Contract – Breach – Sales Commissions – Attorney's Fees

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Where the appellant/respondent employee sought commissions for sales the respondent/appellant employer made to K-Mart during his tenure with the employer, the trial court improperly held that the employee was not entitled to receive a commission on orders booked before his employment ended but not shipped until afterward and that he was not entitled to attorney’s fees since: (1) the record contains no evidence to support the trial court’s finding that this is a “standard practice in the industry;” and (2) an award of attorney’s fees to the prevailing party is mandatory under S.C. Code Ann. Sect. 39-65-30 (Supp. 2001).

Affirmed in part, reversed in part, and remanded.

Background

The appellant/respondent Smith joined ABC Co. as a sales representative in either 1992 or 1993. Initially, he represented two accounts, Southern States and Wal-Mart stores. In September 1993, Smith contacted Joe Antonini, the president and chief executive officer of K-Mart Corporation. After a small test order in 1994 succeeded, Smith proceeded to sell approximately $5 million to $6 million of ABC’s merchandise to K-Mart in 1995. He received a commission of 3 percent of these sales from ABC.

After a dispute with ABC, Smith resigned in late 1996. He returned to the company in March or April 1997, on the condition that, among other things, he receive a 3 percent commission on all K-Mart sales. ABC made no sales to K-Mart in 1997. Smith, along with Mr. Watford, a son of ABC’s owner, met with K-Mart buyers in 1998 about resuming their business relationship. As a result, ABC received “some orders” for merchandise from K-Mart in 1998.

In the meantime, Smith was increasing his sales to Wal-Mart, and began spending more time on the account. Consequently, Watford increased his role in ABC’s sales relationship with K-Mart. Smith discovered in January 1999 that his commission on K-Mart orders had been reduced to 2 percent. No agreement had been made to reduce his commission from 3 percent. After Smith brought the change to ABC’s attention, Watford assured Smith he would receive the balance due to make his compensation equal to 3 percent of his sales to K-Mart. ABC also failed to pay Smith any commission on the Valentine’s Day 2000 sale to K-Mart, but not shipped until after ABC terminated Smith. Smith would have earned an $18,960.48 commission on that sale, based on a three percent rate of commission.

Following a non-jury trial in the Circuit Court, the trial court awarded Smith the commissions he sought, but only for orders delivered before ABC terminated him. Additionally, the trial court refused to award Smith attorney fees. Both parties appeal.

Discussion

In its order, the trial court stated: “It is standard practice in the industry to only pay commissions when goods are shipped as quite often orders are changed, sometimes cancelled and the transaction is effectively not completed until shipment. As a result, Smith’s claim on the Valentine’s Day 2000 order, being shipped after Smith left ABC would not be covered.” However, the record contains no evidence to support the trial court’s finding that this is a “standard practice in the industry.” In fact, the record indicates that ABC’s practice was just the opposite, since ABC undisputedly paid Smith commissions on Wal-Mart accounts for sales he made before he was terminated that were not delivered until after his termination.

Smith contends the use of the language “is liable” in S.C. Code Ann. Sect. 39-65-30 (Supp. 2001) makes the attorney’s fee provision of this statute mandatory, rather than within the trial court’s discretion. We agree. Here, the statute’s use of the term “is liable,” instead of “may be liable” reflects a mandate rather than an option. Thus, we find that the statute’s language providing “[A] principal who fails to comply with the provisions of Sect. 39-65-20 is liable to the sales representative in a civil action for attorney’s fees actually and reasonably incurred by the sales representative in the action and court costs” can only reasonably be construed to mandate an award of attorney fees where a violation of the statute is found. Accordingly, we find the Circuit Court erred in failing to award reasonable attorney’s fees and related costs pursuant to the statute, and remand for further proceedings to determine the amount of attorney’s fees and expenses to which Smith is entitled.

Sherman v. W & B Enterprises, Inc. (Lawyers Weekly No. 011-358-03) (8 pages) (Beatty, J.) (SCCOA) Appealed from the Orangeburg County Master-in-Equity, Olin D. Burgdorf, J.; Gerald F. Smith and James B. Richardson Jr. for appellant/respondent; Thomas B. Bryant III for respondent/appellant (No. 3701) (Nov. 24, 2003).