Background
Paragon 28 Inc. manufactures ankle and foot surgery products and retained Patriot Medicals LLC and its president Jon Buck as independent commissioned sales agents under a series of annual agreements running from 2018 through 2021. Each agreement contained an exclusivity provision barring the sales agent—including all representatives and employees—from carrying any non-Paragon 28 products anywhere, with exhibit C as the designated place to list any permitted exceptions (none were ever listed). In exchange, defendants received a 10% premium on their commission rate; a breach would trigger a retroactive clawback of that premium from the date of breach and could justify early termination.
Despite repeatedly denying that he sold competing products, Buck in fact sold Integra LifeSciences products through a separate company he owned, Coastline Medicals, beginning around December 2018. Paragon 28 terminated the 2021 agreement in August 2021 on that basis and sued for breach of contract, seeking retroactive reduction of defendants’ commissions by 10%. Defendants counterclaimed for wrongful termination, unpaid commissions, and statutory damages and attorney fees under Michigan’s Sales Representative Commissions Act (SRCA), MCL 600.2961.
After granting summary disposition to Paragon 28 on liability, the trial court held a bench trial on damages. In its post-trial findings, the court reversed course, concluding there was no admissible evidence that Patriot Medicals breached the agreement, that the phrase “non-P28 products” could not be read literally, that the exclusivity provision was an unenforceable penalty, and that plaintiff’s termination was therefore unjustified. The trial court entered judgment for defendants in the amount of $4,024.83 in unpaid August 2021 commissions and denied defendants’ request for SRCA statutory damages and attorney fees. Both sides appealed.
The Court’s Holding
The Michigan Court of Appeals vacated the trial court’s judgment and remanded. On the exclusivity provision, the court held that the phrase “any other non-P28 products” was unambiguous and had to be enforced as written; the trial court erred by treating it as ambiguous and importing a competitive-products limitation that appeared nowhere in the text. Applying the plain meaning of “carry” (to stock or procure for sale), the court confirmed that Buck breached the exclusivity provision by selling Integra products through Coastline, and that Paragon 28 was therefore entitled to terminate the 2021 agreement. The court also held that the 10% commission clawback was not an unenforceable liquidated-damages penalty—it was simply a forfeiture of a bonus that defendants never legitimately earned, not a punitive sum imposed on top of actual harm.
On the SRCA counterclaim, however, the court ruled for defendants. It held that the trial court abused its discretion in denying statutory double damages: because plaintiff deliberately withheld commissions that were concededly due within 45 days of termination—regardless of its belief that it had offsetting claims—the intentional-nonpayment standard was satisfied. The court rejected the trial court’s rationale that defendants’ concealment of their breach negated intentionality under the statute. The court further held that defendants were entitled to attorney fees as the prevailing party on their standalone SRCA claim, because they succeeded on every element of that claim even though they lost on their broader breach-of-contract counterclaim.
The court remanded for the trial court to recalculate damages consistent with its rulings: plaintiff is entitled to recoup the 10% exclusivity premium paid from the date of first breach, and defendants are entitled to SRCA statutory damages and attorney fees on the unpaid post-termination commissions.
Key Takeaways
- Unambiguous exclusivity clauses in sales agent agreements will be enforced as written under Michigan law; courts may not reinterpret plain language by reference to extrinsic context or other contractual provisions covering a distinct subject matter.
- A commission premium tied to an exclusivity obligation—and a corresponding clawback on breach—is not a liquidated damages clause subject to unenforceability review; it is a condition defining what additional compensation is earned, not a penalty imposed for breach.
- Under the SRCA, a principal’s good-faith belief that commissions are not owed does not defeat a claim for intentional nonpayment; deliberately withholding concededly due commissions within 45 days of termination triggers double damages and attorney fees, with inadvertence or oversight as the only recognized defense.
- A sales representative prevails for SRCA attorney-fee purposes by winning fully on the SRCA claim itself, even if the representative loses on related breach-of-contract counterclaims; the disposition of counterclaims is irrelevant to prevailing-party status under the Act.
Why It Matters
This decision reinforces the strict enforcement of exclusivity arrangements in medical-device sales agency contracts in Michigan. Agents who route competing-product sales through separate affiliated entities—while personally signing exclusivity agreements—cannot escape the contractual consequences by pointing to ambiguity or competitive-product limitations that the contract does not contain. Companies drafting these agreements can take comfort that bonus-for-exclusivity structures will not be recharacterized as unenforceable penalties.
On the SRCA side, the decision serves as a cautionary note for principals who withhold commissions pending resolution of a countervailing breach claim. Michigan law does not recognize a set-off defense to the intentional-nonpayment trigger; even when a principal has a colorable breach-of-contract claim against the sales representative, it must still pay earned commissions within 45 days of termination or face double damages and attorney fees on the unpaid amount.