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Shawn P. Kelly v. the Mcgraw-Hill Companies

August 17, 2012


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


Shawn Kelly ("Kelly") has sued McGraw-Hill Companies, Inc. ("McGraw"), to which Kelly served as an independent sales representative. Kelly asserted a host of theories of recovery, most of which were previously dismissed by this Court or withdrawn by Kelly. Still remaining at issue are McGraw's alleged breach of Kelly's most recent two-year Sales Representative Agreement (the "2008 Sales Agreement" or simply the "Agreement")*fn1 (Count I), Kelly's request for an accounting (Count IV) and McGraw's admitted failure to provide timely reimbursement to Kelly for certain job-related expenses (Count VI).

Kelly has now filed a motion for summary judgment as to (1) McGraw's refusal to pay Kelly commissions for the 2009 re-orders of McGraw products and (2) McGraw's failure to pay $7,755.16 in statutory prejudgment interest on the $29,843.30 in expenses from 2006, which were ultimately reimbursed in 2012.

McGraw filed a cross-motion for summary judgment solely on the issue whether commissions were owed to Kelly on 2009 re-orders, and it agreed that in the event this Court found the issue to be contested in factual as well as legal terms, the Court should make a factual determination and rule accordingly. Thereafter the parties proceeded in accordance with this District Court's LR 56.1.*fn2 For the reasons stated here, Kelly's motion on the disputed issue is granted in its entirety and McGraw's cross-motion is denied.

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 reasonable 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.

Factual Background*fn5

Kelly worked as an independent sales representative for McGraw, which publishes educational materials (K. St. ¶¶1-2). As defined in Section 1 of the Illinois Sales Representative Act (the "Act," 820 ILCS 120/1), Kelly is a "sales representative" and McGraw is a "principal" (id.).

Under an earlier version of the Agreement McGraw agreed to reimburse Kelly for $50,000 in marketing expenses incurred in 2006 (K. St. ¶7). McGraw's Regional Vice President Craig Scott ("Scott") acknowledged in a July 25, 2007 letter that Kelly had incurred those expenses at Scott's "express direction" (id. ¶8). Nevertheless, before March 2012 McGraw had reimbursed Kelly for only $20,156.70 of the agreed-upon $50,000 (id. ¶9). On March 8, 2012 McGraw wired the remaining $29,843.30 into Kelly's account, but without interest (id.). After Kelly filed the present motion, McGraw paid him the $7,755.16 in interest that he had requested (M. Mem. 13).

To shift to a matter still in controversy, 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 re-orders or "residual" business in California in exchange for (1) a 15% commission rate on new sales and (2) McGraw's agreement to cover certain expenses, such as shipping costs (Kelly 6/29/11 Dep. Ex. 52). Marx then 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.). Marx testified that he forgot to mention that the commissions were to be paid only on new business, but he claimed that "[a]ll of our discussions assumed it was new sales" (Marx 9/8/11 Dep. 69).

Under Agreement §4.1 McGraw is obligated to pay Kelly a commission on all sales if McGraw "ships directly and issues a bill for the Product during the term of the Agreement, to a school or school district that serves and is located in the Territory" (K. St. ¶12). That provision goes on to state that "no commissions will be paid: (a) on sales to international schools or teacher colleges; or (b) for sales to Edison Schools accounts or to customers designated as 'house accounts' on Appendix

B." No similar exclusion is made for commissions on re-orders of McGraw products--that is, orders placed to replenish or supplement a school's inventory of books (id.; K. St. ¶14). Agreement §10.9 is a classic integration provision:

This Agreement sets forth the entire agreement and understanding between the parties as to the subject matter hereof and supersedes all prior agreements between them. This Agreement will only be amended or waived if the parties specifically agree in writing.

As of July 1, 2008 Kelly's territory for sales of Everyday Mathematic Products included all of California (K. St. ¶13). In 2009 McGraw sold $1,378,905.69 in re-orders to California schools (none of those sales were made to international schools, teachers' colleges, Edison Schools accounts or house accounts) (id. ¶16). Under the Act any commissions owed to Kelly were payable not later than 13 days following termination of the 2008 Sales Agreement, which ended on December 31, 2009 (id. ¶¶18, 19). Pursuant to Agreement App'x A, Kelly is entitled to an 8% commission on the first $4 million of sales and a 12.5% commission on all sales over $4 million "retroactive back to dollar one." Kelly sold over $4 million of Everyday Mathematics Products during the term of the 2008 Sales Agreement (K. St. ¶20).

Kelly's previous sales contract with McGraw (the "2006 Agreement") ran from January 1, 2006 to December 31, 2007, with sales defined identically to the definition in the 2008 Sales Agreement (K. St. ¶23). Like the 2008 Sales Agreement, its predecessor did not exclude re-orders from the sales on which Kelly was entitled to a commission (2006 Agreement §4.1).

Before 2009 Kelly was paid commissions on re-orders, but in early 2009 McGraw executive Steve Engel directed Tracie Saunders, a financial analyst in charge of calculating and paying commissions, not to pay Kelly further commissions on re-orders (K. St. ¶¶24, 25). After that directive McGraw did not pay Kelly commissions on the $1,378,905.69 of re-orders sold in California during 2009 (id. ¶27). Although Kelly received monthly reports throughout 2009 showing new and re-order sales as well as what commissions he earned, Kelly did not complain about McGraw's failure to pay commissions on the 2009 re-orders until October 27, 2009 (M. St. ¶¶12, 13).

Frank Sokolowski ("Sokolowski") was a sales representative for Kelly in 2008 and 2009 who was responsible for selling McGraw products in northern California (M. St. ¶14). Sokolowski testified that when he asked Kelly whether Kelly would pay him commissions on 2009 re-orders (id. ¶15), Kelly said "no" because Kelly "just gets commission on the initial order" (Sokolowski Dep. 40). As this Court said in its June 5, 2012 ...

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