Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-5_03-cv-05413/USCOURTS-cand-5_03-cv-05413-4/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1332 Diversity-Other Contract

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United States District Court

For the Northern District of California

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United States District Court

For the Northern District of California

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

SAN JOSE DIVISION

Trifocal LLC,

Plaintiff,

 v.

E-centives, Inc.,

Defendant.

 /

NO. C 03-05413 JW 

POST-TRIAL ORDER RE:

APPLICABILITY OF INDEPENDENT

WHOLESALE SALES

REPRESENTATIVE ACT 

I. INTRODUCTION

Plaintiff Trifocal, a limited liability company, filed this lawsuit against Defendant Ecentives, Inc., claiming that E-centives owed it commissions and fees for services rendered pursuant

to a written contract between the two companies. The parties waived their right to a jury trial. The

case was tried to the Court sitting without a jury. 

At the conclusion of the trial, the Court stated its findings of fact and conclusions of law on

the record. The Court found that E-centive owed Trifocal $50,937.50 for services rendered with

respect to two claims: First, E-centives owed Trifocal a base fee of $20,000 for management

services in connection with a program called the "On-line Acquisition Program." Secondly, the

Court found that E-centive owed Trifocal a commission of $30,937.50 for the renewal of a contract

between E-centives and Nestle. 

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The Court directed the parties to submit post-trial briefs on the issue of the amount of interest

which was due under the Court's findings. In addition, the Court directed the parties to brief

whether the contract between Trifocal and E-centives was covered by the Independent Wholesale

Sales Representative Act (the "Act") and, if so, what relief should be awarded pursuant to the Act. 

The post-trial briefs were filed and the case submitted for decision. This Order sets forth the

Court's findings with respect to these post-trial matters. A separate final judgment is entered

accordingly.

II. BACKGROUND

Trifocal, LLC. is owned by an individual named Scott Wills. Before his formation of

Trifocal, Wills was the Chief Executive Officer of a corporation named Bright Street.com, Inc., a

company engaged in internet advertising. 

In December of 2001, E-centives, Inc., acquired substantially all of the assets of Bright

Street.com, Inc. Following the acquisition, E-centives hired a number of Bright Street employees,

including Scott Wills who became a Senior Vice President of E-centives. 

In his role as a Senior Vice President, Wills was assigned a number of tasks designed to

integrate the two companies and to market their combined services to existing and new customers. 

One of Wills' assignments was a consumer tracking program for one of E-centives' customers called

the On-Line Acquisition Program.

Toward the end of March 2002, Wills gave notice to E-centives’ CEO, Kamran Amjadi, that

he intended to terminate his employment with E-centives. At the time of Wills' resignation notice,

E-centives was in the midst of a vigorous campaign to renew several contracts with its existing

customers and to perfect the On-Line Acquisition Program. Because Wills was providing

importance assistance with some of the contract negotiations and was the manager of the On-Line

Acquisition Program, Amjadi and Wills discussed various proposals under which Wills might

continue to assist E-centives, despite termination of his employment. Eventually, Wills and Amjadi

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agreed that Wills would provide his services to E-centives as an independent contractor. Wills

terminated his employment with E-centives and created a Trifocal, LLC. 

Effective May 1, 2002, Trifocal and E-centives entered into a contract entitled "Binding

Letter of Agreement." In the Binding Letter of Agreement, the parties expressed their intention to

have the Letter of Agreement govern their relationship until they developed and signed a "more

definitive" contract on terms "mutually agreed to." They were never able to reach a more definitive

agreement. Consequently, the Binding Letter of Agreement became the operative contract.

Under the terms of the Binding Letter of Agreement, Trifocal agreed to act as an independent

sales representative for listed "Named Target Accounts," and for any "new accounts" which might

be approved by Amjadi. Among the listed "Named Target Accounts" were "all Nestle divisions and

corporate." As compensation for its acting as an independent sales representative E-centives agreed

to pay Trifocal a "Primary Commission." 

Eventually the Nestle Division renewed its account. Trifocal claimed a commission for the

renewal. E-centives refused to pay it on the ground that Trifocal had concealed that Nestle had

actually signed the renewal prior to the effective date of the Binding Letter of Agreement. After

hearing evidence with respect to the terms of the Binding Letter of Agreement and the circumstances

of the Nestle renewal, the Court found that E-centives owed a commission to Trifocal for the Nestle

renewal. 

Apart from acting as an independent sales representative, under the terms of the Binding

Letter of Agreement, Trifocal also agreed to provide other services such as providing information

concerning Bright Street, conducting sales seminars, reviewing marketing material. Eventually,

Amjadi requested Wills through Trifocal to assist in the management of the On-Line Acquisition

Program. Specifically, on May 13, 2002, on behalf of E-centives, Amjadi gave his written approval

to an e-mail proposal by Trifocal to manage the On Line Acquisition Program for a fee of $100,000. 

The fee was payable $50,000 "not performance contingent," and $60,000 as a "bonus" contingent on

the program's success in enrolling a prescribed number of consumers. Only $30,000 of the nonCase 5:03-cv-05413-JW Document 73 Filed 04/19/06 Page 3 of 9
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performance contingent fee was paid. The Binding Letter of Agreement was terminated before any

bonus payment was earned. At the conclusion of the trial, the Court found that E-centives owed

Trifocal the $20,000 balance on the non-performance contingent fee. The Court asked the parties to

submit post-trial briefs on any interest due on the $20,000 balance.

Trifocal's Complaint included a claim for treble damages under the California Independent

Wholesale Sales Representatives Act. After announcing its factual findings, the Court directed the

parties to submit post-trial briefs on the applicability of the Act and any remedy which should be

awarded.

III. DISCUSSION

A. Interest is recoverable by Trifocal for E-centives' failure to pay it for services rendered

in managing the On-Line Acquisition Program.

The Court has found that E-centive owes Trifocal a balance of $20,000 for its services in

managing the On-Line Acquisition Program. The $20,000 base fee was due on July 1, 2002. The

Binding Letter of Agreement provides that a late payment will incur a 11⁄2% monthly late charge. 

The Court accepts Trifocal's calculation of the late fee and finds that Trifocal in entitled to the

additional sum of $13,364.28 as of March 17, 2006, the date the Court made its ruling from the

bench.

Trifocal contends that the Independent Wholesale Sales Representatives Act applies to the

On-Line Acquisition Program fee. For reasons discussed more fully below, the Court holds that the

Act is not applicable to this fee. The agreement between Trifocal and E-centive with respect to the

On-Line Acquisition program was a fee for service contract. It did not involve the payment of a

commission and therefore is not covered by the Independent Wholesale Sales Representative Act. 

B. Interest is recoverable by Trifocal for the unpaid commission on Nestle renewal.

The Court accepts Trifocal's calculation of principal and interest due on the Nestle

commission. Trifocal is entitled to payment of the principal sum of $30,937.50, plus interest in the

sum of $19,115.25, for a total of $50,052.74.

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C. The Independent Wholesale Sales Representative Act does not apply to the Nestle's

Commission Claim.

In addition to its commissions, Trifocal claims that it is entitled to treble damages pursuant to

the California Independent Wholesale Sales Representatives Contractual Relations Act of 1990.

Section 1738.15 of the Act provides:

A manufacturer, jobber or distributor who willfully fails to enter into a written

contract as required by the chapter or willfully fails to pay commissions as provided

in the written contract shall be liable to the sales representative in a civil action for

treble damages proved at trial. 

Cal. Civil Code §1738.15.

The Act is not applicable to every contract between an independent sales representative and a

manufacturer or distributor. To be covered, the independent sales representative must be a

"wholesale sales representative." Thus, the applicability of the Act to the Binding Letter of

Agreement depends upon whether or not Trifocal was acting as a "wholesale sales representative,"

for a "manufacturer" as those terms are defined in the Act. 

A fundamental principle of statutory interpretation is to ascertain the intent of the Legislature

so as to effectuate the purpose of the law. People ex rel. Younger v. Superior Court, 16 Cal.3d 30,

40 (1976). In determining legislative intent, the Court turns first to the words used in the statute.

People v. Knowles, 35 Cal.2d 175, 182 (1950). The words of the statute must be read in context,

keeping in mind the nature and obvious purpose of the statute where they appear. Tripp v. Swoap,

17 Cal.3d 671, 679 (1976). The statutory language must be given such interpretation as will

promote rather than defeat the objective of the law. Steilberg v. Lackner, 69 Cal.App.3d 780, 785

(1977). In addition, in ascertaining legislative intent, the Court should take into account other

matters as well, such as the legislative history, public policy, and any contemporaneous

administrative construction. English v. County of Alameda, 70 Cal.App.3d 226, 233- 234 (1977).

In interpreting the Independent Wholesale Sales Representatives Act, the Court is aided by

specific declaration of legislative intent in §1738.10 and definitions in §1738.12.

//

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A "wholesale sales representative" is defined as:

[A]ny person who contracts with a manufacturer . . . or distributor for the purpose of

soliciting wholesale orders [and who is] compensated, in whole or part, by

commission. 

Cal. Civ. Code §1738.12(e).

The term "wholesale orders" is not defined in the Act. However, the term is a commonly

used commercial term which is defined in other California statutes and has a commonly understood

meaning. For example, in the California Food and Agriculture Code, a "wholesale customer" is

defined as one who purchases a product for resale to consumers or to other wholesale customers. 

See Cal. Food & Agric. Code §61839. A similar commercial definition was adopted in a municipal

tax ordinance under review in Times Mirror Co. v. City of Los Angeles, 192 Cal.App.3d 170

(1987). The court in Times Mirror noted:

For purposes of this section, a wholesale sale or sale at wholesale means a sale of

goods, wares or merchandise for the purpose of resale in the regular course of

business. 

192 Cal. App.3d at 176 fn. 4.

In its review of cases and materials in the area of commercial law in the State of California

and generally, the Court notes that the term "wholesale" consistently means a sale of a product by

one merchant to another merchant. It is consistently used to refer to a distribution method in which

the merchant-to-merchant sale is ultimately followed by a merchant to consumer sale of the product.

Although the Act does not separately define the term"wholesale," the other defined terms

clearly call for a wholesale-retail distribution of products. For example, the Act defines the term

"manufacturer" as:

[A]ny organization engaged in the business of producing, assembling . . .or by any

other method of fabrication, a product tangible or intangible, intended for resale to,

or use by the consumers of this state. 

Cal. Civil Code §1738.12(a).

Applying these definitions and interpretations to the Binding Letter of Agreement leads the

Court to conclude that the commission owed to Trifocal for Nestle's renewal of its contract with Ecentive is not a commission for wholesale of a product for purposes of retail sales to consumers.

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The evidence established that E-centives is in the business of providing interactive marketing

technologies and services to companies who market consumer products on the Internet. Using its

technologies, Nestle and other customers of E-centives are able to market their products to

consumers using consumer e-mail accounts. Nestle uses E-centive technology to publish interactive

discount coupons, conduct on-line surveys, and engage in other interactive product promotions. As

consumers respond to Nestle's promotions, the E-centive suite of products allow Nestle to capture

consumer information, compile reports on the responsiveness of consumers to various campaigns

and otherwise manage customer relations. In no ordinary sense of the term is Nestle engaged in

retail sales or use of the E-centive product even though the Nestle web site is being used by

consumers.

Trifocal asks the Court to include the E-centive contract with Nestle under the Act because

Nestle makes consumer product. However, the consumer products made by Nestles and sold retail

by Nestle are not sold to Nestle by E-centive. Moreover, the use of coupons generated by Nestle

using the E-centive programs and technologies, does not bring the consumer into a

manufacturer/wholesale/retailer relationship with E-centives. 

The Act specifically exempts sales representatives who earn a commission for sales to a

customer which uses the product for its own benefit:

"Wholesale sales representative" . . .shall not include one who sells or takes orders

for the direct sale of products to the ultimate consumer. 

Cal. Civil Code §1738.12(e).

Although the Court doubts the Act was intended to cover the marketing services provided by Ecentives to Nestle, even if the Court were to consider that E-centives services and licences are

products under Act, the Act still would not apply because the product manufactured by E-centives is

used by Nestle. In that sense, Nestle is the consumer of E-centives products and Trifocal earns a

commission for direct sales to the ultimate consumer. 

Accordingly, the Court finds that the Act does not apply to the Binding Letter of Agreement

between Trifocal and E-centives.

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IV. CONCLUSION

Judgment shall be entered awarding to Trifocal principal and interest in accordance with this

Order. No award shall be made under the Wholesale Sales Representatives Act.

Dated: April 19, 2006 

JAMES WARE

United States District Judge

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THIS IS TO CERTIFY THAT COPIES OF THIS ORDER HAVE BEEN DELIVERED TO:

Frank R. Ubhaus fru@berliner.com

James W. Lucey jlucey@carr-ferrell.com

John F. Domingue jfd_esq@yahoo.com

Dated: April 19, 2006 Richard W. Wieking, Clerk

By: /s/ JW Chambers 

Melissa Peralta

Courtroom Deputy

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