Tuesday, October 6, 2009
The Eighth Circuit decided a contracts issue last week in All-Ways Logistics, Inc. v. USA Truck, Inc., No. 08-1054 (Oct. 1, 2009). The District Court awarded All-Ways about $3 million in breach of contract damages on a commission agreement. The interesting issue was USA Truck’s argument that the District Court erred in failing to instruct the jury properly on its affirmative defense that All-Ways had waived the breach by continuing to accept benefits from the contract after discovery of the breach.
In 1999 the parties entered into an agreement under which USA Truck was to pay All-Ways a five percent commission on all freight that All-Ways solicited and USA Truck transported. In 2002, USA Truck informed All-Ways that it was terminating the agreement and that commissions would no longer be paid with respect to an account with Rheem Manufacturing, one of the largest accounts that USA Truck had gotten through All-Ways’ efforts. All-Ways complained, but the parties continued their relationship with respect to other accounts. In 2005, USA Truck began negotiating with the other large account it had gotten through All-Ways so that USA Truck could bypass All-Ways on that account as well. In August of 2005, USA Truck gave notice that it was terminating its commission agreement with All-Ways, and that termination became effective in October.
In May 2006, All-Ways brought suit seeking recovery under the commission agreement for commissions earned but not paid on freight solicited by All-Ways and shipped by USA Truck through October 2005. After a jury trial, All-Ways won a verdict in excess of $3 million, plus prejudgment interest and attorneys’ fees.
USA Truck contended that All-Ways had waived the breach by continuing to accept benefits under the agreement. The district court refused to instruct the jury on that affirmative defense, finding that it did not apply to the facts of the case. The Eighth Circuit found the question a close one, but found no abuse of discretion. The district court reasoned that the agreement between the parties was structured to give rise “to a separate and unilateral contract between the parties [with respect to each account] and that All-Ways’[s] performance as to one account did not entitle it to a commission on another, nor did USA’s breach by nonpayment as to one account create a cause of action for breach as to the others.”
USA Truck contended that the question of whether the commission agreement at issue was severable in this manner should have been submitted to the jury. However, the district court found – and the Court of Appeals agreed – that the severability of the agreement could in this case be established as a matter of law based on its clear and unambiguous terms.
In addition, the Eighth Circuit noted that there was no unambiguous waiver in this case because All-Ways had protested the termination of its commissions. Here the Eighth Circuit reasoning seems a bit shaky to me. The affirmative defense of acceptance of benefits exists because such acceptance is itself evidence of waiver. The Eighth Circuit distinguished cases establishing that proposition on the ground that those cases did not apply to severable contracts. Still, that leaves the court with one ground for its decision (the agreement was severable) and not two (severability and waiver).
Obsessive readers of the blog (and comments on the blog) might also note with interest that Arkansas law permits recovery of “reasonable attorneys fees” in contracts cases. The horrors! To make the Death of Contract theme even more apparent, in this case plaintiff’s attorneys sought recovery of a one-third contingency fee (which came to just over $1 million) when recovery by the lodestar method would have yielded just over $217,000. The Eighth Circuit found no abuse of discretion in the district court’s award of fees under Arkansas law.