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Monday, September 19, 2011

Eighth Circuit Rules on Exclusive Sales Representative Agreement

Last week, the Eighth Circuit issued its opinion in Semi-Materials Co., Ltd. v. MEMC Electronic Materials, Inc.  The case arose as a result of a series of International Sales Representation Agreements (the Agreements) through which Semi-Materials, Inc. (Semi-Materials) was to serve as the exclusive sales representative in South Korea and China for MEMC Electronic Materials (MEMC), a manufacturer of certain gaseous raw materials used in semiconductors chips and solar cells.

The key clause in the Agreements at issue in the case is as follows:

The compensation paid to [Semi-Materials] by [MEMC] will be a percentage of the NET SALES PRICE of PRODUCTS that are purchased from [MEMC] by the user of the PRODUCTS and delivered by [MEMC] to a site within the TERRITORY. The compensation percentage rates are listed in Appendix A.

8th Circuit The Agreements authorized Semi-Materials to "solicit and promote but not consummate sales" of MEMC's products in China and South Korea.  MEMC's sales to end users took place through several different mechanisms, not all of which involved Semi-Materials.  Two such mechanisms were "ex works" and "free carrier" sales.  The former involved MEMC's satisfaction of the end-user's delivery requirements by simply placing the goods at the disposal of the buyer, either at MEMC's factory or at some other location.  The latter involved MEMC's provision of the goods, cleared for export to a carrier selected by the buyer.  MEMC did not pay sales commissions to Semi-Materials for goods provided to the Chinese and South Korean markets through these mechanisms. It claimed that it had no obligation to do so because the risk of loss transferred to the buyer before the product entered China or South Korea and that consequently the products were not "delivered by [MEMC] to a site within the TERRITORY" as required under the Agreements.  The trail court bought this argument and granted MEMC partial summary judgment.  But after trial, the jury awarded Semi-Materials over $200,000 in damages on its remaining claims.

Semi-Materials appealed the partial summary judgment in favor of MEMC, and the latter cross appealed, challenging the trial court's denial of its motion for a judgment as a matter of law on Semi-Material's remaining claims.  In reversing the trial court's grant of partial summary judgment to MEMC, the Eighth Circuit determined that the "delivered by" language in the Agreements was in fact subject to more than one reasonable interpretation.  Moreover, the Eight Circuit noted, "if MEMC’s interpretation of the Agreements prevails, the overall effect of the Agreements would be lost because MEMC could avoid ever paying a commission by simply shipping the goods using 'ex works' or 'free carrier' terms."  Giving effect to MEMC's understanding of the Agreements would thus render the "delivered by" language ineffective, and courts generally attempt to construe contracts so as to give at least some effect to every clause.  

The Eighth Circuit rejected MEMC's cross-appeal of the trial court's denial of its motion for judgment as a matter of law.  MEMC's main argument in its motion was that its global sales manager did not have authority to enter into the Agreements with Semi-Materials.  The Eighth Circuit found that there was ample evidence in the record to support the jury's conclusion that the MEMC's sales manager had (at the very least) apparent authority to enter into the Agreements on behalf of Semi-Materials.

[JT]

 

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