Commission Payment Terms in Employment Contract Trump Cable Rep’s ‘Procuring Cause’ Claim in Sales Contract Spat – IL Court

I once represented a client who sued his former employer – an energy company – for unpaid commission and bonuses.  Before he hired me, the client filed a pro se administrative claim with the Illinois Department of Labor (DOL) to recover the monies.  The DOL found in my client’s favor but could not decide on a specific dollar amount. Several months later, I sued to recover under the Illinois Wage Payment and Collection Act (Wage Act) and for breach of contract.  In that case, which settled favorably for us, the employer unsuccessfully argued my client’s prior DOL case precluded our civil Wage Act claim.  The trial court rejected this res judicata argument on the basis that the DOL proceeding was not equivalent to a prior adjudication on the merits.

Borum v. Wideopenwest Illinois, LLC, 2015 IL App (1st) 141482-U, a two-year old, unpublished decision, presents a similar fact pattern and considers whether an ex-employee’s earlier administrative claim prevents a later civil lawsuit against the same employer for the same claim.  The case also spotlights the interplay between an employment agreement’s payment terms and the procuring cause doctrine in a sales commissions dispute.

Defendant hired plaintiff to prospect for cable customers.  It agreed to pay plaintiff a commission based on customers he signed up.  The defendant’s standard employment contract documented the plaintiff’s commission payment rights: plaintiff earned his commission once a customer signed a right-of-entry agreement with the cable supplier.

After lodging an unsuccessful DOL, plaintiff sued the cable company in state court to recover unpaid sales commissions. The trial court granted defendant’s motion to dismiss all counts of the plaintiff’s complaint and plaintiff appealed.

Affirming the trial court’s dismissal, the Court first considered whether the plaintiff’s DOL proceeding barred his civil suit under res judicata or collateral estoppel principles.  Section 14 of the Wage Act authorizes an employee to file either a DOL claim or a civil action, but not both, to recover underpayment damages along with 2% per month of the underpaid amount.

The DOL ruled against the plaintiff.  It found the right-of-entry agreements were not consummated until signed by both a customer and the defendant employer.)

The Court found the DOL hearing was too informal and not “judicial” or “adjudicatory” enough to defeat plaintiff’s later civil suit under the res judicata rule.

Res judicata requires a final judgment on the merits by a court of competent jurisdiction.  Collateral estoppel precludes litigation of an issue previously decided in an earlier proceeding.  Res judicata and collateral estoppel can extend to administrative proceedings that are judicial, adjudicatory or quasi-judicial in nature.

So where administrative proceedings involve sworn testimony, are adversarial in nature and include cross-examination of witnesses, they can bar a subsequent civil suit.

Here, since the DOL conducted only an informal hearing with no cross-examination or sworn witnesses, the DOL had no adjudicatory power over the parties and so its finding for defendant had no preclusive effect against the plaintiff’s lawsuit.

The court also rejected plaintiff’s procuring cause argument.  Designed to soften the harsh impact of at-will contracts, the procuring cause doctrine allows a departed salesperson to recover commissions on sales he/she consummated before his/her employment ends even where the money isn’t paid to the employer until after the salesperson departs.  The procuring cause rule is only a gap filler though: it’s a default rule that only applies where a contract is silent on when commissions are paid.

Since plaintiff’s contract with defendant specifically provided plaintiff would be paid commissions earned during (but not after) the period of the employment, the court found this specific enough to vitiate the procuring cause rule.

Lastly, the Court considered whether defendant violated its handbook which stated compensation terms could only be changed on 30 days advance notice.  Plaintiff argued that the defendant made a unilateral change to its compensation policy without giving plaintiff the requisite notice.

The key question for the Court was whether the employee manual was an enforceable contract. For an employee handbook to vest an employee with binding contract rights, (1) the handbook promise must be clear enough that an employee reasonably believes and offer has been made, (2) the handbook offer must be distributed to the employee so that he/she actually receives it or is aware of its contents; the (3) the employee must accept the offer by commencing work after learning of the policy statement.

Since the plaintiff conceded he wasn’t aware of the employee manual until the day he was fired, the court found he couldn’t reasonably show the handbook provided him with enforceable contract rights. (¶¶ 83-85).

Bullet-points:

  • Administrative claims can support a res judicata defense but only where the administrative hearing is adversarial (judicial) in nature; such as where witnesses give sworn testimony that can be tested on cross-examination;
  • The procuring cause rule won’t trump specific contract payment terms;
  • A written employer policy on compensation adjustments isn’t binding against an employer where the aggrieved employee isn’t aware of the policy until on or after he/she’s fired.

 

 

 

 

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Procuring Cause Real Estate Broker Entitled to Quantum Meruit Commission – IL First Dist.

Halpern v. Titan Commercial, LLC, 2016 IL App (1st) 152129 examines commercial broker’s liens, the procuring cause doctrine and the quantum meruit remedy under Illinois law.

The Plaintiff property buyer sued to remove the defendant’s real estate broker’s lien after plaintiff bought Chicago commercial property from an owner introduced by the broker a few years prior.  Over a two-year span, the broker tried to facilitate plaintiff’s purchase the property by arranging multiple meetings and showings of the site.  The plaintiff ultimately bought the property through a consultant instead of the broker defendant. 

The plaintiff sued to stop the broker from foreclosing its broker’s lien and to quiet title to the parcel.  After the court entered a preliminary injunction for the plaintiff, the broker counterclaimed for breach of contract and quantum meruit.  After a bench trial, the broker was awarded $50,000 on its quantum meruit claim and Plaintiff appealed.

Result: Judgment for broker affirmed.

Rules/reasoning:

The court first upheld the trial court’s denial of the plaintiff’s claims for attorneys’ fees against the broker based on  Section 10(l) of the Commercial Broker’s Lien Act, 770 ILCS 15/1, et seq. (the “Act”).  This Act section provides that a prevailing party can recover its costs and attorneys’ fees.  A prevailing party is one who obtains “some sort of affirmative relief after [trial] on the merits.”

The appeals court held that the plaintiff wasn’t a prevailing party under the Act simply by obtaining a preliminary injunction.  Since the preliminary injunction is, by definition, a temporary (and preliminary) ruling, there was no final disposition of the validity of the defendant’s broker’s lien.

The court then focused on the procuring cause doctrine and related quantum meruit remedy.  Under the procuring cause rule, where a broker’s efforts ultimately result in a sale of property – even if consummated through a different broker – the first broker is the procuring cause and can recover a reasonable commission.

A broker is the procuring cause where he brings a buyer and seller together or is instrumental in the sale’s completion based on the broker’s negotiations or information it supplies. (¶ 18)

A procuring cause broker is entitled to a commission under a quantum meruit theory where a party receives a benefit from the broker’s services that is unjust for that party to retain – even where there’s no express contract between the parties.

Here, the plaintiff only knew of this off-market property based on defendant showing it to her and introducing her to the property owner.  Had it not been for defendant’s actions, plaintiff would have never known about the property.

What About Broker Abandonment?

A defense to a procuring cause claim is where a broker abandons a deal.  To demonstrate broker abandonment, a purchaser must offer evidence of the broker’s discontinuing its services but also the purchaser’s own abandonment of its intent to buy the property.

Here, neither the purchaser nor the broker exhibited an intention to abandon the deal.  The purchaser eventually bought the property and the broker continued trying to arrange plaintiff’s purchase for two-plus years.

The court credited the broker’s evidence as to a reasonable commission based on the property’s $4.2M sale price.  Two experts testified for the broker that a reasonable commission would be between 1% and 6%.  The trial court’s $50,000 award fell well within that range. (¶¶ 22-24)

Afterwords:

1/ Where a broker introduces a plaintiff to property she ultimately buys or the broker’s information is integral to the plaintiff’s eventual purchase, the broker can recover a reasonable commission even where plaintiff uses another broker (or buys it herself). 

2/ Quantum meruit provides a valuable fall-back remedy where there is no express contract between a broker and a buyer.  The broker can recover a reasonable commission (based on expert testimony, probably) so long as it proves the buyer derived a benefit from the broker’s pre-purchase services.

 

Illinois Real Estate Broker Gets Commission Money Judgment Where She Offers Ready, Willing and Able Home Buyer to Owner – IL 2d Dist.

A home seller’s self-styled ‘sarcastic’ emails and change of heart about whether to sell her home wasn’t enough to escape her obligation to pay her real estate broker’s commission, the Illinois Second District recently ruled.

In Clann Dilis, Ltd. v. Kilroy, 2015 IL App (2d) 15-0421-U, an unpublished case, the plaintiff broker and homeowner defendant signed an exclusive listing agreement to sell the defendant’s home that she co-owned with her ex-husband.  The defendant’s divorce case with her ex was pending at the time the parties’ signed the listing agreement.

After some back and forth concerning the sales price, the broker ultimately found a buyer for the home willing to pay what was in the defendant’s price range.  When the defendant rejected the offer, deciding instead to keep the home, the broker sued to recover her contractual commission – 6% of the sale price to the buyer.

After a bench trial, the circuit court entered a money judgment for the plaintiff of about $13K.  The homeowner defendant appealed on the basis that the prospective buyer lacked financial ability to consummate the home purchase.

Held: affirmed

Q: Why?

A: The proposed buyer located by the plaintiff offered $209,000 for the defendant’s home.  This price was within the range previously authorized by the defendant in emails to the broker.  E-mail evidence at trial showed the plaintiff willing to go as low as $199,000 in marketing the property.  The defendant’s husband moved in the divorce case to compel the defendant to accept the offer and the divorce court granted the motion.  Still, the defendant refused to sell; opting instead to buy out her ex-husband’s interest in the property.

Plaintiff then sued the defendant for breach of contract claiming she procured a suitable buyer for the property at a price assented to by the defendant.

Affirming the trial court’s judgment for plaintiff’s 6% commission, the Second District pronounced some key contract law principles that govern a real estate broker’s claim for a commission.

A breach of contract plaintiff must establish (1) the existence of a valid and enforceable contract, (2) performance by the plaintiff, (3) breach of contract by the defendant, and (4) damages resulting from the breach.  Whether a breach has occurred is a question of fact that is left to the trial court’s decision.  A court’s determination that a defendant breached a contract can’t be overturned unless the breach finding is unreasonable, arbitrary or not based on the evidence presented. (¶ 38.)

In the broker commission context, a broker earns her commission where she produces a ready, willing and able buyer.  A buyer is deemed ready, willing and able if he (1) has agreed to buy the property, and (2) has sufficient funds on hand or is able to secure the necessary funds within the time set by the contract.  A buyer lacks sufficient funds if he is depending on third parties to supply the funds and that third party isn’t legally bound to provide the funds to the buyer.

In addition, the sale to the would-be buyer doesn’t have to be consummated for the broker to be entitled to her commission.  As long as the broker introduces a buyer that is able to buy the property on terms specified in a listing agreement, the broker has a right to her commission.  (¶¶ 39, 49-50.)

Here, the trial court found that the buyer located by the plaintiff was a ready, willing and able one.  The court pointed out that the buyer signed a contract to buy the property for $209,000, the buyer had obtained a preapproval letter from a mortgage lender committing to the purchase funds, and the defendant authorized the plaintiff to sell the property for less than $209,000.  Taken together, these factors supported the trial court’s ruling that the broker furnished an acceptable buyer and was entitled to her commission.

Afterwords:

This case’s simple fact pattern provides a clear illustration of the procuring cause doctrine: so long as a real estate broker provides a ready, willing and able buyer, she can recover her commission; even if the sale falls through.

The case also showcases the factors a court looks at when determining whether a given real estate buyer is financially capable of consummating a purchase.

Finally, from the evidence lens, the Kilroy case highlights the importance of e-mail admissions from a party and how they can often make or break a litigant’s case at trial.