Perthuis v. Baylor Miraca Genetics Labs., LLC

645 S.W.3d 228

Thomas Brandon PERTHUIS, Petitioner,

v.BAYLOR MIRACA GENETICS LABORATORIES, LLC, Respondent

No. 21-0036

Supreme Court of Texas.

Argued February 2, 2022

OPINION DELIVERED: May 20, 2022

Jarod Stewart, Houston, Michelle Stratton, Garland Murphy IV, Houston, for Respondent.

Paul D. Flack, Houston, Reagan Douglas Pratt, for Petitioner.

Justice Young delivered the opinion of the Court, in which Chief Justice Hecht, Justice Lehrmann, Justice Devine, Justice Blacklock, Justice Busby, and Justice Bland joined.

When a seller agrees to pay sales commissions to a broker (or other agent), the parties are free to condition the obligation to pay commissions however they like. But if their contract says nothing more than that commissions will be paid for sales, Texas contract law applies a default rule called the "procuring-cause doctrine." Under that rule, the broker is entitled to a commission when "a purchaser [was] produced through [the broker's] efforts, ready, able and willing to buy the property upon the contracted terms ...." Goodwin v. Gunter , 109 Tex. 56, 185 S.W. 295, 296 (1916). In this case, the agreement between the parties was silent about any exceptions to the duty to pay commissions for sales that petitioner procured. The procuring-cause doctrine therefore applies. Because the court of appeals held otherwise, we reverse its judgment and remand for further proceedings.

I

Respondent Baylor Miraca Genetics Laboratories, LLC (BMGL) made petitioner Brandon Perthuis its Vice President of Sales and Marketing in early 2015. BMGL drafted the two-page employment agreement, which Perthuis signed without alteration. The agreement gave Perthuis an annual base salary of $145,000 and stated that Perthuis's employment would be "at-will." As to Perthuis's commissions, it provided: "Your commission will be 3.5% of your net sales." Nothing more—the employment agreement did not, for example, define "net sales" or place any other parameters on the commission obligation. The employment agreement also noted that Perthuis would be eligible for retention bonuses; it referenced a separate "retention agreement," which Perthuis also signed the same day. The retention agreement expressly conditioned any retention bonus on Perthuis's continued employment.

BMGL develops and analyzes genetic tests. BMGL sells its tests to "channel partners," who return test specimens to BMGL after obtaining orders from physicians. Perthuis served BMGL by pursuing and negotiating contracts with channel partners, the most prominent of which was Natera, Inc. In 2015, Perthuis negotiated such a contract between Natera and BMGL. Natera agreed to purchase a minimum number of tests; in exchange, it received an exclusivity agreement, under which BMGL promised not to perform tests for Natera's direct competitors. Natera, moreover, would pay a penalty and forfeit that exclusivity if it failed to purchase the stated minimum. Perthuis's role with respect to the sales that flowed from the Natera agreement was then done; he did not, for example, solicit batches of particular test orders, send invoices, or collect payments. But he received commissions on all sales that arose under the Natera agreement. BMGL calculated those commissions by multiplying "net" sales (i.e. , gross sales to Natera under the contract, adjusted by a collection rate) by 3.5%.

Although the Natera agreement was drafted to last for five years, Natera completed its minimum-purchase requirement far more quickly. Natera was set to meet that requirement by the end of 2016, at which point Natera would have had no further obligation to continue buying any tests under the agreement (although Natera had the option to continue purchasing a certain number of tests each quarter to retain exclusivity until 2020). BMGL, unsurprisingly, preferred increasing its business with Natera to either losing that business or being forced to retain an exclusive relationship with only minimal ongoing sales.

BMGL therefore directed Perthuis to negotiate a contractual amendment. Perthuis spent months doing so and completed the negotiations in January 2017. The terms of the amended contract substantially increased Natera's minimum-purchase requirement, making it the largest such contract in BMGL's history.

Perthuis relayed his success to BMGL leadership on Thursday, January 19. The CEO immediately requested a meeting with Perthuis, which was set for the following Monday, January 23. The meeting, it turns out, was not to commend Perthuis, but to fire him. The very next day, January 24, BMGL executed the amendment that Perthuis had negotiated.¹

BMGL refused to pay Perthuis commissions on any sales that were finalized after his termination, including sales that flowed from the amended Natera contract. Nor did BMGL pay anyone else commissions for those sales. In fact, earlier in January—before Perthuis announced his breakthrough with Natera—BMGL's leadership had sought to cut costs by altering its commission and compensation plans. BMGL rolled out a new commission plan for its junior sales team, which expressly stated that commission fees would only "be made to employee if employed at the end of the commission period." BMGL did not, however, change Perthuis's commission structure.

Perthuis claimed that he was the procuring cause of all sales to Natera and other channel partners that were finalized in the period from his termination through trial in October 2018.² He sued BMGL for breach of contract, asserting that he was entitled to a commission on all those sales.³ BMGL denied having any further commission-related obligations to Perthuis. It argued that the employment agreement's text clearly displaced any role for the procuring-cause doctrine. But even if the contract were silent and that doctrine did apply, BMGL argued that Perthuis could not meet his burden to show that he qualified as a "procuring cause" of any sales for which he claims unpaid commissions.

The case went to trial, and the court instructed the jury on the procuring-cause doctrine as follows:

Perthuis’ "sales" included all sales for which he was the procuring cause.

A "procuring cause" of a sale is the principal and immediate cause of the sale. It need not be the sole cause, and an agent is said to be the procuring cause of a sale when his acts have so contributed to bringing about the sale that but for his acts the sale would not have been accomplished.

The fact that Mr. Perthuis was discharged by BMGL prior to the time a sale was completed does not bar his right to a commission if he was the procuring cause of the sale.

The jury found for Perthuis as to Natera and other channel partners but did not award him the full amounts that he sought. The trial court rendered judgment on the verdict but declined to award any attorneys’ fees to Perthuis.⁴

BMGL appealed; Perthuis cross-appealed to challenge the denial of attorneys’ fees. The court of appeals reversed and rendered judgment for BMGL. According to that court, the parties’ contract unambiguously entitled Perthuis to commissions only for sales made during his employment, not for procuring potential buyers for sales that closed after he was terminated. The court of appeals thus declined to address BMGL's further challenges to the trial court's judgment. The court upheld the denial of attorneys’ fees for Perthuis because Perthuis no longer was the prevailing party.

II

This Court most clearly articulated the procuring-cause doctrine in Goodwin v. Gunter over a century ago, describing it as a "settled and plain" rule. 185 S.W. at 296. The doctrine provides nothing more than a default, which applies only when a valid agreement to pay a commission does not address questions like how a commission is realized or whether the right to a commission extends to sales closed after the brokerage relationship ends.

When a plaintiff seeks to recover commissions under the procuring-cause doctrine, as in this case, three main questions arise. First, did the parties have the kind of contractual relationship to which the procuring-cause doctrine applies? If so, did the parties displace the doctrine by the terms of their contractual agreement? Finally, if the procuring-cause doctrine applies to the parties’ dispute and was not displaced, to what extent does the doctrine impose liability for the specific commission payments that the plaintiff demands? We address these questions in turn.

A

If a plaintiff seeks to invoke the procuring-cause doctrine, the initial question is whether the doctrine even applies to the contractual relationship between the parties. Goodwin and other cases make clear that the minimum prerequisite for the doctrine to apply is an agreement to pay a commission on a sale. Id. The quintessential example of such a contractual relationship is a broker seeking to procure a buyer for real property, as in Goodwin itself. Yet in cases far beyond the real-estate industry, Texas courts,⁵ and those of many other jurisdictions,⁶ have employed and continue to employ the procuring-cause doctrine.⁷

The function of the procuring-cause doctrine is to credit a broker (or salesman, or other agent) for a commission-generating sale when "a purchaser [was] produced through [the broker's] efforts, ready, able and willing to buy the property upon the contract terms ...." Goodwin , 185 S.W. at 296. Under this doctrine, the broker's entitlement to a commission vests on his having procured the sale, not on his actual involvement in a sale's execution or continued employment through the final consummation of the sale. Goodwin ’s analysis rested on the idea that—absent contractual language to the contrary—the contract deems a sale to be the broker's sale if the broker, while under contract with the owner, made the sale possible. The Court's essential holding was that "the commissions are earned and the broker is entitled to their payment according to the contract if, while it is in force, he procures a purchaser to whom the owner directly...