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Kas Oriental Rugs, Inc. v. Ellman

March 6, 2007

KAS ORIENTAL RUGS, INC., PLAINTIFF-APPELLANT/ CROSS-RESPONDENT,
v.
MATT ELLMAN, DEFENDANT-RESPONDENT/CROSS-APPELLANT.



On appeal from the Superior Court of New Jersey, Law Division, Somerset County, Docket No. L-525-04.

The opinion of the court was delivered by: Fisher, J.A.D.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

APPROVED FOR PUBLICATION

Argued February 7, 2007

Before Judges Wefing, C.S. Fisher and Messano.

The disputes about the rights and obligations of a sales representative and his principal in this matter were resolved by way of a bench trial. The judge found that, upon the representative's termination, the parties' oral contract required only that the principal pay the commissions due on orders received as of the termination date, but he nevertheless awarded post-termination commissions on a quantum meruit theory. Because we conclude that the award of post-termination commissions was inconsistent with the terms of the contract, we reverse.

I.

Plaintiff Kas Oriental Rugs, Inc. is an importer and seller of oriental rugs. In August 1999, Kas and defendant Matt Ellman, an independent sales representative, entered into an oral contract. As the trial judge found, they agreed on "[t]erritory, commission percentage, nature and type of material to be sold," all of which was "sufficient to constitute a contract binding between the parties." The judge also found that, in this industry, a principal's obligation to pay commissions does not arise "until orders [are] received, shipped and paid for." Although he recognized that the parties' oral contract did not specifically define the parties' rights and obligations upon Ellman's termination, the judge found that the absence of such terms was not essential to the creation of a contract. He filled this gap in the parties' agreement by concluding that the relationship was terminable at will, as was the custom in the industry:

The [c]court is satisfied from the testimony of the witnesses, including the witness --the expert witnesses from both sides, that the nature of the relationship in the industry between a manufacturer and a manufacturer's rep[resentative] is effectively termination at will. Kas was an experienced manufacturer of oriental rugs. Ellman was an experienced and astute manufacturer's representative, having been in the business in excess of ten years. Each side knew the custom of the trade. The fact that termination was not discussed is not, in light of the totality of the circumstances and the nature and practice and custom of the industry, unusual nor is it an essential missing term.

Having found that Ellman was terminable at will, the judge found "[f]rom the testimony of all witnesses presented" that it was "clear that commissions are typically not paid after termination except on orders received in-house prior to termination."

Problems arose with the parties' relationship in 2001, when Kas became concerned about Ellman's representation of Kas competitors, and attempted to impose a restrictive covenant on Ellman and other representatives.*fn1 Notwithstanding, it appears that Ellman continued to represent Kas competitors. In addition, there was also testimony that Ellman was "a difficult person to work with." These circumstances culminated in Kas's decision to end their relationship, writing to Ellman on February 27, 2004 that as of March 1, 2004 his services were "no longer required."

The trial judge determined that the discharge of Ellman was not wrongful, holding that "it cannot be said nor concluded that the termination by Kas breached the agreement." The judge also found that the parties' contract required only that Kas pay Ellman for the commissions on purchase orders that were "in house" as of March 1, 2004, which was stipulated at trial as $12,774.02. That amount was awarded to Ellman. In addition, the judge rejected Kas's claim that the commissions of $12,774.02 should be reduced by application of a credit of $4,375.

In the February 27, 2004 termination letter, Kas offered to pay Ellman commissions through April 30, 2004. At trial, Kas moved into evidence the deposition of its president, Rao Yarlagadda, which included his testimony that the offer to pay commissions for two months beyond the termination date was "a good will gesture." At trial, Joan Catello, Kas's national vice-president of sales, testified that Kas decided to make this offer "to avoid any litigation, which we felt would be costly on both parties."

Ellman's attorney objected, on relevance grounds, to additional testimony from Catello regarding this offer of post-termination commissions. Kas's attorney responded that he was seeking to demonstrate that this offer should not be viewed as an admission that Kas "had to pay this." When Ellman continued to press the objection, the following colloquy occurred:

[ELLMAN'S ATTORNEY]: Judge, that's not relevant.

[KAS'S ATTORNEY]: If we can stipulate that [the letter's offer of commissions after the termination date] is not an admission that we owe that money, ...


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