“Money is the most egalitarian force in society. It confers power on whoever holds it.” — Roger Starr, author and urban planning official

Reps who get stiffed on commissions usually agonize over what, if anything, to do about it. After undergoing root canals or tax audits, hiring a lawyer to pursue unpaid commissions usually ranks as a rep’s least desirable course of action.

Some might even prefer the endodontic drilling into a tooth to retaining legal counsel. And without anesthetic.

After all, withholding commissions is an easy and common exploitative tactic utilized by certain principals who view their sales reps as having little recourse. But what if the rep could grab those unpaid commission dollars first, and then pursue litigation against the principal?

Few moves command greater attention than proceeding under a state’s pre-judgment attachment statute.

“Seizing” the Initiative

Meet Forefront Machining Technologies, Inc., a sales rep firm out of Dayton, Ohio. Stay with Forefront’s story; it starts out routine, but quickly picks up steam.

Forefront entered into an oral contract with Sarix, SA, a Swiss manufacturer of 3D micro EDM machines and its New York-based distributor Alouette Tool Company, Ltd. (collectively, “Alouette”) for a 10 percent commission on sales it generated. Forefront alleges it delivered Silfex, Inc., as a customer for Alouette, and was responsible for the sale of some 23 machines to Silfex.

In response to such success, Alouette not only failed to fully commission Forefront, but soon terminated it as well.

Fortunately for Forefront, the termination notice received from Alouette acknowledged both the parties’ agreement, and that Forefront would get paid at least some commissions on certain additional machine sales to Silfex.

Perhaps contemplating IRS agents and oral surgeons, Forefront waited over two-and-a-half years before taking action. Eventually, Forefront had its counsel send a demand letter for the commissions due, and when Alouette failed to meet the demand, Forefront filed a six-count complaint in the Ohio state court, including for treble (3x) damages under the Ohio sales rep statute.

Here’s where the tale gets interesting.

Together with the complaint, Forefront filed a motion for the pre-judgment attachment of Alouette’s assets, a motion granted by the court the very same day. Alouette received no notice that this motion was filed, and no opportunity to appear at the hearing. Yet, the Ohio judge actually ordered the levying officials to “attach” or seize certain of its assets, namely four machines sold to Silfex, and deliver them to the court to be held in escrow.

Let that sink in for a minute. Although Alouette had no chance to defend itself against charges just filed by its former sales rep, under court order four of its machines were seized from one of its customers.

In what must have felt like adding insult to injury, the court further ordered that Alouette could only recover these machines by posting a bond equal to their value. This was to protect the rights of the plaintiff, Forefront, whose not-yet-challenged legal papers showed probable cause to support its motion.

Two days later, notice of these proceedings was provided to Alouette for the first time, together with a copy of the attachment order already entered, and a notice informing Alouette of its right to request a hearing on the matter. (This is the process intended to protect a defendant’s due process rights.)

Responding at Last

Alouette promptly exercised this right by filing a motion for such a hearing, seeking to modify or discharge the attachment order. It further moved the case to the Dayton federal court. A federal forum meant a new judge would take over the proceedings, rather than the state court judge who already entered the seizure order.

Among the requirements for a pre-judgment attachment of a defendant’s property in Ohio are the filing of a sworn affidavit showing: (1) the defendant is a foreign corporation and/or not a resident of Ohio; (2) the nature and amount of the claim; (3) a description of the property sought to be attached, including its approximate value; and (4) a showing of probable cause to support the attachment.

The Ohio pre-judgment attachment statute defines the “probable cause” requirement to mean that “it is likely” a plaintiff seeking attachment “will obtain judgment against the defendant … that entitles the plaintiff to a money judgment that can be satisfied out of the property that is the subject of the motion.” In other words, the judge must ascertain that the plaintiff seeking to recover money will most probably prevail, and that the proposed attachment will make the plaintiff whole.

Alouette’s motion broadly disputed virtually all of Forefront’s allegations, including the existence of a deal to pay 10 percent commissions, and attempted to show how unlikely it was that Forefront would prevail. However, after holding an evidentiary hearing and applying the Ohio standards, the federal court agreed that Forefront had satisfied the statutory burden to obtain an order of attachment, including the probable cause requirement, citing the termination notice.

Then the case grew even more interesting.

Some Judicial Balance

For attachment purposes, the court found Forefront had met its burden with respect to the value of the machines, tooling, and subcontracting work contracted for pre-termination in the total amount of $272,000. But the court also ruled that Forefront had not shown it was entitled to a judgment equal to the value of the four machines it sought to attach.

Based simply on the initial affidavit submitted and the early evidentiary hearing that was held, the court decided that Forefront had not yet demonstrated that its claims, which included for commissions on several machines sold post-termination, were really worth over $2.4 million, the value of the attached machines.

In addition, Forefront’s claim for treble damages which, under the Ohio sales rep act, requires meeting the high bar of showing that Alouette engaged in “willful, wanton or reckless conduct” or “bad faith,” was yet to be proved.

As a result, Alouette’s motion to discharge was granted in part and denied in part. The federal judge modified the state court’s attachment order to authorize Forefront to attach only $271,000 of Alouette’s property.

Only $271,000?

Forefront successfully grabbed $271,000 of Alouette’s property before it obtained any judgment. That is remarkable.

Two different judges recognized that a sales rep was likely to prove that its principal breached their contract by failing to pay commissions due — without a trial. And they allowed the rep to seize the principal’s property in this amount. This is not exactly an everyday occurrence.

Nothing grabs the attention of a business, virtually any business, faster than seizing its assets, and nothing makes that business regard a claimant with greater seriousness. In this instance, of course, grabbing Alouette’s $271,000 was just the start.

While the federal court’s order limited the attachment to “only” this amount, it recognized the potential for other evidence to be introduced at trial that could increase this amount. “Additionally, this order does not place a ceiling or floor on the amount of a judgment that Forefront may be awarded,” the court concluded, and “it does not prevent Forefront from seeking to collect any judgment for amounts more than the amount in this order.”

A Cautionary Note

Before expecting their lawyers to seize a principal’s assets at the beginning of every commission recovery action, reps must bear in mind that this extraordinary remedy is available in many, but not all, states, and each state’s pre-judgment attachment statute contains quirks and varies from other statutes. Illinois, for example, requires a plaintiff to post a bond in twice the amount of any assets to be attached, while Ohio requires no bond at all — if the assets are located out of state.

While it can’t be pulled out in just any commission recovery action, in the right case, the pre-judgment attachment of a principal’s assets comprises a heavily weighted arrow in a rep’s quiver. Its potential use should be evaluated with experienced counsel.

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