PHILADELPHIA – A federal appeals court has thrown out a breach of contract claim for more than $700,000 in alleged unpaid sales commissions from a former Hewlett-Packard (HP) sales operative.
On Dec. 14, the U.S. Court of Appeals for the Third Circuit rejected a motion from appellant Carl Barton to recover $733,477.54 in sales commissions he claims were withheld from him by HP. In his ruling, Judge Julio M. Fuentes cited the lack of an enforceable contract as the rationale for this decision.
In April 2012, HP issued Barton a sales letter describing his eligibility for sales commissions during the 2012 fiscal year. The letter set Barton’s sales quota at $1.3 million and his base commission rate at 6.52 percent, meaning Barton would be eligible for a commission of $84,760 if he met his sales quota.
However, if Barton exceeded his sales quota, he was then eligible for “accelerated” commission rates ranging up to 18.25 percent for sales exceeding $2.288 million.
Among other provisions, the sales letter stated, “HP reserves the right to adjust the terms of the sales plan or to cancel it at any time.”
In March 2012, General Motors Corporation proposed to enter into an unlimited enterprise licensing agreement for HP’s entire array of software products, including Vertica, the specific product Barton sold. Though Barton was not a member of the HP team that negotiated the license, he nonetheless claims he developed the pricing model that the HP team utilized to negotiate the sales price of Vertica.
General Motors ultimately entered into a licensing agreement that priced Vertica at $8.28 million, with Barton claiming his pricing model resulted in an additional $6.2 million in sales revenue for HP that negotiators would not otherwise have obtained. HP decided to compensate its salespersons for the General Motors-Vertica license agreement, but did not award accelerated commission rates for the total revenue of the deal.
Instead, Barton was paid at his base commission rate of 6.52 percent, resulting in a final payment of $539,452. Barton claims that his role in the deal warranted payment at an accelerated rate, which would have resulted in a total commission of $1,273,019. In order to attempt to recover the difference, Barton brought the instant breach of contract suit to recover $733,477.54 in unpaid sales commissions.
At trial, the district court concluded that the sales letter was not an enforceable contract and granted summary judgment to HP, leading Barton to appeal.
While the parties involved agreed Pennsylvania law is applicable in this case, disagreement resulted from whether the aforementioned sales letter is a contract or not. The Third Circuit clarified that under state law, a contract requires “a mutual manifestation of an intention to be bound, terms sufficiently definite to be enforced, and consideration.”
And while Barton attempted to reason the implied covenant of good faith and fair dealing transformed the sales letter into a contract, Fuentes replied such a circumstance was only possible in regards to an existing contract, not the formation of a new one. Fuentes ultimately ruled to deny Barton’s appeal for the alleged unpaid sales commission funds on these grounds.
“The plain language of the sales letter unambiguously grants HP the right to perform or not perform at its own election, and therefore is not an enforceable contract,” Fuentes said.
The plaintiff is represented by David A. Strassburger and Jordan L. Strassburger of Strassburger, McKenna, Gutnick & Gefksy, in Pittsburgh.
The defendant is represented by K. Isaac deVyver and Karla L. Johnson of Reed Smith, also in Pittsburgh, and Martin T. Wymer of Baker & Hostetler in Cleveland.
U.S. Court of Appeals for the Third Circuit case 14-4785
U.S. District Court for the Western District of Pennsylvania case 2:13-cv-00554
From the Pennsylvania Record: Reach Courts Reporter Nicholas Malfitano at nickpennrecord@gmail.com