Affirmative Defenses in Arkansas
NB: An earlier version of this post identified the case as coming from Alabama rather than Arkansas. Many thanks to the attentive reader who caught the error.
The Eighth Circuit decided a contracts issue last week in All-Ways Logistics, Inc. v. USA Truck, Inc.,No. 08-1054 (Oct. 1, 2009). The District Court awarded All-Ways about $3 million in breach ofcontract damages on a commission agreement. The interesting issue was USA Truck’s argument that theDistrict Court erred in failing to instruct the jury properly on itsaffirmative defense that All-Ways had waived the breach by continuing to acceptbenefits from the contract after discovery of the breach.
In 1999 the parties entered into an agreementunder which USA Truck was to pay All-Ways a five percent commission on allfreight that All-Ways solicited and USA Truck transported. In 2002, USA Truck informed All-Waysthat it was terminating the agreement and that commissions would no longer bepaid with respect to an account with Rheem Manufacturing, one of the largestaccounts that USA Truck had gotten through All-Ways’ efforts. All-Ways complained, but the partiescontinued their relationship with respect to other accounts. In 2005, USA Truck began negotiatingwith the other large account it had gotten through All-Ways so that USA Truckcould bypass All-Ways on that account as well. In August of 2005, USA Truck gave notice that it wasterminating its commission agreement with All-Ways, and that terminationbecame effective in October.
In May 2006, All-Ways brought suit seeking recovery underthe commission agreement for commissions earned but not paid on freightsolicited by All-Ways and shipped by USA Truck through October 2005. After a jury trial, All-Ways won averdict in excess of $3 million, plus prejudgment interest and attorneys’ fees.
USA Truck contended that All-Ways had waived the breach bycontinuing to accept benefits under the agreement. The district court refused to instruct the jury on thataffirmative defense, finding that it did not apply to the facts of thecase. The Eighth Circuitfound the question a close one, but found no abuse of discretion. The district court reasoned that theagreement between the parties was structured to give rise “to a separate andunilateral contract between the parties [with respect to each account] and that All-Ways’[s] performance as toone account did not entitle it to a commission on another, nor did USA’sbreach by nonpayment as to one account create a cause of action for breach asto the others.”
USA Truck contended that the question of whether thecommission agreement at issue was severable in this manner should have beensubmitted to the jury. However, the district court found – and the Court of Appeals agreed –that the severability of the agreement could in this case be established as amatter of law based on its clear and unambiguous terms.
In addition, the Eighth Circuit noted that there was nounambiguous waiver in this case because All-Ways had protested the terminationof its commissions. Here theEighth Circuit reasoning seems a bit shaky to me. The affirmative defense of acceptance of benefits existsbecause such acceptance is itself evidence of waiver. The Eighth Circuit distinguished cases establishing thatproposition on the ground that those cases did not apply to severablecontracts. Still, thatleaves the court with one ground for its decision (the agreement was severable)and not two (severability and waiver).
Obsessive readers of the blog (and comments on the blog) might also note with interest that Arkansas law permits recovery of “reasonableattorneys fees” in contracts cases. The horrors! To make the Death of Contract theme even moreapparent, in this case plaintiff’s attorneys sought recovery of a one-thirdcontingency fee (which came to just over $1 million) when recovery by thelodestar method would have yielded just over $217,000. The Eighth Circuit found no abuse ofdiscretion in the district court’s award of fees under Arkansas law.
[Jeremy Telman]