By Peter Reap, J.D., LL.M.
However, the lower court should have dismissed some of the claims without prejudice, instead of with prejudice on Article III standing grounds.
The federal district court in Hartford, Connecticut, correctly dismissed the claims brought by a former sales representative against a food additives company based on promises to pay her commissions after termination because none of her allegations plausibly pleaded an express promise to pay commissions to her after the termination of her employment with the company, the U.S. Court of Appeals in New York City has ruled. However, although the district court also correctly dismissed her claims based on the company’s misconduct with sourcing a food additive product for failure to possess Article III standing, the district court erred in dismissing those claims with prejudice. Thus, the judgment of the lower court was principally affirmed, but the case remanded with instructions to dismiss the claims related to the sourcing of the product without prejudice (Holcombe v. Ingredients Solutions, Inc., January 16, 2020, per curiam).
Margaret Holcombe was a sales representative for Ingredients Solutions, Inc. (ISI) from 1999 to 2016. Following termination, she asserted claims for breach of contract, breach of the covenant of good faith and fair dealing, promissory estoppel, negligent misrepresentation, violations of the Connecticut Unfair Trade Practices Act, and lost commissions under Conn. Gen. Stat. § 42-482. The district court construed these claims as broadly setting forth two sets of allegations: (1) ISI engaged in misconduct relating to the sourcing of its carrageenan food additive product (the sourcing theory); and (2) ISI breached agreements and promises to pay Holcombe commissions on sales it made to her former customers after she terminated her relationship with the company (the "commissions theory"). The district court held that Holcombe lacked Article III standing to the extent her claims depended on the sourcing theory, and that she failed to state a claim under the commissions theory, dismissing her complaint with prejudice. Holcombe appealed.
Standing. Holcombe clearly had standing to assert her claims to the extent they were based on the commissions theory, according to the appellate court. Holcombe alleged that she suffered an injury in the form of lost commissions, that this injury was fairly traceable to ISI’s wrongful failure to pay her commissions and that her loss of commissions was redressable by a favorable decision.
With respect to the sourcing theory, however, Holcombe’s allegations of misconduct were not fairly traceable to an injury in fact. Holcombe did not allege that she lost out on commissions while she was an ISI sales representative; rather, she alleged that she lost out on commissions only after she chose to resign rather than become complicit in ISI’s misconduct. Her decision to resign was voluntary, thus breaking the causal chain between any sourcing misconduct on the part of ISI and her lost commissions, the Second Circuit noted. Moreover, while Holcombe alleged that she suffered a loss of goodwill and reputation, the amended complaint attributed that injury to her own decision to leave ISI abruptly and without explanation, not to any sourcing misconduct itself.
Further, Holcombe’s conclusory allegations that ISI’s sourcing misconduct might expose her to future civil and criminal liability were insufficient to establish an injury that was actual or imminent, as opposed to hypothetical. Thus, Holcombe lacked Article III standing to bring claims against ISI based on the sourcing theory alleged in the amended complaint.
Failure to state a claim. Although Holcombe had standing to pursue her commissions theory, the allegations underlying this theory were inadequate to state a claim, the court held. The gravamen of Holcombe’s commissions theory was that ISI agreed or otherwise promised her that she would receive commissions on sales made to customers that she had procured regardless of whether she later terminated her relationship with ISI.
Courts have consistently rejected claims for commissions on post-termination sales absent an express agreement providing otherwise, the Second Circuit reasoned. Holcombe alleged that: in an October 2000 letter, ISI promised that she would receive a "4% commission . . . on all sales;" ISI had a practice of paying sales representatives "commissions into their 70’s and 80’s (or until their death) in connection with sales made to customers they procured for accounts whenever secured, despite little or no activity;" and ISI promised Holcombe that she would be compensated on the same "commission plan or structure that applied to Frank Holcombe," her father-in-law and one of the representatives who received commissions past the age of 70.
None of Holcombe’s allegations plausibly pleaded an express promise, oral or written, to pay commissions to Holcombe in perpetuity. And, nothing in the letter she cited indicated that the commission agreement was intended to extend past termination. To the contrary, the letter stated that the commissions will be paid "in addition to" a salary for which Holcombe would be reimbursed. Obviously, salary and expenses are not paid after termination of employment, the court noted. Thus, the district court did not err in concluding that Holcombe’s amended complaint failed to state a claim based on her commissions theory.
Dismissal with prejudice. With respect to Holcombe’s sourcing theory, dismissal with prejudice on Article III standing grounds was improper. Where a case is dismissed for lack of Article III standing that disposition cannot be entered with prejudice, and instead must be dismissed without prejudice. Nevertheless, that the dismissal of the sourcing theory must be without prejudice did not mean that Holcombe must be granted leave to amend, the court explained.
Here, the district court’s failure to grant Holcombe leave to file a second amended complaint was not error as to either of her two theories, particularly given that Holcombe did not request leave to file a second amended complaint. Furthermore, Holcombe did not explain on appeal how she would cure the Article III standing deficiencies in her sourcing allegations, or how she would cure her failure to plead cognizable claims under the commissions theory, in a second amended complaint. Thus, although the district court should have dismissed Holcombe’s sourcing allegations without prejudice, there was no error in the district court’s dismissal of the amended complaint in its entirety without leave to amend, and with prejudice as to her commissions theory.
This case is No. 19-cv-1082.
Attorneys: Douglas J. Varga (Lucas & Varga LLC) for Margaret Holcombe. Kim E. Rinehart (Wiggin and Dana LLP) for Ingredients Solutions, Inc.
Companies: Ingredients Solutions, Inc.
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