Court Opinion

ID: 1055326
Source: CourtListenerOpinion
Date Created: 2013-10-08 20:56:37.160611+00
Date Added: 2024-06-11T09:17:08.046193
License: Public Domain

IN THE COURT OF APPEALS OF TENNESSEE
                                AT JACKSON
                             May 18, 2004 Session

            JAMES A. DRAKE, JR. v. JPS ELASTOMERICS CORP.

                      Appeal from the Chancery Court for Shelby County
                       No. 99-0589-3 D.J. Alissandratos, Chancellor

                    No. W2003-01579-COA-R3-CV - Filed August 23, 2004

This case involves the breach of an employment compensation contract. Under the sales employee’s
compensation plan with his employer, he was to earn extra commission for any sales that exceeded
his annual quota. In the compensation plan, the employer reserved the right to pay only the standard
commission on “windfall” sales. For the fiscal year at issue, the sales employee exceeded his quota.
The employer invoked the windfall provision of his compensation plan and paid him only the
standard commission on the sales over his quota. The sales employee sued his employer, arguing
that he was entitled to the extra commission on the sales over his quota. On cross-motions for
summary judgment, the judge ruled in favor of the plaintiff sales employee. On appeal, the
defendant employer argues that the “windfall provision” applies to all sales that were unbudgeted
or unforecast and that the plaintiff sales employee’s excess sales fall in that category. We hold that
the defendant employer’s interpretation conflicts with the plain meaning of the contract, and affirm
the decision of the trial court.

    Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court is Affirmed

HOLLY M. KIRBY, J., delivered the opinion of the court, in which ALAN E. HIGHERS, J. and
DAVID R. FARMER, J., joined.

Keith D. Frazier and Jonathan O. Harris, Nashville, Tennessee, for the Appellant, JPS Elastomerics
Corporation.

Larry K. Scroggs, Memphis, Tennessee, for the Appellee, James A. Drake, Jr.

                                             OPINION

       Plaintiff/Appellee, James A. Drake, Jr. (“Drake”), was employed as a district sales manager
for Defendant/Appellant, JPS Elastomerics Corp. (“JPS”), from 1995 until 1999, selling roofing
products. Drake’s sales territory included Kansas, Missouri, Oklahoma, Arkansas, Mississippi,
northern Louisiana, and portions of Kentucky and Tennessee.
        Drake was paid a base salary plus a commission. The commission was calculated according
to a Sales Incentive Plan, prepared by JPS each year. Under the Sales Incentive Plan, Drake was to
be paid commissions of 0.75% on net sales up to his annual sales quota. For net sales in excess of
his annual sales quota, the Plan provided that Drake would receive a commission of 3.0%. Each
year, Drake prepared a list of customers he intended to target in the coming year, as well as a sales
quota for those customers. The list of targeted customers and the quota figures were then transmitted
to the national sales manager who gave the final approval, usually after consultation with his own
superiors.

        In 1997, for the first time, Drake’s Sales Incentive Plan included a “windfall provision”
which said: “Management reserves the right to determine that windfalls be eligible for only the lower
rate of commission and not the excess over quota.” The contract did not define “windfall.” In the
Sales Incentive Plan, JPS reserved the right “to determine plan eligibility, remove representatives
from coverage, and modify or terminate the Plan at its discretion.” Drake’s quota was $4,324,549.
Drake’s list of customers included:

       Customer                                               Quota

       McGaughey Lumber                                       $1,490,500.
       Performance Mtls.                                      $1,031,678.
       Roofers Supply & Service                               $592,172.
       Nashville Distribution (TBA)                           $467,701.
       Spec Roofing                                           $242,915.
                      Distribution                            $3,824,966.
       DC Taylor                                              $468,611.
       Target Stores                                          $30,972.
                      Direct                                  $499,583.
                                                              $4,324,549.

The sales at issue in this litigation were from Hollis Roofing Company. It is undisputed that Hollis
Roofing Company, as such, was not included in Drake’s 1997 list of targeted customers.

        The parties stipulated that, beginning in 1995 and continuing through 1998, Drake
established contacts with Hollis Roofing. He frequently called Hollis, set up personal meetings, and
even held product demonstrations for Wal-Mart, with whom Hollis did significant business. JPS
admits that it was aware of Drake’s pursuit of business from Hollis Roofing during this time.

        In 1996, Drake began to receive sales from Hollis Roofing through Hollis Roofing’s
distributor, McGaughey Lumber Company. These sales were listed under McGaughey Lumber
Company rather than Hollis Roofing, because McGaughey was a distributor on JPS’s approved list.
For fiscal year 1996, Drake received the increased commission rate, 3.0%, for his sales in excess of
his quota. Drake’s 1996 Sales Incentive Plan did not include a windfall provision, which was
inserted into the Sales Incentive Plan the following year.

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        In 1997, Hollis Roofing was not included on Drake’s list of targeted customers, since sales
were still required to be made through the approved distributor, McGaughey. In August 1997, JPS
authorized Drake to sell its roofing products directly to Hollis Roofing, rather than through
McGaughey.

         In fiscal year 1997, Drake generated total sales in 1997 of $6,856,773.99, exceeding his quota
by $2,532,224.99. Drake did just over $2.5 million ($2,541,387.42) in business with Hollis, some
of it through McGauhey Lumber until August of 1997 when he began to sell to Hollis directly.

       In late 1997, Drake learned that JPS had decided to invoke the windfall provision of the Sales
Incentive Plan with respect to his sales to Hollis and pay him only the 0.75% standard commission.
Had Drake been paid under the 3% increased commission rate, his commission would have been
$56,975 more. Drake then filed this lawsuit against JPS, asserting that JPS’s application of the
windfall provision constituted a breach of contract.

        In the trial court below, virtually all of the pertinent underlying facts were stipulated or were
otherwise undisputed. After discovery was completed, both parties filed cross-motions for summary
judgment, and the trial court held a hearing on both motions. The issue for the trial court was one
of contract interpretation, namely, whether the windfall provision of Drake’s 1997 Sales Incentive
Plan was applicable to the over $2.5 million in sales to Hollis Roofing in fiscal year 1997.

        JPS emphasized to the trial court that it was undisputed that Drake did not include Hollis
Roofing on his 1997 list of potential customers and that no sales to Hollis Roofing were budgeted
in Drake’s 1997 quota. The president of JPS, Bruce Wilby, testified in his deposition that the
windfall provision was intended to apply to such a situation, where there was a significant volume
of “greatly underforecasted” sales:

        The sales incentive plan has the clause in there for – and there’s a number of
        situations that could come up that would invoke it, but the ones that come to mind
        to me are an unbudgeted or an unforecasted or greatly underforecasted volume for a
        customer or a customer who was never on the list.

Thomas Gallivan, national sales manager of JPS who gave final approval of the quota figures,
offered a similar explanation:

        And if the business is there or the potential for the business is there, it should be
        considered or taken into consideration when the budgets are developed. And the
        windfall clause is there to prevent what one might call sandbagging or under
        forecasting or under budgeting.

Drake, of course, noted that Hollis Roofing was not included on his 1997 list of potential customers
because, at the time the list was generated, JPS required that Drake’s sales to Hollis Roofing be made
through JPS’s approved distributor, McGaughey Lumber, and that JPS did not approve direct sales

                                                  -3-
to Hollis Roofing until some ten months into fiscal year 1997. Drake also pointed out that it was
undisputed that JPS was well aware of Drake’s efforts to secure sales from Hollis Roofing as early
as 1995. Indeed, Drake was paid the increased commission rate of 3.0% for his sales in 1996 which
exceeded his quota, including sales to Hollis Roofing made through the distributor, McGaughey
Lumber.

        At the conclusion of the hearing on the parties’ cross-motions for summary judgment, the
trial court found that the windfall provision was not applicable. The trial court stated:

       The definition of windfall is, in the absence of the parties giving me a definition,
       which they did not, is that which reasonable men and women would give. It’s called
       a reasonable person test under the law. In fact, it’s not as though windfall is
       something that is novel to the law. It is truly that which is unexpected without effort.

The trial court rejected JPS’s application of the windfall provision to the undisputed facts in this
case:

       It is not a windfall, however, when, by the admission and the stipulation, we have the
       plaintiff working Hollis Roofing Company knowing that they’re a major contractor
       with Wal-Mart, which we have the plaintiff having personal meetings, telephonic
       contacts, giving demonstrations with the architect with Wal-Mart about meeting
       specifications. This is what people like the plaintiff are hired to do.

Thus, the trial court denied JPS’s motion for summary judgment and granted summary judgment to
Drake. Drake was awarded $56,975, along with pre- and post-judgment interest. From this order,
JPS now appeals.

        Summary judgment should be granted when the movant demonstrates that there are no
genuine issues of material fact and that the moving party is entitled to summary judgment as a matter
of law. Rule 56.04 of the Tennessee Rules of Civil Procedure. As all of the material facts are not
in dispute, the only issue on appeal is one of contract interpretation. Contract interpretation is a
matter of law, and is reviewed on appeal de novo with no presumption of correctness from the trial
court below. Guiliano v. Cleo, Inc., 995 S.W.2d 88, 95 (Tenn.1999). “When resolving disputes
concerning contract interpretation, our task is to ascertain the intention of the parties based upon the
usual, natural, and ordinary meaning of the contractual language.” Id.

        It is undisputed that JPS drafted the Sales Incentive Plan at issue in this case. It is a well-
settled principle of contract interpretation that language used in a contract, where ambiguous, will
be construed most strongly against the party who has used it. Wilson v. Moore, 929 S.W.2d 367,
373 (Tenn. App. 1996). In addition, we must interpret the contract in a way that gives effect to every
term, so far as is reasonable, and avoids internal conflicts. Id.

                                                  -4-
       As noted above, because the contract provides no definition, we look for the natural and
ordinary meaning of the term “windfall.” The term originated in medieval England where
commoners could not chop down trees for fuel, but they were free to gather the timber blown down
by the wind, or “windfall.” It came to mean any unexpected piece of good luck. See Eric Kades,
Windfall, 108 Yale L. J.1489 (1999). Contemporary usage tends to emphasize the unearned or
undeserved nature of windfalls. Thus, Black’s Law Dictionary offers the definition, “An
unanticipated benefit, usu. in the form of a profit and not caused by the recipient.” Black’s 1594 (7th
ed. 1999).

       In this appeal, JPS reiterates the same arguments it made to the trial court. It maintains
steadfastly that Drake did not include Hollis Roofing on his 1997 list of potential customers. It does
not dispute, however, that when Drake’s 1997 list of customers was submitted, sales to Hollis
Roofing were required to be routed through McGaughey Lumber. Moreover, JPS does not even
attempt to feign surprise at Drake’s sales to Hollis, given its knowledge of his extensive sales efforts
and the fact that he was compensated for sales to Hollis, through McGaughey, in 1996.

        JPS also continues to argue that the windfall provision should be applied to sales which are
“unbudgeted and unforecast.” JPS , of course, had the opportunity to define the term “windfall” in
this manner in the 1997 Plan but failed to do so. The meaning of windfall argued by JPS plainly
conflicts with the provision, in the 1997 Plan and the prior Sales Incentive Plans, that provides for
a commission at an increased rate of 3.0% on net sales in excess of the annual sales quota. If indeed
the windfall provision applied to all sales which were “unbudgeted and unforecast,” no sales would
qualify for the 3.0% commission. JPS responds by arguing that “windfall” sales are only those that
far exceed the quota, while sales that exceed the quota by a small amount could earn the incentive
commission. This interpretation, however, appears to have nothing to do with the meaning of the
term “windfall” and everything to do with JPS’s reluctance to pay Drake the agreed-upon
commission rate for earning sales in excess of his quota. The natural and ordinary meaning of the
windfall provision is clearly the meaning ascribed to it by the trial court. Utilizing this interpretation,
the windfall provision has no application to the facts of this case. Therefore, we affirm the trial
court’s denial of JPS’s motion for summary judgment, and its grant of summary judgment in favor
of Drake.

       The decision of the trial court is affirmed, and all costs are assessed to the Appellant, JPS
Elastomerics Corp., for which execution may issue, if necessary.

                                                 __________________________________________
                                                 HOLLY M. KIRBY, J.

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