Court of appeals upholds triple judgment award in favor of commissioned sales representative 

The Sales Rep friendly case: Reilly v. Inquest Tech., Inc., 218 Cal. App. 4th 536 (2013)

The Independent Wholesale Sales Representatives Contractual Relations Act of 1990 (“the Act”) was created to protect sales agents/representatives who receive wholesale sales commissions from manufacturers. (See California Civil Code §1738.10, et seq.)  The Act requires manufacturers to enter into written contracts with their sales representatives to provide “security and clarify the contractual relations” between the parties; it also requires manufacturers to pay their agents in a timely manner, according to the terms of the contract, and requires that any court award triple damages for violation of its terms.

In this case, Plaintiff Reilly agreed to use his experience and connections in the electronic industry to help grow the defendant, Inquest Technology. Reilly prepared a written document outlining his proposed business relationship with Inquest, which included his understanding he would receive 50 percent of the net profits from all sales that were generated from his efforts and contacts. However the parties did not execute this document as a written contract. Nonetheless, due to the conduct of the defendant’s officers, the jury concluded that the company had agreed to the terms.

When it came time for judgment, the jury entered a general verdict in favor of Reilly, awarding him more than $2 million for owed commissions, and determined by a special verdict that Inquest had violated the terms of the Act by willfully failing to provide Reilly with a written contract. Pursuant to the Act’s penalty provisions, the trial court thus awarded Reilly triple damages of $6,197,106.00!  The Court of Appeal affirmed the judgment, holding that the Act applied, notwithstanding the defendant’s arguments that it was not a “manufacturer,” and that there was sufficient evidence that Inquest breached a contract with Reilly.

The reason this case is so important is that from 1990 through the day of this decision, in 2013, no binding Appellate court had confirmed the rights of sales reps to triple damages under the Act. Lawyers representing sales rep plaintiffs did not have binding case law, in other words, to help leverage manufacturers into reasonable settlement offers. In case after case we handled, for agents seeking triple damages under the Act, defense lawyers would argue that in order to obtain a triple damage award some type of malicious intent was required; or, that the Act did not apply to the case for other technical reasons, like the one relied upon by the defendant in the Inquest case, that it was not technically a “manufacturer.”

In what I believe is one of the first triple damage awards in California, based upon The Act, my client took a triple damage award in California State Court, in 1998, against one of California’s largest plastic injection molders. Similar to the defense in the Reilly case, defense counsel in my case clung to the idea that some malicious intent was required in order for us to gain triple damages. The court did not see it that way and tripled the award so that a claim for approximately $150,000 in commissions resulted in an approximate $750,000 judgment, after attorneys fees were added to the triple damage award. See Southwest Marketing v. Trend Plastics Inc., Orange County Superior Court, 1998. However, that case had no binding authority since it was only at the trial court level.

Now, with the publication of the Reilly case, in an Appellate Court that does have binding precedence over the state’s trial courts, when defense counsel raise the notion of “evil intent” as a requirement to the heavy duty triple damage remedy for sales agents, we can point them to the Reilly case, and tell them they are resoundingly wrong and they should encourage their client to settle.