Estate of Burford v. Accounting Practice Sales, Inc, No. 16-1871 (7th Cir. 2017)

Annotate this Case
Justia Opinion Summary

APS is a broker for the purchase and sale of accounting practices, working through brokers who are treated as independent contractors and are assigned exclusive sales territories. Burford became an APS broker in 2003, under a contract with a “minimum yearly sales volume” requirement. Burford did not meet this requirement for four consecutive years. In 2010, APS’s owner, Holmes spoke with Burford about his poor performance. Burford failed to meet his minimum yearly sales volume requirements again in 2010 and 2011. In 2012, APS terminated Burford’s contract and reassigned his sales territory. Burford filed suit. The district court granted summary judgment in favor of the defendants, reasoning that Burford’s contract was terminable at will. On remand, a jury found for APS. The Seventh Circuit affirmed, rejecting arguments that the trial court erred by supposedly allowing APS to change the legal theory for its defense in violation of the “mend‐the‐hold” doctrine in Illinois law and abused its discretion by denying admission of an exhibit. The court also rejected an argument that the verdict was contrary to the weight of the evidence on whether APS waived its right to enforce the minimum sales requirement.

Download PDF
In the United States Court of Appeals For the Seventh Circuit ____________________ No. 16 1871 ESTATE OF WILLIAM J. BURFORD, Plaintiff Appellant, v. ACCOUNTING PRACTICE SALES, INC. and GARY L. HOLMES, Defendants Appellees. ____________________ Appeal from the United States District Court for the Southern District of Illinois. No. 12 cv 01212 JPG SCW — J. Phil Gilbert, Judge. ____________________ ARGUED JANUARY 12, 2017 — DECIDED MARCH 13, 2017 ____________________ Before BAUER, SYKES, and HAMILTON, Circuit Judges. HAMILTON, Circuit Judge. Defendant Accounting Practice Sales (APS) terminated its brokerage contract with William Burford after he failed, in his exclusive territory for APS, to meet his minimum yearly sales volume for four consecutive years. Burford sued. APS defended on the grounds that Bur ford failed to meet his sales requirement and that his contract was terminable at will. The case was tried after an earlier ap peal in the case, and the jury ruled in favor of APS. While this 2 No. 16 1871 appeal by Burford was pending, he passed away. His estate has carried on the appeal, arguing that the district court erred by permitting APS to defend on the basis of Burford’s failure to meet his sales volume requirement, by refusing to admit an exhibit, and by refusing to order a new trial on the theory that the jury verdict was contrary to the weight of the evidence as to whether APS waived its right to terminate the contract. None of these arguments warrants a new trial. We a rm the judgment of the district court in favor of APS. I. Factual and Procedural Background Defendant APS acts as a broker for the purchase and sale of accounting practices. APS works through brokers who are treated as independent contractors and are assigned exclusive sales territories for APS. The brokers and APS share commis sions for successful sales. Plainti Burford became a broker for APS in 2003, and over the next several years, he and APS agreed to add additional states as part of his exclusive terri tory. Burford’s contract included a “minimum yearly sales volume” requirement. On appeal, the parties do not dispute that Burford did not meet this requirement for four consecu tive years. In March 2010, APS owner Gary Holmes spoke with Bur ford about his poor performance. Burford acknowledged that he needed to improve, but he failed to meet his minimum yearly sales volume requirements again in 2010 and 2011. In 2012, APS terminated Burford’s contract and reassigned his sales territory. Burford brought suit in an Illinois state court, claiming that APS breached his contract by terminating it without the required good cause. He also sought to pierce the corporate No. 16 1871 3 veil to hold Holmes personally liable for the breach. The dis trict court granted summary judgment in favor of the defend ants on the theory that Burford’s contract with APS was ter minable at will. In the earlier appeal, we reversed on that point, nding that the contract’s provision that “APS cannot terminate this agreement unless it is violated by Burford” meant that the contract was not terminable at will. Burford v. Accounting Practice Sales, Inc., 786 F.3d 582, 587–88 (7th Cir. 2015). We remanded for trial on the contract claim. The jury found for APS, and the district court entered judgment on the verdict. On appeal, Burford raises three issues. First, he claims that the trial court erred by supposedly allowing APS to change the legal theory for its defense in violation of the “mend the hold” doctrine in Illinois law. Second, Burford argues that the district court abused its discretion by denying admission of an exhibit. Third, he claims that the jury’s verdict was con trary to the weight of the evidence on whether APS waived its right to enforce the minimum sales requirement. II. Analysis “Mend the Hold” Burford’s rst argument on appeal is that APS should not have been allowed to assert its defense that it terminated Bur ford’s contract for good cause since he had missed his mini mum sales requirements for several years. Burford’s theory is a variation of the “mend the hold” doctrine in Illinois law. That doctrine, which takes its name from a nineteenth cen tury wrestling phrase, is less a set of rules than a exible con cept of equity. It prevents one party to litigation, especially in 4 No. 16 1871 contract disputes, from trying to change its position or theo ries at such a late stage in the dispute as to cause unfair prej udice to the opposing party. See Harbor Ins. Co. v. Continental Bank Corp., 922 F.2d 357, 362 (7th Cir. 1990) (“[W]here a party gives a reason for his conduct and decision touching any thing involved in a controversy, he cannot, after litigation has be gun, change his ground, and put his conduct upon another and a di erent consideration. He is not permitted thus to mend his hold.”), quoting Ohio & Mississippi Railway Co. v. McCarthy, 96 U.S. 258, 267–68 (1877); see also Ryerson Inc. v. Federal Ins. Co., 676 F.3d 610, 614 (7th Cir. 2012) (collecting cases); Horwitz Matthews, Inc. v. City of Chicago, 78 F.3d 1248, 1251 (7th Cir. 1996); FHP Tectonics Corp. v. American Home As surance Co., 57 N.E.3d 575, 587–88 (Ill. App. 2016) (declining to apply doctrine in absence of unfair surprise or arbitrari ness). The doctrine seems to correlate fairly closely to federal courts’ approach to e orts to amend pleadings under Federal Rule of Civil Procedure 15. The doctrine also lies close to the boundary between matters of substance and procedure for purposes of Erie Railroad Co. v. Tompkins. See Harbor Insurance, 922 F.2d at 363–65. Whatever the scope of the mend the hold doctrine, and whether it is procedural or substantive, it does not help Bur ford in this case. From its earliest discovery responses, APS advanced two central arguments in defense: rst, it termi nated Burford’s contract for good cause because he failed to meet his minimum yearly sales volume, and second, the agreement was terminable at will. Dkt. No. 129, Ex. 1 at 4 (re sponse to interrogatories). Burford bases his mend the hold argument on the strat egy APS pursued, but that strategy was perfectly reasonable No. 16 1871 5 and not unfair in any way to Burford. It is easy to imagine that a motion for summary judgment based on Burford’s failure to meet his sales volume requirements could quickly bog down in disputes about accounting, waiver, and competing equities. APS chose instead to move for summary judgment on the nar row ground that its contract with Burford was terminable at will. There was nothing unfair or unsound about that strate gic choice, and the district court granted summary judgment for APS on that basis. We reversed in the earlier appeal, hold ing that the contract was not terminable at will. Burford, 786 F.3d at 588. It is not unusual or unfair for a defendant who believes he has a solid legal defense to assert that defense rst in a Rule 12(b)(6) motion or summary judgment motion in the hope of winning an early and relatively inexpensive victory. Filing ei ther sort of motion simply does not waive other defenses that may be available to that party. (Consider for a moment the consequences of a contrary ruling on that point, treating as waived a substantive defense that the defendant did not in clude in a summary judgment motion. That rule would create powerful incentives for defendants to load up summary judg ment motions with all of their defenses, including theories that would have no hope on summary judgment even though they might be winners at trial. Imagine the costs and burdens for civil litigation, in return for no apparent bene t. And Rule 56 has no such waiver rule, as compared to Rule 12(h).) In the trial after remand, APS pursued its alternative, more fact centered defense, arguing that it had good cause to ter minate the contract because Burford had failed for several years to meet his minimum yearly sales volume. Burford at tempted to block this route, arguing in a motion in limine that 6 No. 16 1871 APS could not assert any defense other than the terminable at will defense without violating the “mend the hold” doc trine. The district court denied that motion. Burford’s claim went to trial, and the jury returned a verdict in favor of APS. Even the most aggressive versions of the mend the hold doctrine would not block APS from proving it had good cause to terminate Burford’s contract. APS did not change its de fense. APS maintained two defense theories from the start, and they are not inconsistent with each other (though a party is allowed to pursue even inconsistent theories for its claims or defenses, see Fed. R. Civ. P. 8(d)). In addition, there was no prejudice to Burford, who was not surprised by APS’s argu ment that it terminated him for cause. See Dkt. No. 73 at 3 (transcript from Nov. 1, 2013 pretrial conference where Bur ford’s counsel identi ed cause to terminate as a key issue); see also Ryerson Inc., 676 F.3d at 614 (“When there is no prejudice to the opposing party, invoking the doctrine of mend the hold to bar a valid defense is overkill.”). The district court did not err by allowing APS to defend its termination for cause. B. Trial Exhibit 13 Burford next argues that the district court erred when it did not admit his Exhibit 13, which was a document that Gary Holmes sent to APS brokers in 2010 to answer frequently asked questions about APS’s proposed transition into a fran chise operation. One answer in the document said: “There will be a minimum production requirement. This has been discussed but never really enforced. But it is time that territo ries all be productive. This will not a ect all brokers but will some.” While Burford had rejected APS’s franchise overtures, he argues the document was nonetheless relevant to show that APS had waived its right to enforce its minimum yearly No. 16 1871 7 sales requirement. We review such an evidentiary ruling only for abuse of discretion. Morgan v. City of Chicago, 822 F.3d 317, 338 (7th Cir. 2016). The district court did not abuse its discretion by denying admission of Exhibit 13. Federal Rule of Evidence 403 pro vides: “The court may exclude relevant evidence if its proba tive value is substantially outweighed by a danger of … un due delay, wasting time, or needlessly presenting cumulative evidence.” While Exhibit 13 may have been relevant, its exclu sion was not an abuse of discretion because it would have been needlessly cumulative. Burford sought to introduce Exhibit 13 to prove that APS had not previously enforced the minimum sales volume re quirement in his contract. His theory was that APS had waived its right to terminate for such failures. Burford argued that Exhibit 13 “related only to what APS had admittedly done previously in not enforcing any minimum production requirement.” However, this point was not in real dispute. The issue at trial was not whether APS had enforced the min imum yearly sales volume in the past; it clearly had not. Gary Holmes himself readily testi ed to this e ect. The real dispute at trial was whether APS’s earlier failure to enforce the sales requirement amounted to an implicit waiver of its right to en force the sales requirement later. Burford himself acknowledged that APS’s past non en forcement was well established at trial: “there was ample and conclusive testimony at trial to establish that APS had waived the minimum yearly sales volume.” Whether the earlier fail ure to enforce minimum sales requirements amounted to a waiver was controversial, but not the point from Exhibit 13 that the requirements had not been enforced in the past. Since 8 No. 16 1871 this point was already established, it was not unreasonable for the court to exclude Exhibit 13 as cumulative under Rule 403, and Burford’s substantial rights were not a ected by the ex clusion. See Fed. R. Civ. P. 61. C. Su ciency of the Evidence Finally, Burford argues that the jury’s verdict was contrary to the weight of the evidence because there was “overwhelm ing and indisputable evidence of waiver.” Waiver is “the in tentional relinquishment of a known right, [and it] can arise either expressly or by conduct inconsistent with an intent to enforce the right.” Wald v. Chicago Shippers Ass’n, 529 N.E.2d 1138, 1147 (Ill. App. 1988) (Illinois contract law). Burford sought to establish waiver by showing that APS could have terminated him sooner but did not do so. We review for abuse of discretion the district court’s ruling on a Rule 59 motion for a new trial. Davis v. Wisconsin Dep’t of Corrections, 445 F.3d 971, 979 (7th Cir. 2006), citing Latino v. Kaizer, 58 F.3d 310, 314 (7th Cir. 1995). A new trial should be granted “only when the record shows that the jury’s verdict resulted in a miscarriage of justice or where the verdict, on the record, cries out to be overturned or shocks our con science.” Id., citing Latino, 58 F.3d at 314. There was su cient evidence here for the jury to nd that APS did not waive its right to terminate Burford. The contract gave APS the option to terminate its contract with Burford if he failed to meet certain thresholds. It did not require APS to re Burford in such instances. When we last considered this contract, we said: “APS could terminate the contract only if Burford violated it. There is a decisive di erence between say ing that A may terminate if B breaches and saying that A may No. 16 1871 9 terminate only if B breaches.” Burford, 786 F.3d at 587. At that point, we made this distinction to show that APS could re Burford only for cause, not at will. Those same terms in the contract illustrate a di erent but equally valid point: saying that A may terminate if B breaches does not mean A must do so immediately or else lose forever the right to terminate. Adopting Burford’s theory of this con tract would lead to perverse results. In any case of material breach, the non breaching party would need to terminate the contract promptly or forever waive the right to terminate. Such a draconian approach would destabilize commercial re lationships where breaches may be tolerated for a host of rea sons, from the di culty in nding substitutes to recognizing headwinds from macroeconomic troubles, or to humane rea sons like excusing Burford’s failure to record any sales in a year when he had serious health problems. At trial, APS’s Holmes testi ed to such reasons. He said he did not terminate Burford’s contract earlier because he “wanted to be fair” and wanted “to give him a chance” to im prove his performance. Holmes noted that Burford had re ceived surgery in one year, and that 2008 was a bad economic time for everyone. During another year, Burford was involved in a lawsuit, which had evidently taken up much of his time. For these reasons, Holmes testi ed, APS gave Burford multi ple chances to improve his performance. When Burford con tinued to struggle, Holmes ultimately had a “heart to heart” with him in 2010 before terminating his contract at the begin ning of 2012. The jury was not required to accept APS’s expla nation, but given this and other evidence o ered at trial, the jury’s verdict that APS had not waived its right to terminate 10 No. 16 1871 Burford was certainly not contrary to the weight of the evi dence. This result is entirely consistent with our reasons for re versing in the earlier appeal and nding that the contract was not terminable at will. It made good sense for the parties to agree that Burford would have an exclusive territory and that his contract could be terminated only for cause. Otherwise, APS could have watched while Burford built up his territories and then terminated his contract, grabbing for itself all the fruits of his labors. 786 F.3d at 587–88. At the same time, if a manufacturer or other upstream company like APS agrees to give a sales representative an exclusive territory, its right to terminate for poor performance is critical. Without that right, it risks e ectively abandoning the territory, unable to replace the poor performer in his exclusive territory. For that reason, neither courts nor juries should quickly nd waiver when the manufacturer or upstream company tolerates poor perfor mance but ultimately loses patience and terminates the con tract for the exclusive territory. The judgment of the district court is AFFIRMED.