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“A man’s got to have a code, a creed to live by no matter his job.” — John Wayne

The concept of a moral compass is something I have given a lot of thought to over the years. Living my life by my moral compass is something I strive to do every day. Living by a moral compass to me means that a person has principles and values and tries to consistently conform his or her behavior to those principles and values. Primarily to me, this means being honest.

One of the things I have learned over the 40-plus years I have been practicing law is that some people have a moral compass, and some people just don’t. One of the best ways to determine who has a moral compass and who doesn’t is to ignore their words and examine their actions. People with a moral compass tend to be consistent in their actions. The reason for this is that a person’s principles and values don’t change. People who do not have a moral compass tend to act in accordance with whatever is in their best interest at any given point in time. This means their actions tend to be inconsistent because what is in their best interest tends to change from circumstance to circumstance. I see that a lot in the sales commission disputes we litigate. One common example is that there are generally no complaints about the performance of the sales representative until it comes time to write a big commission check. Then all of a sudden, there are lots of complaints.

My law practice centers around representing salespeople in litigating sales commission disputes and negotiating sales rep agreements. Sales representatives are the most honest people I know. It is not possible to be successful in the sales business without being honest almost to a fault. You can’t sell anything to anybody if people don’t trust you. Being honest will also help you to win your lawsuit if a lawsuit ever becomes necessary. Dishonesty will almost certainly guarantee that you will lose.

A Case in Point

My office resolved a lawsuit about a year ago that had been pending for close to five years. Part of the reason the case took so long was the federal judge hearing the case granted the principal’s motion for summary judgment and dismissed the case after it had been pending for more than two years. We were able to get it overturned in the Seventh Circuit Court of Appeals and then were able to settle the case shortly before trial.

The biggest problem the Defendant had was that its primary witnesses did not have a moral compass. We discovered during the course of the litigation that the general manager of the principal lied and cheated by falsifying the sales numbers upon which the commissions were based. The general manager would decide the amount of the commissions he wanted to pay and then would adjust the sales numbers to back into that number.

In addition, the owner of the principal leased some warehouse space in one of his buildings to the customer to manufacture molding compound for the molded plastic products the principal was manufacturing. The general manager also told my client the customer was providing the sheet molding compound at no charge and the principal was charging for the molding only. That also turned out not to be true. The customer was selling the sheet molding compound to the principal and the selling price of the finished products included the cost of the material. This resulted in an under-reporting of the sales numbers by approximately 48 percent.

I suspect that this all sounds incredible, but it is all true. This case is a living example of the famous quote by Sir Walter Scott — “Oh, what a tangled web we weave when first we practice to deceive.” We discovered the lying and cheating for both the falsified sales numbers and the fact that the customer was selling the sheet molding material to the principal and paying full price for the products, during the discovery process. The Defendant actually produced the real sales numbers. It was easy at that point in time to figure out what they were doing. I even used the above quote from Sir Walter Scott in our mediation brief before the defendant filed their summary judgment motion. They knew the lying and cheating by the defendant would be my primary theme during the trial.

Frankly, I suspected they were lying and cheating when I first got involved. The owner of the principal wanted my client to sign a new sales rep agreement after the business my client procured increased from zero to about $20 million annually. Basically, the owner of the principal wanted my client to trade a brand-new Cadillac for a used Yugo. (See my article published in the May 2016 edition of Agency Sales magazine.)

We decided to test the honesty of the principal. I drafted an email for my client to sign that basically said he would consider discussing the new sales rep agreement if an officer of the principal signed an affidavit stating under oath that all prior commissions were fully paid in accordance with the three percent commission agreement. The CFO submitted an affidavit which only stated that a report identifying the commissions previously paid to my client accurately reflected the commissions that had been paid. My client responded that the affidavit was not good enough. A second affidavit was submitted that was pretty much the same. We advised that was still not good enough. The principal then decided to play hardball. Rather than admit that they had been cheating, the principal terminated the sales rep agreement and initiated a lawsuit seeking a declaratory judgment that they did not owe any more commissions and the sales rep agreement was unenforceable. To me that meant that the owner of the principal knew all along that the general manager was lying and cheating. Effectively, the owner was also lying and cheating by knowing about the lying and cheating, and not rectifying it.

While the case was on appeal, the owner of the principal fired the general manager and the CFO who had signed the affidavit. I believe that the owner felt emboldened by the trial judge’s dismissal of the case. The chances of overturning a decision of a federal judge in the court of appeals are slim. Fortunately for my client, the court of appeals overturned the decision of the trial court in a two-to-one ruling. Unfortunately for the principal, there were no witnesses left to tell the principal’s story during a trial. It is generally not a good idea to call witnesses to tell your story at trial after you have fired them.

Conclusion/Moral of the Story

The general manager in this case basically lost everything when he started lying and cheating for his employer. I believe that the owner of the principal knew of the lying and cheating. If the owner would have been honest, he could have worked out a modification to the sales rep agreement with my client. My client would have done that. The owner of the principal could have avoided the disruption in his business for five years and the large amount of attorney fees by not trying to cheat my client.

We settled the case for $3 million after the trial judge set a trial date and assigned the case to a federal magistrate judge for mediation. The defendant paid our number. No defendant wants to go in front of a jury in a breach of contract case when there is no dispute that the defendant lied and cheated and then fired the sales representative for having the audacity to object. Honesty sells. Dishonesty does not.

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