Appeals from Montgomery Circuit Court. (CV-92-561). Charles Price, Trial Judge
Rehearing Overruled April 7, 1995,
Almon, Shores, Kennedy, Ingram, and Cook, JJ., concur. Maddox and Houston, JJ., Dissent. Hornsby, C. J., recused.
The opinion of the court was delivered by: Almon
Duck Head Apparel Company, Inc., appeals from a judgment awarding damages against it on the plaintiffs' claims alleging breach of contract, fraud, and suppression. The plaintiffs, Ken Hoots, Terry Long, and Bill Pace, are former sales representatives for Duck Head. The allegations of wrongful conduct concern Duck Head's failure to pay sales commissions to the plaintiffs. The plaintiffs presented substantial evidence that Duck Head's officers and managerial employees, through various improper actions, avoided paying substantial commissions owed to the plaintiffs, while fraudulently representing that the commissions would be paid and suppressing activities undertaken to make it appear that the commissions were not due and owing. The principal issues are whether the circuit court erred in ordering no larger a remittitur of punitive damages than it ordered or in denying the motion for remittitur as to the mental anguish damages awarded on the counts alleging fraudulent misrepresentation and suppression. Duck Head also argues that the court erred in excluding evidence at the hearing held pursuant to Hammond v. City of Gadsden, 493 So. 2d 1374 (Ala. 1986); that the plaintiffs presented insufficient evidence of reliance on the alleged suppression; that there was insufficient evidence of the amount of damage under the contract claim; and that the court erred in refusing to dismiss the claim under Ala. Code 1975, § 8-24-1 et seq.
The plaintiffs cross appeal, arguing that the circuit court erred in sealing the record, in amending its Hammond order, and in ordering a partial remittitur of the punitive damages.
Duck Head Apparel Company, Inc., is the successor to O'Brien Brothers, Inc., as owner of a trademarked line of apparel bearing a duck head as trademark. Ken Hoots began working for O'Brien Brothers in 1983 as an independent sales representative for the territory of Alabama, Georgia, and Florida. Hoots began developing the territory, paying his own expenses and earning a five per cent commission on his sales. He testified that the first year he worked he sold less than $1,000,000 in goods, earning about $50,000 in commissions but incurring expenses of $20,000-$30,000. Hoots had substantial increases in sales each year, and he testified that these increases came "by hard work." In 1984, with the approval of O'Brien Brothers, he hired Terry Long to work as a Duck Head sales representative in Georgia. In 1986, Hoots and Long lost Florida from their territory, except that Hoots retained Stein Mart stores, which ordered through the company's headquarters in Jacksonville, Florida. Hoots testified that he kept the Stein Mart account because he had opened it and had increased the number of Stein Mart stores selling Duck Head clothing from 5 to 47.
Initially, O'Brien Brothers marketed a limited line of Duck Head clothing. Hoots testified that he suggested to David Baseheart, the sales manager for O'Brien Brothers, that the company add some colorful items:
"For example, the basic pant that started to become popular with the young people, we only did it in khaki, navy, and olive. I went to Dave Baseheart one day and told him we needed some more things to sell; that I had a suggestion that we, rather than do the basic colors, put a little flare to it. Let's do it for spring. For example, do a canary, a taupe, and a light blue. Dave suggested that we maybe couldn't do that because we had a smaller warehouse in Nashville and he said we just can't stock all of this merchandise. I said, well, Dave, we don't have to stock it; just stock the basic items. We will take these new colors; you make up some samples, and we will go out and book it and ship it and forget it; then we will do three more colors next season. So we did, and it was very successful. From there we started adding colors to the shorts, and then we began to add tops, both knit and woven."
Hoots also testified that he changed the practice of marketing of Duck Head clothing from small country stores by establishing accounts with major department stores such as Gayfers, Parisian, Rich's, and Macy's. Hoots's sales increased dramatically every year--$984,000 in 1984, $2,114,000 in 1985, $3,468,000 in 1986, $4,405,000 in 1987, $5,679,000 in 1988, $7,619,000 in 1989, $9,950,000 in 1990, and $17,010,000 in 1991. Sales from Alabama and Georgia constituted a substantial portion, apparently more than a third, of the sales of Duck Head clothing throughout this period. Bill Pace started selling Duck Head clothing in January 1991 in an arrangement similar to Long's arrangement with Hoots. Hoots did business under the name Hoots & Associates, with Long's and Pace's sales credited to Hoots's account and with Hoots paying Long and Pace from the commission checks he received.
In December 1988 Delta Woodside Industries, Inc., bought O'Brien Brothers, Inc. Delta Woodside formed Duck Head Apparel, Inc., as a subsidiary corporation and marketed the Duck Head clothing through that corporation. In 1989, Danny Stanton was made president of Duck Head Apparel. *fn1 In September 1990, Mark Schwarb came to work for Duck Head and was made vice president for sales and marketing in early 1991. In April 1991, Schwarb sent a letter to the sales representatives informing them that the commissions would be reduced from 5% to 4 or 3%, depending on the account. Sales to new specialty stores were allowed higher commissions, but Hoots and Long testified that the market was so saturated in their territory that this provision meant little to them. All orders received by Duck Head by May 1 were to receive the old 5% commission rate, but problems arose with orders being incorrectly credited at the new rates.
In August, Schwarb told Hoots that he would not receive credit for Stein Mart orders after August 20, because Stein Mart was being made a "house account" that did not pay commissions. Also in the spring and summer of 1991 problems arose with commissions on orders from J. C. Penney stores that were transmitted electronically by the stores. The salesmen complained that they were not receiving commissions on these orders, and they testified that when they told this to the Duck Head managers and officers, the response was "we'll look into it," but that the commissions were never paid.
On November 1 or 2, 1991, a sales meeting took place in which Schwarb and Stanton informed each representative individually that Duck Head Apparel would no longer pay commissions to independent sales representatives, but would hire employee sales representatives, paying a salary plus a certain amount for expenses and a 1/2% commission. This offer was memorialized in a memorandum from Mark Schwarb on November 5, which stated the following:
"In the event that a sales representative resigns prior to June 28, 1992, commissions at the current schedule will be paid on all orders booked prior to resignation and shipped through June 28, 1992. Orders booked prior to resignation and shipped after June 28, 1992, will be paid at 1/2 percent of net sales amount."
This representation was important to the salesmen, because the orders were booked a season in advance; in the fall of 1991, the salesmen were booking orders for shipment in the spring of 1992. The compensation offered to Hoots, Long, and Pace constituted a substantial pay cut, and they unanimously decided to terminate the relationship rather than become salaried employees. Their resignations had an effective date of November 30, and they continued to book orders until then. At trial, each of the three testified that he decided to quit immediately, rather than working through the end of June and monitoring the shipments to make sure he received proper credit, and that in deciding to do this, he relied on the representation that they would be paid commissions at the existing rates.
There was evidence that by November 1991 Duck Head had already begun tampering with orders submitted by Hoots, Long, and Pace to prevent them from receiving the commissions they were due. Stacey Shipley and Stacy Kitchens worked in the customer service department at Duck Head and were responsible for the accounts served by Hoots, Long, and Pace. They received orders from the sales representatives and entered the information into Duck Head's computers. They both testified that they began noticing on their computer screens orders that had been submitted by Hoots, Long, and Pace but that were shown as credited to a "house account," which paid no commission, or to a "resignation account" for Hoots & Associates, which paid no commission. Shipley testified that she began noticing this before Hoots, Long, and Pace had resigned. Later, they also noticed that commissions for Hoots & Associates' orders were credited on some computer entries to other salesmen who came to work after Hoots, Long, and Pace resigned. Both Shipley and Kitchens testified that they ultimately noticed "hundreds" of such questionable alterations of orders.
Shipley testified that she told her supervisor, Suzanne Barckow, and asked her why the changes had been made, but Shipley said, "She told me that was not my job; I had a job to do, and I was not to worry about that." She also told another supervisor, Sandy Campus, and was told "It was none of my business." Finally, she told the manager of customer service, Ken Grindle, who gave her the same response, "That was not my job, to worry about them." She said that she felt as if it was her job, because, she said, her job was to help the salesmen place orders and help the customers receive orders. She talked to Hoots about it, and he was unaware of the changes being made, so she started sending printouts to Hoots. After she had sent several such printouts, one was intercepted by Mat Einsmann, the new manager of customer service, who sent it to Schwarb with an attached note stating, "Mark, this is the document Ken is asking Stacey Shipley for; it's in your hands now." When Duck Head was asked to produce this printout, it said that it was unable to locate it, but when Hoots, Long, and Pace were given access to Duck Head's files during discovery, they found the printout with the note attached.
Duck Head instructed Hoots not to communicate with its customer service employees. It also required its employees to sign agreements not to communicate with the former sales representatives.
The plaintiffs submitted voluminous detailed evidence of various alterations of orders intended to prevent payment of commissions to Hoots & Associates, but the witnesses testified that even though they had testified to many alterations, the instances they had told of were only representative, that there were too many to set forth all of them. The conduct included:
-- wrongfully changing orders to create the appearance that no commission was due because the order was a "house account" or was placed under the plaintiffs' supposed "resignation code," which did not pay commissions to them.
-- holding orders that were received before November 30 until after that date and only then entering them in the computer; doing this made it appear that the orders were received after the date of the plaintiffs' resignations.
-- supposedly establishing a rule that orders would not be entered unless fully completed on Duck Head order forms, but then enforcing this rule only against Hoots & Associates and other salesmen also earning high commissions, but not against the new salesmen earning 1/2% commissions. Kitchens testified that Barckow took a large order submitted by Hoots off her desk three times on the pretext that it needed to be completed, although, she said, nothing was wrong with the order. Grindle finally brought it back for entry into the computer before Hoots's resignation was effective, but after Hoots's resignation Kitchens tried to look at the order in response to an inquiry from the customer and could not find it in the computer. It was later rewritten and the new salesman received the commission.
-- cancelling orders that had been entered and re-entering them under the new salesmen's account numbers so that the order would pay only a 1/2% commission.
-- when customers returned merchandise or otherwise earned credits, applying the credits against Hoots & Associates' account even if the credits applied to sales by the new salesmen. Rita Riner, who handled commissions for Duck Head, testified by deposition that Schwarb told her to do this.
Rita Riner also testified in her deposition that after the May 1, 1991, reduction in rates some orders that should have received commissions at the old rates were paid commissions at the new rates, but that when she told Schwarb and tried to get the errors corrected, she "didn't get a lot of response."
Other salesmen, Donnie Cecil and David Baseheart (who had become a salesman after Delta Woodside brought in new officers and managers), testified to similar problems. They, and apparently other former sales representatives, had actions pending. All but Cecil had settled by the time of the trial court's post-trial Hammond hearing, for relatively small amounts that the parties concede did not include punitive damages.
Even Duck Head's customers were aware that Hoots & Associates' orders were being tampered with. Neil Kapolwitz, an owner of Buckhead Men's Store in Atlanta, testified. An order he placed with Long on October 3, 1991, did not arrive when scheduled, so he telephoned Duck Head in early February and spoke to Suzanne Barckow. She told him that "they had never gotten that order," and when he asked where it was, she said, "Well, [Long] was leaving the company, and he probably just never turned it in." Kapolwitz had kept a copy of the order, and he sent it to Duck Head by facsimile transmission in February. When he started receiving the goods, he notice that the new salesman, Pearly Gates, was receiving the commissions, although Gates had had nothing "whatsoever" to do with the order. Later, he noticed that Duck Head's paperwork showed a January date on the order:
"Q. Now do any of those documents that you found [in your files] from Duck Head evidence that they had your order as early as January?
"A. It was strange. I noted that the order I sent them in February now has a date on it. It says order date January 29th, '92. ... Which they said they didn't have.
"Q. And that would be 5 days prior to your refaxing it?
In conjunction with the evidence from Shipley and Kitchens that Duck Head was cancelling orders and re-entering them under the new salesmen's commission codes, this evidence would support a finding that Duck Head had cancelled Long's October 3 order and re-entered it on January 29, shortly before Kapolwitz transmitted it by facsimile.
Similar evidence was given by Michael Gee, who owned a retail store in Talladega, Alabama. He testified that Hoots had introduced him to the Duck Head line in the early 80's and that he had been selling it since. He testified that he telephoned in February 1992 to inquire about an order for which delivery was late. The Duck Head employee to whom he spoke told him "there is no order like that." However, Gee had received a pre-print of the order, which had an order control number and showed that Hoots had placed the order on September 16, 1991. The evidence established that Duck Head's computer assigned order control numbers when the order was entered in the computer, so that Gee's possession of an order control number necessarily meant that the order had been entered in the computer. However, when he told the Duck Head employee on the telephone the order control number, she said that there was no order with that number. He ordered the same merchandise again, but he noticed when it arrived that Tommy Wall, the salesman who took over Hoots's territory, received the commission. Gee testified that he had not met Wall at that time.
The evidence tended to show that Hoots & Associates booked over $38,000,000 in orders for shipment in the winter and spring of 1992; that about $31,000,000 of these orders were actually shipped; and that Duck Head paid commissions to Hoots & Associates for about $7,800,000 of these orders. Duck Head claimed at trial that large numbers of Hoots & Associates's orders were cancelled because customers overbooked, but the evidence did not support an additional $23-24,000,000 in cancellations, the amount that would be necessary to support the difference between what Duck Head shipped and what it claimed it owed in commissions. Duck Head defended on several grounds, such as its assertions that there were large cancellations, that many of Hoots & Associates' fall 1991 orders were either incomplete, late, or otherwise not entitled to commissions, and that many of the spring 1992 shipments were pursuant to "at once" orders by new salesmen. The plaintiffs presented evidence refuting all of these defenses, and the jury's verdict indicates that it believed the plaintiffs and not the defendants.
On the contract count, the circuit court instructed the jury to treble the damages pursuant to Alabama Code 1975, § 8-24-1 et seq., and the jury returned a verdict of $2,556,353.60. Pursuant to later proceedings, the plaintiffs accepted a remittitur of the treble damages and a judgment was entered on the contract count in the amount of $852,000. The jury returned a verdict for the plaintiffs on the fraud count, awarding Ken Hoots $4,000,000 compensatory damages for mental anguish, *fn2 Terry Long $2,000,000 for mental anguish, and Bill Pace $1,000,000 for mental anguish. The verdict on the fraud count awarded $19,500,000 to the plaintiffs collectively in punitive damages, but the circuit court ordered a remittitur of that amount to $15,000,000.
The first issue is whether the circuit court erred in denying Duck Head's motions for J.N.O.V. or new trial on the contract claim, which Duck Head sought on the ground that the evidence was insufficient to show the amount of commissions the plaintiffs were entitled to recover. Duck Head cites the following rule:
"The party claiming damages has the burden of proving the existence of and amount of those damages by competent evidence. ... The award of damages cannot be made upon speculation, and the plaintiff has the burden of offering evidence tending to show to the required degree, the amount of damages actually suffered."
Johnson v. Harrison, 404 So. 2d 337, 340 (Ala. 1981) (citations omitted); Livingston v. Tapscott, 585 So. 2d 839, 841 (Ala. 1991); Segars v. Reaves, 567 So. 2d 249, 250 (Ala. 1990). Duck Head also cites Chestnut v. Laramore, 560 So. 2d 1070, 1072 (Ala. Civ. App. 1990), for the proposition that the plaintiffs were not entitled to recover damages unless they showed with "as much certainty as the situation permits" a foundation to permit the jury to make a fair and reasonable estimate of the amount of damages. The opinion of the Court of Civil Appeals in Chestnut actually states:
"Simply because the amount of damages in a breach of contract case cannot be assessed precisely does not preclude the right to a damages award. Farmer v. Strother, 423 So. 2d 252 (Ala. Civ. App. 1982). 'All that is required is that the evidence, with as much certainty as the situation permits, lay a foundation with which the trier of fact may make a fair and reasonable estimate of the amount of damages.' Farmer."
Duck Head argues that the commission rates varied from 2 1/2 % to 7% and that the plaintiffs did not show the rate of commissions due on the sales for which they sought commissions. It states, "Even if one concedes that there were $31,048,494.00 sales to Alabama and Georgia in the pertinent time, there is no way to determine the plaintiffs' damages without knowing what commission rate to apply to the orders shipped." Furthermore, argues Duck Head, the plaintiffs did not subtract the sales to accounts for which they were not due to receive commissions, the sales of goods that were returned by the customers, or the "at once" sales by new salesmen. Finally, Duck Head argues, even calculating a 4% commission by deducting from $31,048,494 the amount of sales on which plaintiffs were paid commissions, $7,794,267.09 in sales for which they were initially paid, plus another $1,266,000 in sales for which they were paid commissions the Friday before trial, a 4% commission on the remaining sales of $21,212,013.56 would only be $848,480.54, less than the $852,000 contract award.
The plaintiffs respond to this argument by arguing both the law and the facts. Without conceding that they failed in their proof, they argue that any difficulty they had in proving the amount of damages they were entitled to "was due to Duck Head's manipulation of records and the production of false and erroneous information." They cite Money Back, Inc. v. Gray, 569 So. 2d 325 (Ala. 1990), and Super Valu Stores, Inc. v. Peterson, 506 So. 2d 317 (Ala. 1987), for the proposition that difficulty in proof of damages that is caused by the defendant's wrongful conduct will reduce the plaintiff's burden of specificity of proof of damages. The plaintiffs cite several examples of the difficulty caused by Duck Head. Duck Head asserted that it did not have a report of open orders placed by Hoots, Long, and Pace as of November 30, 1991, and that such a report could no longer be produced. However, Rita Riner, who was responsible for paying commissions, testified by deposition that she had run such a report "and turned it over to someone else." The plaintiffs also point out numerous problems they had with discovery from Duck Head. For example, computer printouts the plaintiffs received gave information for the whole country, not just for the plaintiffs' territory.
The plaintiffs also argue that the evidence supports the amount of the damages. They calculate that 4% commissions on the entire amount of shipments to Alabama and Georgia in the spring of 1992 would equal $1,241,939.70, and that deducting the $311,770 in commissions they were actually paid would leave $930,169 due. Thus, they say, the jury, in setting damages at $852,000, did allow for adjustments such as "at once" sales. On the issue of whether the sales figures for Alabama and Georgia were overinclusive because Hoots & Associates did not receive commissions on all sales in these states, Ken Hoots testified that those figures were also underinclusive because they received commissions on some out-of-state sales such as Stein Mart and some Gayfers stores, and that the difference was basically a "wash." Regarding the use of 4% as the rate of commission, Ken Hoots testified that this was the average of the commissions he received. Furthermore, Douglas J. Stevens, who was Duck Head's vice president for finance in 1991-92 and who was comptroller for Delta Woodside at the time of trial, testified that "there was a sliding commission [scale], but I think the bulk of the plaintiffs' commissions settled on four percent."
Perhaps most damaging to Duck Head's argument is the fact that its attorney stated at a pre-trial hearing on the plaintiffs' motion to compel production:
"We are not going to get into sitting here and trying to tell a jury what happened with a hundred thousand orders. I don't think the court would tolerate it. I don't think the jury would. I don't think either party can afford it.
"This case is going to be tried, I think, on general data and general information."
Given the large amount of information involved, the plaintiffs did an admirable job of presenting specific evidence from which the jury could calculate the amount of damages to be awarded. The jury awarded nearly $80,000 less than the plaintiffs claimed and only about $3500 more than Duck Head essentially concedes was supported by the evidence when viewed in a light most favorable to the plaintiffs. The circuit court did not err in denying Duck Head's motion for a J.N.O.V. or a new trial on this ground.
The second issue is "Whether the trial court erred in refusing to dismiss plaintiffs' claim brought under the Alabama Sales Representative's Commission Contracts statute, Ala. Code [(1975)], § 8-24-1 et seq. " The plaintiffs did not make a separate claim based on these Code sections, however; the contract count simply requested attorney fees (the request was not submitted to the jury) and treble damages pursuant to § 8-24-5. At the close of the evidence, the plaintiffs asked the Judge not to instruct the jury on the statute, but Duck Head's lawyer *fn3 requested that the jury be instructed on the statute. The plaintiffs argued that Duck Head was thereby waiving any objection to the statutory claim, but the Judge granted Duck Head's request and read or paraphrased these sections to the jury in relation to the contract claim and instructed the jury to treble the contract damages. Thus, Duck Head cannot be heard to complain, because it requested the charge instructing the jury to treble the damages.
Even if Duck Head did not waive its objection, there is in fact no reversible error. The only aspect of the statute that could have had any effect on the verdict was the provision for treble damages in § 8-24-5. The jury did in fact treble the damages, but the circuit court, in response to Duck Head's post-judgment motion, required the plaintiffs to choose between the trebled damages and the punitive award, viewing the two as a double recovery or double punishment. The plaintiffs chose the punitive damages, and the contract damages were reduced to the direct compensatory amount. As shown above, the evidence supported the award of contract damages without reference to §§ 8-24-1 through -5, and those sections had no relation to the fraud claim. Therefore, any issue as to the applicability or constitutionality of §§ 8-24-1 through -5 is moot, and no reversible error is presented in respect to this issue.
The third issue is whether the circuit court erred in not granting a J.N.O.V. or a new trial on the ground that the plaintiffs did not present "sufficient evidence of reliance to support plaintiffs' fraudulent suppression claim."
"To prove suppression of a material fact, a plaintiff must establish (1) that the defendant had a duty to disclose that fact, (2) that the defendant concealed or failed to disclose that fact, (3) that the concealment or failure to disclose induced the plaintiff to act, and (4) that the action caused injury to the plaintiff. Ala. Code 1975, § 6-5-102."
Baker v. Bennett, 603 So. 2d 928, 935 (Ala. 1992), cert. denied, ___ U.S. ___, 113 S. Ct. 1260, 122 L. Ed. 2d 658 (1993); Hardy v. Blue Cross & Blue Shield of Alabama, 585 So. 2d 29, 32 (Ala. 1991).
Duck Head argues that the alleged suppression occurred, if at all, after the plaintiffs had resigned, when Duck Head allegedly suppressed the fact that it was diverting the plaintiffs' orders to prevent paying commissions on them. In particular, Duck Head asserts that the suppression is alleged to have occurred on December 12, 1991, when Danny Stanton, the president of Duck Head, wrote a letter to the plaintiffs regarding payment of commissions. The plaintiffs tendered their resignations on November 19, and the resignations were effective on November 30. Thus, argues Duck Head, the plaintiffs could not have been induced to act to their injury by any suppression by Duck Head of material facts that it was under a duty to disclose. Duck Head cites Sanders v. Kirkland & Co., 510 So. 2d 138, 141 (Ala. 1987), for the proposition that action taken before an alleged misrepresentation is made could not have been taken in reliance on the misrepresentation, and it argues that the same principle holds true for suppression.
The problem with Duck Head's argument on this point is that the plaintiffs presented evidence that Duck Head had begun its wrongful activities in regard to the plaintiffs' orders before they resigned. The plaintiffs submitted large amounts of documentary evidence, and several orders they submitted before the beginning of November showed in Duck Head's records as having been submitted in December or January. Plaintiffs' exhibit 31 showed a credit entered on or before November 2 to the "house account," for which commissions were not paid. Bill Pace testified regarding this exhibit:
"This is the invoice detailed listing. It shows -for example, store number 2203, and that's Valdosta, Georgia. It shows where the shipment was invoiced on 11/2/91; so that means that I had to have written that order well before that date which was before our resignation date. And the house gets the account."
In addition to the documentary and circumstantial evidence, the plaintiffs presented the testimony of Stacey Shipley that she started seeing cancellations of Hoots's orders or credit for his orders being assigned to house or retirement accounts "before his termination."
Furthermore, the plaintiffs assert that the suppression of the efforts to deprive them of commissions occurred simultaneously with the fraudulent misrepresentation in Schwarb's memo of November 5 stating that Duck Head would pay commissions on all orders placed before their resignations that were shipped by June 28, 1992. By September or October 1991, Duck Head began planning to change to employee sales personnel, with an aim of saving money. The jury could infer that Duck Head anticipated that the highest-paid sales representatives would not accept its offer of employment and that it began making plans and taking steps to defraud them of their commissions in the event they resigned. Thus, the jury could have found that Duck Head suppressed facts existing before the plaintiffs' resignations and that the plaintiffs were induced by that suppression to act.
The foregoing issues are the only issues attacking the judgment in regard to the submission of the case to the jury, so the judgment on its merits is due to be affirmed. The remaining issues pertain to Duck Head's request for a remittitur, which is presented by a motion for a new trial or, as a condition of denial of that motion, for a remittitur. Rule 59(f), Ala. R. Civ. P. Section 12-22-71, Ala. Code 1975, ...