September 15, 2021
Lawsuit Puts Sales Rep Agreement Under Scrutiny
When one agent buys another, are commissions automatically assigned to the new agent? This lawsuit will explore one such dispute.
One of the ongoing trends that the lighting industry continues to witness is lighting agent consolidation. Agent A acquires Agent B. Or maybe they merge. Or perhaps they maintain separate corporate structures but establish a formal business partnership.
When agent consolidation plans are in the works, it is common for the parties to have confidential conversations to establish buy-in with their largest and most important manufacturers. After all, if a key manufacturer is hesitant or threatens to bail, that info is good to know before the consolidation and not after. Most smaller, independent manufacturers seemingly learn of agent consolidations when the merger or acquisition is done or almost done.
In late 2020 Mlazgar Associates acquired Elan Lighting. Technically, it seems that Mlazgar acquired the assets of Elan Lighting. Two agents that previously competed against one another in Wisconsin were coming together. The move involved Mlazgar taking on a new major (Cooper Lighting Solutions) across its large four-state territory. The combined agency would bring together approximately 230 manufacturers on one line card in Wisconsin.
A recent lawsuit filed by Mlazgar against one of Elan Lighting’s represented manufacturers, Spring City, is now putting the agency consolidation and sales representative contract under scrutiny. Spring City is a Pennsylvania-based manufacturer of outdoor fixtures, poles and accessories.
Mlazgar's claims include the following:
- Spring City and Elan Lighting entered into an agent-manufacturer representative agreement in 2016
- In late 2020, Mlazgar purchased the assets of Elan Lighting. This included certain commissions which had been earned by Elan Lighting but not paid by Spring City.
- In February 2021, Spring City sent correspondence to Mlazgar retroactively terminating the sales representative agreement.
- Mlazgar claims that Spring City owes them $60,806. They are asking the court for that amount plus other related damages.
Spring City has filed a Motion to Dismiss that includes the following:
- As part of the sales representative contract, Elan Lighting agreed in writing that it could not transfer the contract or any of its obligations to another party without written consent from Spring City.
- The companies discussed continued representation with Mlazgar, but those talks “broke down” in February 2021 “not least because Spring City learned that Mlazgar sold, and intended to continue selling, products that directly competed with Spring City’s products”
- The Mlazgar complaint cites numerous Wisconsin statues, yet the Agreement has a choice-of-law clause citing Pennsylvania law as the governing law.
We contacted both Mlazgar and Spring City seeking comment. We posed a number of questions to Mlazgar including a request for the time frame during which the alleged affected order(s) were placed. Both parties declined to comment on open litigation.
NOTE: The contract linked above was submitted to the courts by Spring City. It is not signed by the agent.
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