January 27, 2014
By Mark Del Bianco
Theres a lot of buzz (and some misinformation) in the channel now that a jury has agreed with TDM that Birch owes it unpaid commissions because a clause in TDMs partner contract with Navigator Communications provided that the contract was automatically assigned to Birch when Birch bought Navigator. What does this case ultimately mean for the channel? No one is sure about the long term effects, but here are four things that are clear already.
Partners in situations like TDM’s have always been able to sue or bring an arbitration. The outcome depends on the facts of the case and the language of their contracts. Partners have prevailed in settlements and in similar court cases or arbitrations even if their contracts did not have the “automatically assigned” language. In addition, in some states, purchasers of a group of assets are also required as a matter of law to take any liabilities associated with those assets.
The jury verdict does not set any legal precedent. The case turned on specific facts, such as the language of the TDM-Navigator and Navigator-Birch contracts, and the conduct of the parties. These will be different in every other case.
The judges order denying Birchs request to dismiss the case before trial and allowing the case to go to the jury does set a precedent that is helpful to channel partners, but it only serves as direct precedent in the U.S. District Court in Kentucky. On the bright side, even if it doesnt create any legal precedent elsewhere, the order has persuasive force and creates a roadmap for partners in crafting potentially stronger contract language.
Partner contracts do not have to have automatically assigned” language to be enforceable against purchasers, but such a clause definitely strengthens the agents position. Such clauses have not traditionally been a point of contention. Ive only run into the situation once in almost a decade of representing partners. Much more common is a situation where the original service provider or a successor firm either deliberately underpays the amount of commission due, or simply stops paying at all. In those situations, there is no question about assignment of the partners contract.
I would not try to predict how the outcome of this case will affect the language in partners’ contracts from here on out. Partners negotiating carrier contracts have to pick their battles. Unless they have unusual leverage, partners cant get everything they want. For most partners, issues such as non-solicitation and evergreen clauses are likely to be more important than the potential for disaster if the original carrier is acquired.
Of course, if a wave of consolidation sweeps the service providers and the Birch scenario becomes more common, you will see a lot more tussling over “automatically assigned” clauses.
Mark Del Bianco, principal,
Law Office of Mark C. Del Bianco
, is based in the metropolitan Washington, D.C., area. His practice focuses on domestic and international telecom clients, particularly those implementing new technologies such as WiMax, Gigabit Ethernet and FTTH. Other clients include applications providers, channel sales agents and enterprise customers. Del Bianco is a member of
the 2012-13 Channel Partners Advisory Board.
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