contract with a customer but prior to the customer paying for the product. Mr. Tangen received the 2.5% front-end commission on the sale of the communication system but resigned prior to the installation of the product and full payment for the product by the nursing home. Thus, Ideacom refused to pay the second part of the commission to Mr. Tangen. The district court concluded that the parties intended for the commission structure to encompass sales made prior to Mr. Tangen’s resignation.
The Court of Appeals first noted that when the terms of a contract are ambiguous, the interpretation of the meaning of the ambiguous terms is determined by all of the facts and circumstances involving the contract. Ideacom argued that numerous post-sale duties, such as overseeing the installation of the communication system were not performed by Mr. Tangen. However, the Court noted that Mr. Tangen received back-end commission payments related to other sales made prior to his resignation. Further, the Court found that sales representatives that completed the post-sale duties related to the contract at issue after Mr. Tangen’s resignation did not receive additional compensation for the post-sale duties. The Court of Appeals concluded that the commissions were an incentive for making the sale and not intended to be compensation for performing post-sale obligations. Therefore, after review of the facts and circumstances, the Court of Appeals determined the sales commission structure required the payment of back-end commissions after Mr. Tangen’s resignation.
America’s Home Place Inc. v. Rampey, No. 1130150 (Ala. 2014) (reversing and remanding to circuit court to grant motion to compel arbitration)
The Alabama Supreme Court reversed the Chambers County Circuit Court’s denial of America’s Home Place, Inc.’s (“AHP”) motion to compel arbitration in connection with plaintiff’s breach of contract claim. The plaintiff, Gregory Rampey, and AHP entered into a contract in which AHP would construct a home for Mr. Rampey. After Mr. Rampey took possession of the house, Mr. Rampey alleged that the house’s foundation began to sink and significant structural damage occurred. Mr. Rampey filed suit in the Chambers County Circuit Court and AHP filed a motion to compel arbitration pursuant to the terms of contract. Mr. Rampey alleged that his signature next to the arbitration provision in the contract was forged. The trial court denied AHP’s motion and AHP appealed.
The Alabama Supreme Court noted that Mr. Rampey admitted to initialing every provision in the contract, including the arbitration provision. Mr. Rampey also admitted to executing the signature lines at the end of the entire contract, which attested to his agreement to the terms of the entire agreement. However, below the arbitration provision was a signature line, and Mr. Rampey argued that his signature on this line was forged. The Court pointed out that Mr. Rampey did not argue that the entire contract was invalid but only the arbitration provision.
The Alabama Supreme Court first determined, as the parties agreed, that the contract was valid. Because Mr. Rampey executed the signature line attesting to his agreement of all of the terms of the contract, Mr. Rampey’s signature was not required below the arbitration provision. The Court also stated that Mr. Rampey’s initials next to the arbitration provision were sufficient to evidence his acceptance of the terms of the entire contract. Finally, the Court noted that the entire contract must either be rejected or accepted. The Court explained that a plaintiff may not simultaneously seek the benefits of a contract and attempt to reject some of the contract’s provisions. Thus, the Alabama Supreme Court reversed the trial court’s decision denying AHP’s motion to compel arbitration.