The outcome of a lawsuit before a federal jury this week stands to set a precedent for channel contracts.
On Tuesday, Telecom Decision Makers Inc. (TDM), of Louisville, Ken., was slated to face off in court against Atlanta-based Birch Communications. The trial comes more than five years after TDM first filed suit against Birch, after Birch bought assets from Navigator Telecommunications LLC.
TDM contends that Birch owes it more than $5.5 million in back commissions because it should have honored TDM’s agreement with Navigator. Birch declined to comment for this article. In previous court proceedings, however, the company has argued it has no obligation to TDM, because it bought Navigator after Navigator terminated its agreement with TDM, and because of the way the Birch-Navigator purchase was structured.
But TDM’s case has made it this far because its contract with Navigator “was well-drafted,” wrote Gerald M. Newman, a partner in the law firm of Schoenberg, Finkel, Newman & Rosenberg LLC, who also serves as general counsel for the Electronic Representatives Association (ERA). “A lesser agreement could have yielded significantly different results,” Newman stated in the Fall 2013 issue of ERA’s “The Representor” newsletter.
Now a jury must decide whether Birch indeed assumed obligation to pay TDM recurring commissions when taking over certain Navigator phone lines and customers in 2008. Birch has made almost 20 acquisitions since 2005 and constructed those deals as asset purchases. Unlike mergers and stock transactions, asset agreements do not include the assumption of liabilities, which contracts are considered to be.
And yet, as Newman noted, TDM wrote its Navigator contract such that if Navigator filed for bankruptcy, reorganized or sold, TDM’s commissions would be protected because the contract would be automatically assigned to the buyer. Conversely, Birch had the option to buy out TDM’s contract, which TDM says Birch chose not to do.
This week’s trial is set to last three or four days, said Robert Bowling, president of TDM.
“We’re hoping for a judgment that says the contract was automatically assigned when [Navigator’s] assets were purchased by Birch,” Bowling said. “As long as Birch is receiving revenue, then we are entitled to commission,” he added.
If TDM wins, it may be able to collect the money it has lost out on for more than five years. TDM says it has missed out on 62 months’ worth of commission payments on customers it sold and that Birch continues to service, including Texas Roadhouse and Samuel Jewelers. The combined commissions at stake “were in excess of $90,000 a month,” said Bowling.
But a verdict in TDM’s favor also would bode well for indirect partners, Bowling said.
“We’re hoping … that court-tested words will be established so that our fellow agents will be able to know the words that need to be in the contract.”
“Ultimately,” Bowling said, “we think that words in a contract do matter and that carriers ought to abide by those words.”