Your client is a California corporation. It sells products manufactured in France to other wholesalers doing business in California, Nevada, Washington and Oregon. Your client has been operating under a unsigned Distribution Contract (DC) for several years. In the last 30 days, your client received a letter from the manufacturer terminating the DC. The termination letter states no commissions are due. Your client claims over $79,000 is owed for unpaid commissions and thinks other commissions were not calculated properly when each order was filled. You are presented with email exchanges outlining territory, commission rates, charge backs on orders and payments received.
The client asks: Can we sue for an accounting of the commissions that we are owed, damages and our attorney fees and costs?
You respond: I need to review all the communications including the emails, letters and DC to see if California’s Independent Wholesalers Representative Law (IWR), Civil Code section 1738.10, et seq. applies to your case.
You review the statutory elements to allege a cause of action under the IWR to recover damages, treble damages and attorney fees. You document the following in a prelitigation analysis for your client:
1. The manufacturer failed to sign and deliver the DC to your client.
2. The manufacturer refused to sign the DC after receiving a request from your client thatis documented in an email.
3. Each commission payment did not contain a breakdown of each invoice, each order and a separate calculation of each commission.
4. The client did not buy the product for its own account.
5. The client did not sell the products directly to California consumers.
6. The client understands that sales in Nevada, Washington and Oregon may be covered by the IWR.
7. The client’s accountant verifies that the business records maintained in accordance with generally accepted standards will support the claim for commissions not paid and damages.
8. You reviewed common law causes of action to include in the complaint and identified causes of action that may trigger a duty to defend under the manufacturer’s GL, D&O and EPLI coverage.
9. You investigated the defendant’s ability to pay a judgment and any enforcement of judgment issues.
10. You reviewed the sales agent laws of Washington and Oregon to see if they provide additional relief to your client.
Reilly v. Inquest Technology, Inc. (2013) 281Cal.App.4th 536, 545-551.
The IWR was created to protect sales representatives who receive commissions from, but who are not employed by, a manufacturer. (Civ. Code, §1738.10.)
The IWR requires the manufacturer to enter into a written contract with their sales representative to provide for security and clarify the contractual relations between the parties. (Civ. Code, §1738.10.)
A manufacturer found to be in willful violation of the IWR shall be liable to the sales representative in a civil action for treble damages proved at trial. (Civ. Code, §1738.15.)
The prevailing party shall be entitled to reasonable attorneys fees and costs in addition to any other recovery. (Civ. Code,§1738.16.)
A manufacturer who is not a resident of California, and who enters into a contract regulated by the IWR, is deemed to be doing business in California for purposes of personal jurisdiction. (Civ. Code, §1738.145.)
Any provision waiving compliance with IWR is deemed void as against public policy. (Civ. Code, §1738.13, subd. (e).)
Baker v. American Horticulture Supply, Inc. (2010) 186 Cal.App.4th 1059,1073.
The definition of manufacturer must be read in the context of the entire statute, created to protect nonemployee wholesale sales representatives who are not selling to the ultimate consumer.
“Willfulness” is not a prerequisite to prevailing under the Act but it is an element required for an award of treble damages. (Id. at p. 1072.)
David Laufer is the former VP and GC of a public company. He practices at Laufer Specialty I-Risk LLC, where he provides risk management and insurance consulting services to businesses, professionals, insurance brokers and litigants.