Sales representatives Photo: Luis Louro/Fotolia

A Texas-based manufacturer that breached a contract with a sales representative by failing to pay commissions on time, but later paid everything that was due, will still be on the hook for attorney fees, although it escaped the threat of treble damages.

In a ruling about damages and attorney fees under the Texas Sales Representative Act, the Texas Supreme Court on June 7 answered two certified questions from the U.S. Court of Appeals for the Fifth Circuit about the “timing standard” that courts should use to decide the existence and amount of unpaid commissions under the act’s treble damages provision. Another question was whether a plaintiff can recover attorney fees and costs even if it doesn’t receive a treble damages award, and if so, under what conditions.

The opinion in JBC v. The Horsburgh & Scott Co. explained that the plaintiff, JBC Inc., was a commissioned sales representative for the defendant, Horsburgh & Scott Co., which manufactures gears and gearboxes. They had a contract that JBC’s commissions were due on the 10th of the month after a customer paid Horsburgh for a commissionable order. They terminated the agreement, but Horsburgh agreed to still pay what it owed.

JBC sued and alleged that Horsburgh owed unpaid commissions of $280,000 that had not been paid by the due date in the parties’ contract, treble damages on the entire $280,000, and attorney fees under the Texas Sales Representative Act.

But at the point the suit was filed, Horsburgh had paid some of the amount, yet still owed between $77,000 and $90,000. While the case was pending, however, Horsburgh paid the remaining amounts and 5% interest, then moved for summary judgment, arguing the act only applies to unpaid commissions. The district court granted summary judgment for Horsburgh, and JBC appealed to the Fifth Circuit.

On appeal, JBC argued that treble damages applied to the full $280,000 that was unpaid at the moment Horsburgh breached the contract, while Horsburgh countered that treble damages didn’t apply at all because there was zero in unpaid commissions at the time of trial.

The court found that the statute didn’t answer the question of the point when treble damages started; it turned to the common law to interpret the act.

“The question for the factfinder is how much the defendant owes the plaintiff today. The question is typically not how much the defendant owed the plaintiff at some date in the past,” the opinion said. “If the unpaid commission is zero, there is nothing to recover because three times zero is zero.”

The court next turned to the question of whether JCB can recover attorney fees even though it didn’t get treble damages.

The law’s plain language makes it clear that a fee award is triggered by Horsburgh’s breach of the contract, not by the outcome of the case.

“The fees provision is textually and structurally independent of the treble-damages provision,” the court determined.

However, the law does say the attorney fees must be reasonable. The opinion noted that after JCB filed suit, Horsburgh paid off $90,000 in commissions. The fees to pursue that amount may be reasonable, but spending more to press for treble damages probably wasn’t reasonable.

“At that point the case should have been finished,” the court found, noting that the district court will ultimately decide that question.

JBC’s attorney, Rich Goldwasser, partner in Schoenberg, Finkel, Newman & Rosenberg in Chicago, didn’t immediately return a call seeking comment.

Scanes & Routh associate Tyler Talbert of Waco, who represented Horsburgh, said that the court’s interpretation of the treble damages provision applying only to unpaid commissions at the time of trial would help the Texas Sales Representative Act achieve what it’s meant to do: get manufacturers to pay their sales representatives quickly.

Read the opinion.