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Reilly v. Inquest Technology, Inc.

California Court of Appeals, Fourth District, Third Division

July 31, 2013

PETER REILLY, Plaintiff and Respondent,
v.
INQUEST TECHNOLOGY, INC., et al., Defendants and Appellants.

Appeal from a judgment of the Superior Court of Orange County, No. 30-2009-00333233 Frederick Paul Horn, Judge.

Gordee, Nowicki & Augustini and Bryan Arnold for Defendants and Appellants.

Law Office of Anthony Kornarens and Anthony Kornarens for Plaintiff and Respondent.

OPINION

O’LEARY, P. J.

The Independent Wholesale Sales Representatives Contractual Relations Act of 1990 (the Act) was created to protect sales representatives who receive commissions from, but are not employed by, a manufacturer. (Civ. Code, § 1738.10 et seq.)[1] The Act requires manufacturers to enter into written contracts with their sales representatives to provide “security and clarify the contractual relations” between the parties. (§ 1738.10.) In this case, Peter Reilly agreed to use his experience and connections in the high-tech electronic industry to help grow Inquest Technology, Inc. (Inquest), owned by David Singhal and Pradeep Sethia (referred collectively and in the singular as Inquest, unless the context indicates otherwise). Reilly prepared a written document outlining his business relationship with Inquest, which included his understanding he would receive 50 percent of the net profits from all sales resulting from his efforts and contacts. The parties did not execute this document as a written contract, but the jury ultimately determined Inquest accepted the terms due to Inquest’s owners’ conduct.

The jury entered a general verdict in favor of Reilly, awarding him $2, 065, 702 for owed commissions. It also determined, by a special findings verdict, that Inquest, Singhal, and Sethia 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 awarded Reilly treble damages. On appeal, Inquest maintains the court erroneously concluded the Act applied and there was insufficient evidence to support the jury’s verdict and damage award. We find these arguments lack merit, and we affirm the judgment.

I

Over the course of his career, Reilly worked for several technology businesses and gained experience in electronics and industrial manufacturing and operations. In 1990, Triconex hired Reilly as vice president of operations and vice president of manufacturing. Triconex manufactures safety and control systems for oil, gas, chemical, and nuclear industries. Triconex is a division of Invensys, a world-wide technology manufacturer.

At the time, Singhal and Sethia jointly owned a different company called American Imex, and they supplied printed wiring boards made in India. One of their customers was Cal Quality, who resold parts to Triconex. However, Triconex did not buy circuit boards directly from American Imex.

In 1999, Reilly retired from his position at Triconex. During his employment, Reilly claimed to have developed “extensive contacts” in the industry. That same year, Singhal and Sethia converted American Imex into a corporation called Inquest, to sell electronic parts and components manufactured in China rather than India. The parts included printed wiring boards, spines (sheet metal used to enclose electronic equipment), and chassis (a cabinet used to hold spines).

Reilly and Singhal were long-time friends, and they discussed having Reilly help them expand their business. Reilly offered to provide Inquest with his expertise and contacts in the industry to help bring in business, including his well-established connection with his former employer Triconex/Invensys. The parties understood Inquest would have to satisfy certain requirements before being approved as a Triconex vendor, and after that, sales with Triconex would grow.

In September 2003, Reilly put in writing the terms of the parties’ verbal agreements and negotiations. The document stated, in relevant part, the following pact:

“It is agreed that [Reilly’s] extensive experience in the electronics and [i]ndustrial manufacturing segments together with his contacts in the industry could be beneficial in helping to grow the business of [Singhal and Sethia] (namely Inquest...).

“It is also agreed that [Singhal and Sethia] have put together a very useful and sound company (Inquest...), which is poised for expansion based on utilization of the low cost manufacturing opportunities presently available in China and other Asian countries. [Singhal and Sethia] have established many useful contacts in this arena and are presently trading with those contacts on an ongoing basis.

“In [Reilly’s] opinion it is essential[] for a company that is extolling the benefits of global manufacturing capabilities, to have an ‘Internet International Presence[.’] Therefore, one of his first tasks will be to establish a website for the company. As this will be a company asset, [Singhal, Sethia, and Reilly] will establish a reasonable cost for this that the company can afford.

“[Singhal, Sethia, and Reilly] desire that the skills and capabilities of each of themselves be applied to growing the business.... [¶]... As many things could change over the next twelve months it is decided not to change the structure of the company at this time. [Reilly] will be employed by the company and given the title of ‘Vice President of Business Development[.’] He [will] be remunerated on a commission only basis as agreed to in this document in paragraphs 7 and 10.”

The two paragraphs describing the payment of commissions provided as follows: Paragraph 7 stated, “It is agreed that any jobs, orders or contacts that [Reilly] brings to the company that result in orders being placed with the company or [Singhal’s or Sethia’s] entities, then the profits from these activities will be shared equally with [Reilly]. That means that the company or entity [will] get 50 [percent] of the profit before [t]ax and [Reilly will] get 50 [percent] of the profit before [t]ax. Each entity will be responsible for [its] own tax liabilities.”

And paragraph 10 provided, “It is agreed that any inquiry or order placed with company through the website or from information on the website, the profits from these projects will be shared 60 [percent] for the company and 40 [percent] to [Reilly], unless it is from an existing customer that has been identified by [Singhal or Sethia] prior to the inquiry, to be outside this agreement.”

In addition, the parties agreed Reilly would be given a desk and telephone at the Inquest office. Reilly agreed to provide his own computer that would be linked to the “Internet and [Singhal and Sethia].” The agreement stated that to assure fairness, the costs involved in producing the products must be disclosed, and freight costs incurred by the company would be considered to project expenses added to the “cost of the project before profits are calculated.”

The agreement ended with the following statements: (1) “These activities will start as soon as [the parties] are in agreement. Each person will be responsible for his own allocation of time to this project[;]” and (2) “A discussion needs to take place regarding what happens if the company becomes very successful as a result of [Reilly’s] activities. This discussion will determine how [Reilly] can be adequately rewarded if such an event occurs.”

The parties disputed whether the terms of the agreement were accepted. Reilly asserted that based on his discussions with Singhal and Sethia, he drafted the document so the parties could have further discussions about it and determine if they were in agreement. He met with Singhal and Sethia, he provided them with a copy of the document, and he read every paragraph out loud. After reading each paragraph he would pause and ask, “Okay?” He recalled neither Singhal nor Sethia asked questions or objected to his statements. After reading the entire document to Singhal and Sethia, Reilly asked, “Are we all agreed?” and both parties stated, “Yes, ” and shook hands.

On the other hand, Singhal and Sethia asserted they did not agree to the terms Reilly presented. Singhal recalled he believed the “50/50” split of profits was too much and he told Reilly he would have to perform before the company committed to the terms. Sethia asserted he was not present at the meeting and did not see the document until many years later (in 2009).

After the meeting, Reilly began working on getting Inquest some customers such as Triconex. In May 2004, he obtained vendor approval from Triconex. He also secured two orders: (1) $90, 536 for blanks and spines; and (2) $12, 500 for tooling of the spines.

Inquest paid Reilly a series of “advances” in increments of $1, 000 and $1, 500 checks. Inquest advised Reilly they were not able to provide him an accounting.

In August 2004, Triconex/Invensys began using an online bidding system to acquire spines. Reilly submitted a bid on behalf of Inquest, but it was not successful. A few months later, Reilly moved to Visalia where he began working for a different company. Reilly stated he did not seek any other purchase orders for Inquest, stating it was not his job.

Inquest did not receive any more orders from Triconex for approximately one year. However in June 2005, Triconex asked Inquest to bid on five printed circuit boards. In March 2006, Inquest sent Reilly an e-mail, formally ending their relationship (and backdating the date of termination to July 1, 2005).

In December 2006, Singhal and Sethia finally provided Reilly with an accounting of the amounts Inquest owed him. They paid him $5, 348.48 and wrote on the memo line of the check, “FINAL SETTLEMENT.” This sum brought Reilly’s total commission to $14, 348.48.

Reilly believed this was not a final payment and repeatedly asked for an accounting and commissions owed on later profits due to Inquest’s ongoing sales with Triconex and Reilly’s other contacts. For the next two years, Reilly unsuccessfully tried to meet with Singhal and Sethia, and he also e-mailed Singhal to ask for more money. In ...


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