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Shawn P. Kelly v. the Mcgraw-Hill Companies

June 5, 2012

SHAWN P. KELLY PLAINTIFF,
v.
THE MCGRAW-HILL COMPANIES, INC., A NEW YORK CORPORATION, DEFENDANT.



The opinion of the court was delivered by: Milton I. Shadur Senior United States District Judge

MEMORANDUM OPINION AND ORDER

Shawn Kelly ("Kelly") has sued McGraw-Hill Companies, Inc. ("McGraw"), where Kelly worked as an independent sales representative, asserting a host of theories of recovery: breach of, and interference with, the most recent two-year Sales Representative Agreement between them (the "2008 Sales Agreement") (Count I); failure to pay commissions on 2010 orders for which Kelly was allegedly the procuring cause during the term of the 2008 Sales Agreement (Count II); exemplary damages under the Illinois Sales Representative Act (the "Sales Act") of treble the amount of certain commissions that may be found due Kelly (Counts III and IX); accounting (Count IV); fraud (Count V); reimbursement of certain expenses (Count VI); unjust enrichment (Counts VII and X); and breach of an agreement to reimburse certain expenses (the "Chargeback Agreement") (Count VIII). This Court has earlier dismissed Count II.

McGraw has now filed a motion targeting Kelly's contentions of fraud (under Count V), unjust enrichment (under Count VII), interference (under Count I), exemplary damages (under Count III) and breach of the Chargeback Agreement (under Count VIII) -- a motion that it labels (incorrectly in this Court's view) as one seeking partial summary judgment under Fed. R. Civ. P. ("Rule") 56.*fn1 In response Kelly has withdrawn his Count V fraud assertion and his Count VII unjust enrichment assertions, and the parties have proceeded in accordance with this District Court's LR 56.1 on Counts I, III and VIII.*fn2 For the reasons stated here, McGraw's motion is granted in its entirety (though not in terms of judgments under Rule 56), and for reasons also dealt with hereafter Counts III and X are dismissed as well.

Summary Judgment Standard

Every Rule 56 movant bears the burden of establishing the absence of any genuine issue of material fact (Celotex Corp. v. Catrett, 477 U.S. 317, 322--23 (1986)).*fn3 For that purpose courts consider the entire evidentiary record and must view all of the evidence and draw all inferences from that evidence in the light most favorable to nonmovants (Egan Marine Corp. v. Great Am. Ins. Co. of N.Y., 665 F.3d 800, 811 (7th Cir. 2011)). But a non-movant must produce more than "a mere scintilla of evidence" to support the position that a genuine issue of material fact exists and "must come forward with specific facts demonstrating that there is a genuine issue for trial" (Carmichael v. Vill. of Palatine, Ill., 605 F.3d 451, 460 (7th Cir. 2010), quoting Wheeler v. Lawson, 539 F.3d 629, 634 (7th Cir. 2008)). As Payne v. Pauley, 337 F.3d 767, 772-73 (7th Cir. 2003) has explained:

[T]he Federal Rules of Civil procedure require the nonmoving party to "set forth specific facts showing that there is a genuine issue for trial." Fed. R. Civ. P. 56(e). Conclusory allegations, unsupported by specific facts, will not suffice.*fn4 Ultimately summary judgment is warranted only if a reasonable jury could not return a verdict for the non-movant (Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)). What follows is a summary of the relevant facts, viewed of course in the light most favorable to non-movant Kelly.

Factual Background

McGraw is a publisher and seller of educational books, including Everyday Math, a mathematics textbook for elementary school students (M. St. ¶1). Kelly worked as an independent sales representative for McGraw in California (id. ¶5). Before a textbook can be sold to a public elementary school in California, it must be approved by the California State Board of Education ("California Board") (id. ¶7). If a school board feels the approved textbook is appropriate for its school, it may formally adopt that textbook (id. ¶8). Typically the board will follow up with a purchase order, but in rare instances it may not purchase the book or the purchase may require a separate vote by the board (K. Resp. ¶8). In 2007 McGraw published a new edition of Everyday Math, and the California Board adopted it in large part as a result of Kelly's efforts (M. St. ¶10).

Kelly entered into a contract with McGraw (the "2006 Sales Agreement") that encompassed a term from January 1, 2006 to January 1, 2008 and entitled Kelly to receive commissions from sales of certain McGraw products in California (K. St. ¶¶1-2). McGraw was responsible for providing up to $60,000 of product samples for each year of the Agreement, while Kelly would be charged for any additional samples he required (id. ¶3). McGraw later agreed to reimburse Kelly for $50,000 in marketing expenses he incurred in 2006 (id. ¶11).

Tracie Saunders ("Saunders"), a McGraw financial analyst, was responsible for disbursing Kelly's commissions pursuant to instructions from Steven Engel ("Engel"), McGraw's Vice President of Finance (M. Resp. ¶8). Saunders had no authority to determine personally whether any sales representative was entitled to be paid -- instead prior approval from Engel and another senior analyst was required for any payment (id.). Saunders has admitted that she made a mistake in calculating Kelly's sample charges from 2006 (id. ¶13). Hence McGraw owed Kelly $29,843.30 in reimbursement for 2006 expenses as of March 8, 2012, and McGraw then wired that amount into Kelly's checking account -- without interest and nearly two years after Kelly filed this action to recover that sum among other things (id.; K. St. ¶13 n.5).

In 2007 Kelly again incurred expenses in excess of his $60,000 sample allowance (K. St. ¶4). With Kelly's knowledge, McGraw charged back approximately $70,000 in excess expenses against his earned commissions (M. St. ¶39). At the end of 2007 there was still a balance of excess expenses incurred by Kelly but not yet charged back against his earned commissions (id. ¶40; K. Resp. ¶40). On March 10, 2008 Kelly and McGraw entered into the Chargeback Agreement, which read (K. St. ¶7):

To confirm our previous discussions, as part of Shawn Kelly's two-year independent sales representative agreement, starting January 1, 2008, Wright Group/McGraw-Hill, agrees to waive Shawn Kelly's cost of product implementation, pilots, samples, and shipping from 2007. Any balances owed by Shawn Kelly to Wright Group/McGraw Hill from 2007 will be netted to zero.

Saunders testified that Kelly would have been owed approximately $70,000 in commissions from 2007 if his sample charges from that entire year were waived (id. ¶9).

In March 2008 Kelly and McGraw entered into the 2008 Sales Agreement, running from January 1, 2008 to December 31, 2009 and pursuant to which Kelly would market and sell certain educational materials published by McGraw in California and Nevada (M. St. ¶¶12, 18; K. St. ¶19). No amendments or extensions could be made except by further written agreement (M. St. ¶22). Paragraph 4.1 of the 2008 Sales Agreement provided that commissions were to be based on sales and that a sale has occurred "if [McGraw] ships directly and issues a bill for the Product, during the term of this Agreement" (id. ¶20).

Before the 2008 Sales Agreement was signed, Kelly had made a written offer to Bodie Marx ("Marx"), a Senior Vice President and National Sales Manager at McGraw, to waive commissions on 2009 reorders or "residual" business in California in exchange for a 15% commission rate on new sales and McGraw's agreement to cover certain costs such as shipping (Kelly 6/29/11 Dep. Ex. 52). Marx had countered in a February 18, 2008 email with an offer of an 8% commission for the first $4 million in California sales and a 12.5% commission on "all sales over $4M (retroactive to dollar one)" (Marx 9/8/11 Dep. Ex. 2). That response did not distinguish between new and residual business (id.). On February 21, 2008 Marx forwarded his February 18 email to other McGraw employees and stated "[Kelly] has agreed to the terms below," again making no mention of any difference between new and residual business (id.).

Engel thereafter directed Saunders not to pay Kelly commissions on 2009 reorders (M. Resp. ΒΆ14). Kelly's employee Frank Sokolowski testified that Kelly told him McGraw would not pay commissions on reorders (id.). During 2009 there were 187 California schools that placed reorders aggregating $1,378,905.60 (K. St. ...


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