Labor & Employment Law Daily Treble damages under Texas Sales Representative Act based on only commission remaining unpaid at time of judgment
Friday, June 14, 2019

Treble damages under Texas Sales Representative Act based on only commission remaining unpaid at time of judgment

By Brandi O. Brown, J.D.

Although JCB, the sales representative whose nearly $300,000 in commission was not paid when due and was only completely paid after it filed suit will not receive treble damages on either the whole or partially unpaid amounts, but is entitled to a reasonable attorneys’ fees.

Taking the approach most in sync with common law, in the absence of statutory instruction to the contrary, the Texas Supreme Court ruled that treble damages under Tex. Bus. & Com. Code § 54.004(1), part of the Texas Sales Representative Act, were to be calculated at the time of judgment. In this case, by the time the district court had granted summary judgment, the defendant to the lawsuit had paid the amount due, plus interest. However, it could still be on the hook for reasonable attorneys’ fees under Tex. Bus. & Com. Code § 54.004(2) regardless of the availability of treble damages (JCB, Inc. dba Conveying and Power Transmissions Solutions v. Horsburgh & Scott Co., June 7, 2019, Blacklock, J.).

Commissions not paid when due. JCB, Inc., dba Conveying & Power Transmission Solutions (JCB) was an independent sales rep for the Horsburgh & Scott Company, a manufacturer of gears and gearboxes. The parties later terminated the arrangement and Horsburgh agreed that it would pay commissions to JCB on orders received on or before May 24, 2015. According to JCB, Horsburgh failed to pay about $280,000 in commissions under the agreements when they were due. The parties agreed that at least some commission payments were untimely (JCB asserted they were all untimely) and at the time suit was filed under the Texas Sales Representative Act (Tex. Bus. & Com. Code § §54.001-.006), Horsburgh still owed commissions. After JCB sued, Horsburgh paid the remaining commissions, plus interest, and moved for summary judgment.

Certified questions. The district court granted Horsburgh’s motion, reasoning that it no longer owed unpaid commissions. JCB appealed. On appeal, the Fifth Circuit certified two questions to the Supreme Court of Texas: (1) What timing standard should courts use to determine the existence and amount of any “unpaid commissions due” under the treble damages provision of Tex. Bus. & Com. Code § 54.004(1) and (2) May a plaintiff recover reasonable attorney’s fees and costs under Tex. Bus. & Com. Code § 54.004(2), if the plaintiff does not receive a treble damages award under Tex. Bus. & Com. Code § 54.004(1), and under what conditions?

Timing mattered. As far as the timing of treble damages, this case illustrated the impact of the answer. If the court trebled the commission payment that was unpaid at the time it was due, as suggested by Judge Duncan in his consenting opinion to the Fifth Circuit panel decision, Horsburgh would be subject to treble damages based on $280,000 in unpaid commissions. If, on the other hand, the court considered only what remained due at the time JCB filed suit, the trebled amount would be based on the $77,000-$90,000 in commissions unpaid at that time. Finally, if the trebled amount were based on the amount remaining due at the time of judgment, there would be no amount to treble because Horsburgh had already paid the remainder. The plain text of Section 54.004 did not answer this question and the Fifth Circuit “understandably” had difficulty choosing between the possible answers.

Texas Sales Representative Act. Section 54.004 provides: “A principal who fails to comply with a provision of a contract under Section 54.002 relating to payment of a commission . . . is liable to the sales representative in a civil action for: (1) three times the unpaid commission due the sales representative; and (2) reasonable attorney’s fees and costs.” Neither party disputed that the parties had a contract under Section 54.002, and that Horsburgh failed to comply by making untimely payments, but they disagreed on when or whether treble damages accrued.

The court agreed that the statute, which failed to “specify the moment in time” courts should consider when calculating the “unpaid commission due,” could have been “much clearer on the timing question.” In this case, all of the disputed commissions were unpaid on the date of breach, some were unpaid and due when the suit was filed, and none remained unpaid or due at the time of judgment.

Common law provided guidance. Nothing in the other relevant sections of the Act answered that question and nothing in those provisions (specifically, 54.002 and 54.003) linked the date of the breach to the treble damages calculation. Because the statutory text failed to answer the question posed, the court looked to common law for guidance. The court explained, “As a general matter, it almost goes without saying that damages typically are calculated by the factfinder based on what is required to compensate the plaintiff at the time of verdict or judgment.”

The court found “little in chapter 54″ to suggest that a “departure” from the “default framework” was suggested. JCB’s interpretation that treble damages are “locked in” as of the time of breach failed to account for mitigation or reduction of damages, which is normally contemplated both in contract and tort law. JCB also failed to point to any other cause of action under Texas law that operated in the way it suggested.

Amount due at judgment or verdict. Thus, the high court could find “no fault” with the “common-sense approach” taken by the district court in granting summary judgment. A factfinder taking a plain-meaning approach to the phrase “the unpaid commission due the sales representative” would naturally ask how much commission had not been paid and in this case, at that time, the amount was zero. The court did not agree with JCB that this construction would deprive the chapter of any real effect, since suit would still serve the purpose of encouraging payment. “The threat of treble damages down the road is a heavy stick for the sales representative to wield against the principle,” the court added, “even if the blow cannot be struck until judgment.”

Reasonable attorney’s fees. Adding to that threat, the court explained, was its answer to the second certified question regarding attorneys’ fees. A plaintiff may recover reasonable attorneys’ fees and costs even if the plaintiff did not receive a treble damages award. The statute provided for each recovery (treble damages and attorneys’ fees) separately and the trigger for fees was the breach, not a determination of whether treble damages were due or whether the sales rep was the “prevailing party.” Reasonableness was “nevertheless a very real limitation” on the statute’s “otherwise unbounded grant of attorney’s fees and costs to the sales representative” and the court could envision arguments on both sides regarding JCB’s pursuit of damages. Whether or not the fees were in fact reasonable was a question to be resolved by the district court.

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