Labor & Employment Law Daily In million dollar commission dispute, it was error to allow jury to hear compromise evidence
Tuesday, September 8, 2020

In million dollar commission dispute, it was error to allow jury to hear compromise evidence

By Brandi O. Brown, J.D.

A jury heard evidence that a company owner told the employee, “I know I owe you a commission,” but the appeals court held that the statement was improperly admitted under evidence rules.

Overturning a $1 million jury verdict in favor of an employee, the Fourth Circuit ruled that the jury should not have heard evidence of the defendants’ effort to compromise the employee’s claim for a commission because such evidence was prohibited by Rule 408. The parties disputed whether the employee was entitled to a 0.75 percent commission on the sale of a property the rehabilitation of which he had been hired to oversee. The appeals court found that the defendants were entitled to a new trial (Macsherry, Jr. v. Sparrows Point, LLC, September 1, 2020, Diaz, A.).

Hired as “boots on the ground.” The employer is a company that facilitates the remediation and resale of “brownfield” properties. One such property, the Sparrows Point property in Baltimore, was acquired by the employer, and it was recommended that the company hire a local representative who could act as their “boots on the ground” in Baltimore. The employee became that person. Although the employee contends that he negotiated a salary and 0.75 percent commission, evidenced by a red-lined term sheet, the parties disputed whether or how that agreement was reached and whether the commission was part of any final agreement between the parties. Nevertheless, the employee began working in December of 2012. Just less than two years later the employer sold the property for $110 million, well over half of which was profit for the owners.

Property sold, sought commission. As the sale was about to close, the employee requested his commission, 0.75 percent, on the sale, which would have amounted to $825,000. The employer ignored his request at first, but eventually he spoke with one of the owners. According to the employee, the owner told him: “I know I owe you a commission. I don’t believe you deserve a commission as big. What will you take?” The employee contended that he believed he was owed the full commission, but remained open to an offer.

According to the owner, however, he told the employee that his red-lined term sheet was not an employment agreement and that the employee was not owed a commission. He told the employee that he was not “opposed” to paying him “a bonus of some sort,” but contended that he did not make an offer. He admitted at trial that he never asked the company’s VP whether he had offered the employee a commission. When the matter remained unresolved, the employee filed suit under Maryland’s Wage Payment and Collection Law, as well as claims for breach of contract, promissory estoppel, and quantum meruit. He also asserted a claim for “enhanced damages” under the wage law.

$1M jury verdict. Although the complaint did not expressly demand a jury trial, the court ultimately ruled the case could go before a jury. It did and the jury also heard evidence about the conversation wherein the owner allegedly stated that he knew he owed the employee a commission. The jury ruled in favor of the employee, awarding him $1 million in net damages (including the claimed commission plus $175k in enhanced damages). The district court denied the defendants’ motion for a new trial and they appealed.

Statement erroneously admitted. On appeal, the Fourth Circuit ruled that the statement should not have been admitted at trial. Under Fed. R. Evid. 408 evidence of certain statements are not admissible “either to prove or disprove the validity or amount of a disputed claim or to impeach by a prior inconsistent statement or a contradiction.” That exclusionary provision, the court explained, “extends to evidence of an effort to ‘compromise’ a ‘disputed claim.’”

The appeals court joined a majority of other circuits to recognize that a dispute “need not ‘crystallize to the point of threatened litigation’” in order to implicate the provision, but there only needs to be an actual dispute or differing opinions with regard to a party’s liability or the amount at issue. Although the district court agreed with that principle, the appeals court explained, its reasoning was flawed. The appeals court explained that it “strains” the language of the rule and the record to conclude that a dispute over the employee’s claim to a commission had not existed at the time of the alleged statement.

Because the statements also did not fall within any of the other purposes for which statements could be admitted under the Rule, the court found they should not have been admitted. Moreover, it found that admission of the statement was not harmless. In fact, evidence of the compromise statements were “particularly harmful” with regard to the employee’s claim for enhanced damages. Although the remaining claims were a “closer call,” the court was not sufficiently certain that the jury’s verdicts were not “substantially swayed by the error” and thus concluded that the defendants were entitled to a new trial.

No abuse of discretion. With respect to the defendants’ argument that the district court erred in granting the employee’s motion for a jury trial, it concluded that the district court properly exercised its discretion to do so under Rule 39(b). In so doing, the appeals court acknowledged that the circuits are split on when an untimely demand for a jury trial should be granted under Rule 39(b). It was persuaded by the First Circuit’s view that the scope of discretion allowed under Rule 39(b) “is very broad” and seldom subject to a determination of abuse.

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