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Kay v. Prolix Packaging, Inc.

Court of Appeals of Illinois, First District, Third Division

June 12, 2013

BARRY KAY, Plaintiff-Appellant and Cross-Appellee,
v.
PROLIX PACKAGING, INC., Defendant-Appellee and Cross-Appellant.

Rehearing denied: June 28, 2013

Held: [*]

In an action arising from a dispute over the compensation due plaintiff after he sold his packaging business to defendant and then took a sales position with defendant, the trial court erred in finding plaintiff was not entitled to estimate his damages for the period during which there was no documentary evidence of his actual damages and the cause was remanded for a hearing to determine those damages, but the denial of plaintiff’s request to add claims for a violation of the Wage Payment and Collection Act and for prejudgment interest was upheld and plaintiff’s award was recalculated by applying the correct commission rate.

Appeal from the Circuit Court of Cook County, No. 04-CH-2033; the Hon. Ronald Bartkowicz, Judge, presiding.

Steven M. Mora, of Chicago, for appellant.

Barry C. Kessler & Associates, of Glenview (Barry C. Kessler and Laurence P. Becker, of counsel), for appellee.

Justices Sterba and Pierce concurred in the judgment and opinion.

OPINION

HYMAN, JUSTICE

¶ 1 After defendant Prolix Packaging, Inc., purchased the assets of plaintiff's business through an assignment for the benefit of creditors, Prolix employed plaintiff Barry Kay as a salesperson. Some five years later Prolix sold its business to a third party and, thereafter, Kay sued Prolix for allegedly failing to pay certain sales commissions under the employment agreement. The focal point of this appeal is whether or not Prolix owes Kay for his commissions, and if so, how much.

¶ 2 Following a bench trial, the court found in favor of Kay and awarded damages of $373, 417.99. Kay's posttrial motions for additional damages, to add a count under the Illinois Wage Payment and Collection Act (820 ILCS 115/1 et seq. (West 2010)), and for an award of prejudgment interest were denied. Kay argues he should have been allowed to estimate his damages, claiming Prolix wrongfully failed to produce summary business records, thus preventing Kay from presenting the full extent of actual damages for the entire time of his employment. Kay further argues the trial court erred by disallowing the additional count and by denying his request for prejudgment interest.

¶ 3 In its cross-appeal, Prolix contends the judgment should be vacated because no contract existed between the parties. Prolix further contends the trial court erred in computing Kay's damages by ignoring Kay's testimony and his counsel's admissions as to the appropriate commission rate. Lastly, Prolix contends the trial court erred by holding Prolix's equitable defenses were inapplicable.

¶ 4 We hold the trial court erred by not allowing Kay to introduce evidence of estimates of his unpaid commissions based on his past sales for the 34 months in which no summary documents were produced. This evidence is part of Kay's offer of proof and exhibits and, therefore, we remand the case to allow plaintiff to further testify and defendant to defend on the sole issue of the amount of damages for the 34 months. We hold the trial court did not abuse its discretion in denying Kay's request for prejudgment interest and to amend his amended complaint to include a count for violation of the Wage Payment and Collection Act.

¶ 5 Concerning Prolix's cross-appeal, we hold the trial court's determination of Kay's customer master listing as the missing "Exhibit A" to the employment agreement was not against the manifest weight of the evidence and, therefore, is upheld. The trial court also properly determined Prolix failed to meet its burden to show the equitable defenses were warranted by the evidence. We find, however, that the trial court erred in computing Kay's damages by disregarding Kay's testimony and his counsel's admissions as to the commission rate to which Kay was entitled.

¶ 6 BACKGROUND

¶ 7 Plaintiff was the owner of The Kay Group, Inc., a business that sold paper products, including grocery bags, primarily to grocery stores. Defendant Prolix Packaging, Inc., was a direct competitor of The Kay Group, Inc. On January 20, 1999, Prolix Packaging, Inc., purchased the assets of The Kay Group, Inc., through an assignment for the benefit of creditors (the ABC transaction). The parties executed an employment agreement, "Commissioned Salesperson Employment, Consulting and Non-Competition Agreement, " to provide Kay with two types of compensation: (1) a 5% commission on all product sales he made; and (2) a 2% override commission on all sales made by Prolix to Kay's former customers. Paragraph 7(A) of the contract provided the 5% direct sales commission; paragraph 7(B) of the contract defined the 2% indirect or override commission. The employment agreement anticipated the parties agreeing on Kay's former customers and attaching a list of them as "Exhibit A." No document entitled "Exhibit A" was attached to the employment agreement, and the parties disagree as to which of Kay's former customers were to be included in "Exhibit A."

¶ 8 For the next five years, Prolix made regular commission payments to Kay, and Kay created documents acknowledging receipt of the payments. It is undisputed that Kay was paid commissions on all direct sales attributable to him. Kay admitted being paid a yearly commission of between $100, 000 and $125, 000 on direct sales he made.

¶ 9 In December 2003, Prolix sold its business to Bunzl. Two months later, Kay filed an action against Prolix seeking to recover compensation under the employment agreement for the 2% override commissions allegedly due him for the indirect sales customers who would have been identified in "Exhibit A."

¶ 10 Although numerous documents were brought to the ABC transaction closing, the evidence at the bench trial established that none was ever marked as "Exhibit A" to the employment agreement. Kay testified, "I want an accounting of all of the Kay Packing sales made by Prolix's other people, of which I would be entitled to my 2 percent commission." At his deposition, Kay stated there was a document at closing entitled "Exhibit A, " but he recanted that testimony at trial, admitting that the document he thought was "Exhibit A, " was not. Kay further admitted that neither of the parties ever signed off on or initialed an "Exhibit A" to the employment agreement.

¶ 11 Kay's understanding of the employment agreement was that "[o]n all of my sales that I personally called on, I was to be paid a five percent commission. On all of my customers that were already on the Kay Packaging list, I was to be paid another 2 percent." Kay testified he was paid the 5% commission on all his sales; however, Prolix failed to pay the additional 2% commission for sales made to his former customers.

¶ 12 Eva Jakubowski, Prolix's president and co-owner with Caesare Jakubowski, testified that Prolix never agreed to a document as "Exhibit A" to the employment agreement. Concerning the commissions Kay was to receive for the customers he brought from Kay Packaging, Jakubowski testified that although paragraph 7(B) discussed the array of customers for which Kay was to receive a 2% commission, Kay was paid "one-third because it was too much of an accounting difficulty." Jakubowski explained that according to the employment agreement, Kay was to be paid a 5% commission for brand new customers, those he did not bring with him from Kay Packaging. Kay was actually paid a 7% commission on those sales. Jakubowski said "we just lumped [the five percent and the 2 percent] together." She testified Kay was paid a 7% commission for sales he made directly to his former customers, as well as for sales made to customers he brought with him from Kay Packaging that other Prolix employees serviced. Jakubowski explained that to be profitable, Prolix had to keep the profit margins at 21% and so, Kay would receive one-third of the profit or 7%. She testified the parties agreed that if the profit margin was less than 21%, Prolix did not have to sell to the former clients of Kay Packaging. Jakubowski testified that Kay received one-third of the profit, or 7%, for any client he sold to, regardless of how that client came to be.

¶ 13 Prolix argues the reason "Exhibit A" was not attached to the signed employment agreement was because the parties disagreed as to which customers comprised override customers. Kay believed all former Kay Packaging customers should be included. Prolix believed only those customers who were purchasing from Kay 30 days before the ABC transaction represented current customers of Kay Packaging for which override commissions were owed.

¶ 14 Kay testified that "Exhibit A" was a computerized list of Kay Packaging customers entitled "Customer Master Listing, " dated January 15, 1999. This customer list included all of Kay Packaging's customers that existed in 1997 through January 1999, just before the parties signed the employment agreement, and a copy was at the ABC transaction closing. Jakubowski testified the Customer Master Listing was not "Exhibit A" to the employment agreement and did not represent the customers of Kay Packaging for which Kay should be compensated under the override commission provision. She said the parties had an oral understanding that only those customers of Kay Packaging that ordered product from Kay Packaging in the month proceeding the ABC transaction were to be considered former customers for which Kay was entitled to an override commission.

¶ 15 Jakubowski further testified that the parties orally agreed that no customers to which both Kay Packaging and Prolix were selling product to at the time just before the ABC transaction were to be considered Kay Packaging customers for the purposes of the employment agreement. Kay denied this arrangement. According to Kay, a few months into his employment with Prolix, he raised the issue of the underpayment of override commissions, but when the issue went unresolved he decided not to pursue it further for fear of jeopardizing his employment. Kay acknowledged receiving sales commissions from Prolix during his employment, but claims he believed he was only acknowledging receipt of commissions on his direct sales.

¶ 16 For the first two months of 2000 and all of 2002 and 2003, Kay obtained, through discovery, actual sales summaries from which his purportedly unpaid 2% commission could be easily calculated. Unavailable, though, were similar sales summaries for the years 1999, 2001, and the last 10 months of 2000. For these 34 months, Kay made an offer of proof regarding his estimate of sales by Prolix to his former customers. The trial court did not allow Kay's offer of proof to stand and denied Kay damages for the entire 34 months. The trial court observed that Kay refused to wade through documents stored by Prolix in a warehouse that showed every sale by every Prolix salesperson, including Kay, despite a court order splitting the cost of the review between the parties. The documents would have enabled a sales calculation for the missing months. Kay insisted that the exercise of creating summaries from the sales records in the warehouse would have been overly time-consuming and too expensive.

¶ 17 During trial, the court acknowledged the uncertainty between the parties concerning the identity of "Exhibit A, " stating:

"Up until today, I don't believe that there is any evidence that conclusively establishes what Exhibit A was at or about the time in which the contract was entered into. We attempted to see if we could get some clarification from the attorneys who were participating in the transaction and the result as least as far as my view is really inconclusive. And the parties, the plaintiff and defendant [who] were actually at the location of the closing are not quite sure in their own mind or in their testimony before me what exactly Exhibit A was, but it has to be resolved because Exhibit A is a very important document."
Later, the court ruled that the Customer Master Listing offered by Kay would constitute "Exhibit A." The court stated:
"One factual issue in dispute is the identification of Exhibit A referenced in Section 2A of the Agreement. Kay maintains Exhibit A is his Exhibit 3 which was admitted over Prolix's objections. Prolix maintains their Exhibit 27 is the correct version of Exhibit A. After reviewing the trial testimony and the Parties' proposed findings, the Court finds Kay has met his burden of proof establishing Kay's Exhibit 3 as the correct version of Exhibit A referenced in the Agreement."
In so holding, the trial court said, "I don't think Mr. Kay's testimony has been severely impeached or impaired in terms of credibility. So I am willing to accept Exhibit A as he identified it and as it is in the record."

¶ 18 The court entered judgment in favor of Kay, awarding $373, 417.90 in damages. In entering its order, the court construed the fifth recital of the employment agreement as requiring one-third of the gross profit margin (effectively 7%) to be paid as a commission to Kay for sales made by Kay or by Prolix's salespeople to former customers of Kay Packaging.

¶ 19 The court denied posttrial motions by Kay (i) for additional damages, (ii) to amend the amended complaint to include a count under the Illinois Wage Payment and Collection Act (820 ILCS 115/1 et seq. (West 2010)), and (iii) for an award of prejudgment ...


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