Case Name: Craig Young v. Peerless Products, Inc., et al.
Case No.: 16CV297404

This is an action brought by Plaintiff Craig Young dba Quixsilver Systems (“Plaintiff”) an independent sales representative seeking to recover unpaid sales commissions he maintains he is entitled to under a written contract (a “Sales Rep Agreement”) between himself and Defendant Peerless Products, Inc. (“Peerless”) a manufacturer of architectural windows and doors incorporated in Missouri doing business in California. Plaintiff alleges that he and Peerless entered into the contract on or about October 6, 2011 whereby he “acquired the right to sell Peerless products in his exclusive territory and Area of Responsibility defined as ‘Northern California Zip Code Prefixes = 939-961,’ a territory that includes northern California including Santa Clara County.” (Complaint at ¶ 7.) He further alleges that on January 5, 2015 he was verbally informed over the telephone that his contract was being terminated and a subsequent letter stated that he would forfeit commissions for any projects not released for production by January 15. Plaintiff alleges that this “wrongfully threatened a forfeiture of commissions not ‘released in production’ within 60 days in breach of the Sales Rep Agreement that has no such provision or limitation on commissions.” (Complaint at ¶ 16.) Plaintiff contends that Peerless has refused to pay his sales commissions on five construction projects (“8th and Harrison, “801 Bannon,” “1 Henry Adams,’ “388 Fulton,” and “360 Berry”) in violation of the Contract and the Act. (Complaint at ¶ 32.)

The original and still operative Complaint filed in this Court on July 8 2016 alleges seven causes of action: 1) Violation of the Independent Wholesale Sales Representatives Contractual Relations Act (Civil Code § 1738.10 et seq., “Act”); 2) Breach of Contract (the Sales Rep Agreement); 3) Common Count; 4) Declaratory Relief; 5) Unfair Business Practices; 6) Intentional Interference with Contract, and; 7) Intentional Interference with Prospective Economic Advantage. Currently before the Court is Peerless’ motion for summary adjudication of the first cause of action only.

The pleadings limit the issues presented for summary judgment or adjudication and such a motion may not be granted or denied based on issues not raised by the pleadings. (See Government Employees Ins. Co. v. Sup. Ct. (2000) 79 Cal.App.4th 95, 98; Laabs v. City of Victorville (2008) 163 Cal.App.4th 1242, 1258; Nieto v. Blue Shield of Calif. Life & Health Ins. (2010) 181 Cal.App.4th 60, 73 [“the pleadings determine the scope of relevant issues on a summary judgment motion.”].)

The moving party bears the initial burden of production to make a prima facie showing that there are no triable issues of material fact. (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 850.) A motion for summary adjudication shall be granted only if it completely disposes of a cause of action, an affirmative defense, a claim for damages, or an issue of duty. (See CCP §437c(f)(1); McClasky v. California State Auto. Ass’n (2010) 189 Cal.App.4th 947, 975 [“If a cause of action is not shown to be barred in its entirety, no order for summary judgment—or adjudication—can be entered.”]; Palm Spring Villas II Homeowners Association, Inc. v. Parth (2016) 248 Cal.App.4th 268, 288.) Summary adjudication of general “issues” or of facts is not permitted. (See Raghavan v. The Boeing Company (2005) 133 Cal.App.4th 1120, 1136.) A ruling on a motion for summary adjudication is not appealable. (See Transport Ins. Co. v. TIG Ins. Co. (2012) 202 Cal.App.4th 984, 1010-1011 [order granting or denying summary adjudication is reviewable only by writ of mandamus].)

The moving party’s declarations and evidence will be strictly construed in determining whether they negate or disprove an essential element of a claim “in order to resolve any evidentiary doubts or ambiguities in plaintiff’s (or opposing party’s) favor.” (Johnson v. American Standard, Inc. (2008) 43 Cal.4th 56, 64, parentheses added.) While the same standards of admissibility govern both, the opposition declarations are liberally construed while the moving party’s evidence is strictly scrutinized. (Saelzler v. Advanced Group 400 (2001) 25 Cal.4th 763, 768.) The evidence must be liberally construed in support of the opposing party, resolving any doubts in favor of that party. (Yanowitz v. L’Oreal USA, Inc. (2005) 36 Cal.4th 1028, 1037.) The moving party may generally not rely on additional evidence filed with its Reply papers. (See Jay v. Mahaffey (2013) 218 Cal.App.4th 1522, 1537-38 [“The general rule of motion practice . . . is that new evidence is not permitted with reply papers. This principle is most prominent in the context of summary judgment motions . . .”]; see also Nazir v. United Airlines, Inc. (2009) 178 Cal.App.4th 243, 252.)

Peerless asserts that the first cause of action “has no merit” because Plaintiff cannot qualify for protection under the Act as “all of Young’s alleged customers were responsible for sales tax on the products they ordered from Young.” (Notice of Motion at 1:21-23.) Peerless’ motion for summary adjudication of the first cause of action is DENIED for failure to meet the initial burden as follows.

The motion turns on an issue of statutory interpretation, a question of law for the Court. The outcome here is largely governed by the Fourth District’s published decision in Reilly v. Inquest Technology, Inc. (2013) 218 Cal.App.4th 536 (“Reilly”), particularly its definition of the term “ultimate consumer” as used in the Act. Unless and until another California Court of Appeal issues a published decision using a different definition of this term or adopting an otherwise conflicting interpretation, the Reilly court’s definition is binding on all California superior courts. (See Auto Equity Sales, Inc. v. Superior Court (1962) 57 Cal.2d 450, 455.)

The Reilly Court explained that the Act “was created to protect sales representatives who receive commissions from, but are not employed by, a manufacturer. (Civ. Code, § 1738.10 et seq.) The Act requires manufacturers to enter into written contracts with their sales representatives to provide ‘security and clarify the contractual relations’ between the parties. (§ 1738.10.)” (Reilly, 218 Cal.App.4th at p. 540.)

As the Reilly Court noted:
The Legislature enacted this statutory scheme based on its determination “independent wholesale sales representatives are a key ingredient to the California economy” and there was a need to provide “wholesale sales representatives [who] spend many hours developing their territory in order to properly market their products” with “unique protection from unjust termination of the territorial market areas.” (§ 1738.10.) The Legislature expressed it was its intent “in enacting this act to provide security and clarify the contractual relations between manufacturers and their nonemployee sales representatives.” (Ibid.) A manufacturer found to be in violation of either of these terms of the Act “shall be liable to the sales representative in a civil action for treble the damages proved at trial.” (§ 1738.15.)

To ensure the necessary clarity in contractual relations, the statutory scheme provides that whenever a manufacturer is engaged in a business deal with a wholesale sales representative who is not an employee, there is a duty to enter a written contract containing information relating to how commissions will be calculated and details regarding the assigned territory. (§ 1738.13, subd. (b)(1)-(5).) In addition, the manufacturer has a duty to provide documentation when it makes commission payments, such as an accounting of the orders and how the commission was calculated. (Ibid.)

In short, the Act was intended to protect independent contractors who facilitate the relationship between manufacturers and buyers of wholesale products. For Reilly to prevail on his summary adjudication motion seeking application of the Act’s protections, he needed to prove (1) Reilly was a wholesale sales representative protected by the Act, and (2) Inquest was a manufacturer producing a wholesale product falling within the meaning of the Act. . . .

The statutory definition also contains two factors limiting the scope of sales representatives covered by the Act: The wholesale sales representative must (1) not place orders for his own account for resale nor (2) sell or take orders from “the ultimate consumer.” (§ 1738.12, subd. (e).)

We recognize the phrase “ultimate consumer” is not specifically defined in the Act and the parties dispute its meaning. Basic rules of statutory construction say we “ ‘must select the construction that comports most closely with the apparent intent of the Legislature, with a view to promoting rather than defeating the general purpose of the statute, and avoid an interpretation that would lead to absurd consequences.’ ” (Wilcox v. Birtwhistle (1999) 21 Cal.4th 973, 977–978, 90 Cal.Rptr.2d 260, 987 P.2d 727 (Wilcox ).) The stated purpose of the Act is to protect independent contractors working to sell a manufacturer’s wholesale products to a buyer, who cannot be the “ultimate consumer.” Thus, clearly not all salespeople are sheltered by the Act. The Legislature intended to safeguard only nonemployee “middle-men” sales representatives dealing with wholesale goods.

“Wholesale” means “the sale of commodities in quantity usually for resale (as by a retail merchant).” (Merriam–Webster Online Dict. < http://www.merriam-webster.com/dictionary/wholesale> [as of July 31, 2013].) Wholesale is generally understood to be the opposite of “retail” which is “to sell in small quantities directly to the ultimate consumer.” (Merriam–Webster Online Dict. < http://www.merriam-webster.com/dictionary/retail> [as of July 31, 2013].) Stated another way, typically a wholesale manufacturer does not sell large quantities directly to the “consumer,” i.e., the “one that utilizes economic goods.” (Merriam–Webster Online Dict. < http://www.merriam-webster.com/dictionary/consumer> [as of July 31, 2013].) Accordingly, the Act’s use of the term “ultimate consumer” recognizes wholesale sales representatives do not sell small quantities to the persons utilizing the goods but rather sell commodities in a quantity appropriate for resale by a retail store or other larger scale middleman buyer.

Recognizing this distinction between wholesale and retail, the Legislature designed the Act to specifically exclude from coverage salespersons and retailers purchasing manufactured wholesale products for themselves to later resell to the public (the ultimate consumer) for a profit. To achieve this stated goal, the Legislature expressly excluded a salesperson who “places orders or purchases exclusively for his own account for resale” or who sells or takes orders from “the ultimate consumer.” (§ 1738.12, subd. (e).)

(Reilly, supra, 218 Cal.App.4th at pp. 545-547, emphasis added.)

The Reilly Court thus defined “ultimate consumer” as the end-user of the finished product, who would normally have no reason to make bulk or wholesale purchases of a commodity from a “middle-man” sales representative or to resell such a commodity to a different end-user of the product. Based on this interpretation the Court affirmed the grant of summary adjudication, noting that there was no evidence the plaintiff sold to or took orders from the “ultimate consumer” as defined by the Court: “To the contrary, Reilly solicited business from Triconex, a manufacturer who used [Defendant/Appellant] Inquest’s parts to make other products. Inquest admitted its electronic parts were not intended to be sold to members of the public; rather, they are ‘intended to be incorporated into other products that are then sold to end-users.’ We conclude the evidence established as a matter of law Reilly was a wholesale sales representative as defined by the Act.” (Reilly, supra, at p. 547.).

Here the customers Plaintiff took orders from for Peerless’ products during the term of his contract, customers whom Peerless itself describes as “glazing subcontractors and various general contractors” cannot reasonably be described as “ultimate consumers,” the persons “utilizing” the completed goods. Similar to the purchaser in Reilly (a manufacturer who combined the defendant/appellant’s goods purchased through the plaintiff with other goods to produce a completed product that would then be sold to the end user) these glazing subcontractors and contractors (together with other tradespeople) combined Peerless’ products with other products to produce the true final product—completed buildings—that were later purchased and utilized by the true “ultimate consumer,” the owners/and or residents of the completed structure. Whether (because of entirely different policy considerations dealt with in other statutes) the customer in Reilly did not pay sales tax on the goods purchased made no apparent difference to the Court of Appeal’s determination that the customer was not an “ultimate consumer” under the Act and it makes no difference here applying Reilly’s interpretation of the statute to the facts of this case.

Even if the Court were not required to apply the Reilly Court’s definition of “ultimate consumer,” and the analysis of that statutory term were a question of first impression, the motion for summary adjudication would still be denied. Peerless’ argument that it is necessary to import an analytic framework from the Revenue and Taxation Code in order to adequately define and apply the term “ultimate consumer” in the Act is entirely unpersuasive (and is refuted by the Reilly decision itself). Even assuming for purposes of argument it were found necessary to import terminology from another statute in order to interpret the term “ultimate consumer” as used in the Act—which Peerless has not established—Peerless has failed to offer any persuasive explanation why Revenue and Taxation Code provisions and regulations related to sales tax would be a logical choice that would be consistent with and further the purpose of the Act set forth in Civil Code § 1738.10 (to provide independent wholesale sales representatives “unique protection from unjust termination of the territorial market areas.”)