Thursday, November 12, 2009

Principal and Sales Rep Could Be Liable for Attorney’s Fees on Separate Claims

This posting was written by John R.F. Baer of Sonnenschein Nath & Rosenthal, author of CCH Sales Representative Law Guide.

When a sales representative presented two claims against its principal, one for pre-termination commissions and one for post-termination commissions, the claims were to be treated separately for determining whether to award attorney’s fees and costs under the New Jersey Sales Representatives’ Rights Law, a New Jersey appellate court has ruled.

In addition, the court reversed the trial court’s award of over $218,000 in attorney’s fees to the principal under the New Jersey rule governing inadvisable rejection of an offer of judgment

Successful Claim

The sales representative successfully contended that he was entitled to an award of fees under the statute on his claim for pre-termination commissions. However, this did not preclude his liability for fees in pursuing his unsuccessful claim for post-termination commissions.

There was no dispute that the principal was obligated and failed to pay $12,774 in pre-termination commissions. The true dispute was over the claim for post-termination commissions, which had questionable legal underpinnings and was hotly contested, according to the court.

Possibly Frivolous Claim

The statute provided for an award of attorney’s fees to a principal when “an action" brought by a sales representative against a principal is frivolous. The court interpreted the word "action" as referring to a single claim, not the entire collection of claims.

On remand, the trial court was directed to determine (1) what attorney’s fees and costs were due to the sales representative for the principal’s unlawful withholding of the stipulated pre-termination commissions, (2) whether the sales representative frivolously pursued the claim for post-termination commissions, and(3) if so, what amount of fees were incurred in defending that claim.

A dissenting opinion expressed the view that a principal should be permitted to recover attorney’s fees and costs under the Sales Representatives’ Rights Law only when the entire action under the statute lacks merit.

Offer of Judgment, Rejection

The trial court’s $218,000 fee allowance to the principal under the rule governing inadvisable rejection of an offer of judgment could not stand because it conflicted with the fee-shifting provision of the Sales Representatives’ Rights Law, the court held.

After rejecting the principal’s offer of judgment, the sales representative prevailed on the pre-termination commissions claims but did not prevail on the hotly contested claim for post-termination commissions.

The sales representative would have been liable under the rule for the principal’s attorney’s fees if the version of the rule in effect when the principal’s offer was made and rejected had been applied. Because the offer of judgment rule was procedural in nature, a later version of the rule—incorporating the limitation on fee allowances in conflict with fee-shifting statutes such as the Sales Representatives’ Rights Law—applied retrospectively to bar the fee allowance.

The principal’s mistake was in submitting an offer of judgment that did not distinguish between the sales representative’s separate claims for pre-termination and post-termination commissions, the court observed.

Had the principal complied with its statutory obligation to timely pay the sales representative’s earned pre-termination commissions, any further pursuit of damages for post-termination commissions would not have had the protection of the Sales Representatives’ Rights Law and could have rendered the representative vulnerable for an inadvisable rejection of the offer of judgment.

The opinion in Kas Oriental Rugs, Inc. v. Ellman will be reported at CCH Sales Representative Law Guide ¶10,316.

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