Mendoza v. Comsat Corporation

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

_______________

No. 98-10838
_______________

JOSE MENDOZA; MARALI CORP,

Plaintiffs - Appellees-Cross-Appellants,

VERSUS

COMSAT CORPORATION,
formerly known as Communications Satellite Corporation,

Defendant - Appellant-Cross-Appellee.

_________________________

Appeals from the United States District Court
for the Northern District of Texas
_________________________

February 3, 2000

Before DAVIS, JONES, and MAGILL,* Circuit Judges.

MAGILL, Circuit Judge:

The principal issue in this appeal is whether a broker can

recover an ex contractu commission on a procuring cause theory

under the prevention doctrine in the absence of bad faith on the

part of the seller. In this case, a written agreement between Jose

Mendoza (Mendoza) and COMSAT Corporation (COMSAT) expressly

conditioned Mendoza's right to a commission upon a sale being made

either before or within ninety days after his termination. When

*
Circuit Judge of the Eighth Circuit, sitting by designation.
COMSAT refused to pay Mendoza a commission for a sale made nearly

one year after Mendoza's termination, Mendoza commenced the present

action against COMSAT. Despite finding that COMSAT did not breach

the covenant of good faith and fair dealing, the jury looked beyond

the written agreement and awarded Mendoza $1,000,000 because he

procured a ready, willing and able buyer for COMSAT's domestic

satellite system. The district court reformed the jury award to

$3,054,454.66, the amount to which Mendoza would have been entitled

to under his representative agreement had the sale occurred either

before or within ninety days after his termination.

We believe that the jury's finding that COMSAT did not breach

the covenant of good faith and fair dealing precludes recovery on

a procuring cause claim under the prevention doctrine. Thus, we

reverse and vacate the district court's order insofar as it awards

Mendoza judgment.

I.

COMSAT builds and operates satellite-based communications

systems. In its effort to recruit foreign buyers, COMSAT assigns

sales representatives to territories in different parts of the

world. On April 16, 1986, COMSAT and Mendoza entered into a

representative agreement (Representative Agreement)in which Mendoza

agreed to market COMSAT's products to the Côte d'Ivoire. The

Representative Agreement expressly conditioned Mendoza's right to

a commission upon a sale being made either before or within ninety

2
days after his termination.1 On January 6, 1989, the parties

amended Mendoza's commission rate, but did not expressly abrogate

or alter the ninety-day extension period during which Mendoza would

be eligible for commissions on post-termination sales. As amended,

the Representative Agreement provided Mendoza with the right to an

8% commission for any contract awarded to COMSAT as a "direct

result" of his efforts.

Mendoza initiated his marketing efforts by contacting the

Ivorian Minister of Post and Telegraph, Aka Bonny (Aka)in 1985.

Aka immediately expressed interest in acquiring a new telephone

system to enhance the prestige of his office. In October 1986, Aka

received approval to purchase two satellite earth-stations for his

department from COMSAT in the amount of $3,000,000. For his part

in these sales, Mendoza received commissions totaling $500,000.

Following these sales, Mendoza and COMSAT focused their

efforts towards securing a contract for the sale of a domestic

satellite system (Domsat system) to the Côte d'Ivoire.

Specifically, Mendoza and Aka orchestrated an $80,000,000 Domsat

1
In relevant part, the Representative Agreement reads:

If either party terminates this Agreement in accordance
with this Article and within ninety (90) days of the termination
date sales are made in the Territory as a result of a quote made by
the Representative or [COMSAT] prior to the termination date, such
sales shall count for a commission which shall be negotiated
between the Parties involved; provided, however, that no commission
shall be due regarding sales in violation of the representations
set forth in Article III.

3
package with five components, including: 1) a phone system for

Aka's department, 2) a radio-based security network for the

Minister of Defense, 3) a national radio-television network for the

Minister of Communications, 4) a telecommunications network linking

the Côte d'Ivoire to its embassies in other West African countries,

and 5) a distribution system for foreign television in the Côte

d'Ivoire. Much to Mendoza's chagrin, Ivorian politics and

economics hampered his ability to sell the Domsat project to

Ivorian officials. Despite approximately five years of effort,

Mendoza failed to persuade Ivorian officials to purchase COMSAT's

$80,000,000 Domsat package.

In June 1990, COMSAT alerted Mendoza that he was going to be

terminated for lack of progress. Upon hearing this news, Mendoza

promised progress and asked for an additional thirty days to close

the deal. COMSAT gave Mendoza an additional six months, a time

during which Mendoza admits nothing positive occurred. On October

23, 1991, COMSAT notified Mendoza by letter that the Representative

Agreement would be terminated in ninety days on January 21, 1992.

Following Mendoza's termination, COMSAT took several actions

designed to secure a sale to the Côte d'Ivoire. In May 1992,

COMSAT hired a new sales representative, Loum Diagne, an Ivorian

businessman and professor with substantial government contacts.

Next, COMSAT attempted to mute French resistance to the project by

entering into a strategic partnership with the French

4
telecommunications giant, Alcatel.2 In May 1992, COMSAT made a new

bid on the television distribution system, which invited the Côte

d'Ivoire to select from a radio-television "shopping list."

COMSAT's efforts succeeded in securing a sale for a much less

ambitious project than the one Mendoza marketed to Côte d'Ivoire

officials. Approximately one year after Mendoza's termination

became effective, COMSAT made a sale to the Côte d'Ivoire valued at

approximately $38,180,683.31. Mendoza was not paid a commission on

this sale.

On July 21, 1993, Mendoza brought suit against COMSAT for a

commission allegedly earned as the result of having procured a

contract for the sale of COMSAT's Domsat system. Mendoza's

complaint alleged the following causes of action: 1)breach of

contract, 2) breach of the implied contractual covenant of good

faith and fair dealing, 3) conspiracy to tortiously interfere with

contract, 4) procuring cause, and 5) breach of good faith and fair

dealing. The district court granted COMSAT's motion for summary

2
The Côte d'Ivoire has historically maintained very close
relations with France, having been a French colony until recently
in this century. The Côte d'Ivoire's first president, Félix
Houphouët-Boigny, negotiated independence from France on August 7,
1960, yet maintained a pro-French authoritarian regime until he
died in 1993. One office always controlled by French interests is
the Grand Traveaux, or Minister of Large Public Works. Mendoza
testified at trial that "all of Mr. Aka's work comes under the
auspices of the Grand Traveaux." In his brief, Mendoza admits that
the Grand Traveaux was an "enemy . . . who would have preferred to
see [the] contract go to the French." (Appellee's Br. at 14-15)
Mendoza's concedes that Alcatel and the Grand Traveaux were closely
aligned and determined to prevent the contract from going to
COMSAT. (Appellee's Br. at 15)

5
judgment on Mendoza's claims for breach of contract and breach of

good faith and fair dealing, and submitted the remaining three

claims to the jury. The jury found that COMSAT neither breached

the implied covenant of good faith and fair dealing nor conspired

to tortiously interfere with Mendoza's contract. However, the jury

found Mendoza entitled to a commission on his procuring cause claim

and awarded him $1,000,000. The district court reformed the jury's

award to $3,054,454.66 to reflect the 8% commission specified in

the Representative Agreement.

On appeal, COMSAT argues that 1) the jury's finding of

procuring cause was not supported by sufficient evidence, 2)

recovery under the prevention doctrine is barred by the express

terms of the parties' Representative Agreement because COMSAT did

not breach the covenant of good faith and fair dealing, and 3)

Mendoza's failure to move for a directed verdict on the issue of

damages prohibited the district court's reformation of the jury

award. Mendoza cross-appeals, arguing that the district court

erred in 1) granting COMSAT summary judgment on Mendoza's breach of

contract claim, 2) granting COMSAT summary judgment on Mendoza's

remedy under the Texas Sales Representative Act (TSRA), and

3)refusing to deem undenied averments contained in Mendoza's

amended complaint as admissions and grant Mendoza judgment as a

matter of law.

Because we find that the jury's finding that COMSAT did not

6
breach the covenant of good faith and fair dealing precludes

recovery on a procuring cause claim under the prevention doctrine,

we reverse the decision of the district court insofar as it awards

Mendoza judgment. We do not reach the other issues COMSAT raises

on appeal. We affirm all orders and rulings from which Mendoza

cross-appeals.

II.

COMSAT's primary claim is that the Representative Agreement

expressly precludes recovery under the common law procuring cause

principle. In short, COMSAT contends that the parties contracted

around procuring cause by substituting a fixed ninety-day time

period during which Mendoza could receive a commission for any

post-termination sale made as a direct result of his efforts.

COMSAT argues that this condition controls unless it somehow

wrongfully prevented the sale from being made within the ninety-day

time period. This case requires us to analyze the relationship

between the prevention doctrine and the procuring cause principle

under District of Columbia law.3

Under District of Columbia law, in the absence of a

conditional contract, a broker of a sale is entitled to receive a

3
The parties agreed at oral argument that the issues of
procuring cause and breach of contract are controlled by District
of Columbia law. Mendoza contends that his claims for damages
under the TSRA is controlled by Texas law.

7
commission when the broker procures a buyer who is ready, willing

and able to effect the purchase on the terms stipulated by the

seller. See Dale Denton Real Estate, Inc. v. Fitzgerald, 635 A.2d

925, 928 (D.C. 1993) (noting that "application of the 'procuring

cause' principle 'presupposes the existence of a valid and

unconditional contract.'")(quoting Krebs v. Morgan, 143 A.2d 518,

519 (D.C. 1958)). Moreover, the parties' failure to consummate the

sale does not defeat the broker's right to commission "'where such

failure is attributable to the fault or misconduct of the seller.'"

Mike Palm, Inc. v. Interdonato, 547 A.2d 1016, 1020 (D.C. 1988)

(quoting Gill v. American Security Corp., 209 A.2d 629, 631 (D.C.

1965)) (emphasis added). The seller is entitled, however, to make

the broker's employment contingent upon any lawful condition to

which the parties consent. See Fitzgerald, 635 A.2d at 928. Thus,

in determining whether a broker is entitled to a commission for

procuring a ready, willing and able buyer, District of Columbia

courts first look to the parties' agreement for any conditions

imposed on the broker's right to a commission. See id. If the

agreement contains such a condition, District of Columbia courts

look to see whether the condition was fulfilled. See id.

Parties may condition a broker's right to a commission upon

consummation of sale4, rather than merely procuring a ready,

4
District of Columbia courts have demonstrated a considerable
reluctance to interpret the terms "sell" or "sold" so as to empower
a seller with the right to defeat a broker's right to a commission
(continued...)

8
willing and able buyer. See Reiman v. International Hospitality

Group, 558 A.2d 1128, 1132 (D.C. 1989). In this case, the

Representative Agreement expressly conditioned Mendoza's right to

post-termination commissions upon a sale being made either before

(...continued)
because a sale was not consummated. See, e.g., Mike Palm, Inc. v.
Interdonato, 547 A.2d 1016 (D.C. 1988). In Interdonato, for
example, the relevant provisions of the agreement provided that the
broker would "undertak[e] to find a purchaser for [the seller's
restaurant], whereupon a commission of ten percent would be paid to
the broker if the restaurant was sold." 547 A.2d at 1018 (emphasis
added). Although the broker found a buyer who was willing to
purchase the restaurant on the seller's terms, the seller refused
to complete the sale because an unrelated prior agreement prevented
the seller from making the sale until a later date. Id. The
broker's agreement contained no mention of this alleged time-
constraint. The broker brought suit under the procuring cause
principle. The District of Columbia Court held that in the context
of listing agreements, "sell" means something less than full
consummation of transaction because the owner retains the right to
reject any offer even though it meets the terms of the agreement.
Id. at 1021.

Interdonato is distinguishable from the present case for
several reasons. First, as opposed to Interdonato, the parties in
this case expressly conditioned Mendoza's right to a commission
upon a sale being made either before or within ninety-days after of
his termination. Thus, the issue is when, not if, a sale was made
to the Côte d'Ivoire. In this case, the sale was not consummated
until approximately one year after Mendoza's ninety-day extension
period expired. Second, in this case, Mendoza's testimony
indicates that he clearly understood that his right to a commission
was contingent upon a sale being consummated within the ninety-day
period. In Interdonato, however, the broker apparently had no idea
that a prior agreement restricted the restaurant owner's ability to
sell the restaurant before a certain time. In other words, in this
case, interpreting the term "sale" to mean ultimate consummation
does not frustrate the parties' intentions. Finally, Interdonato
was decided under a straight-forward procuring cause analysis with
no reference to the prevention doctrine. In this case, the
critical issue is whether procuring cause can come into play under
the prevention doctrine in the absence of bad faith on the part of
the seller.

9
or within ninety days following his termination. This condition

never occurred.

On October 23, 1991, COMSAT notified Mendoza by letter that

the Representative Agreement would be terminated in ninety days on

January 21, 1992.5 Mendoza's testimony indicates that he clearly

understood that a sale had to be made before January 21, 1992, for

him to be paid a commission. Because COMSAT did not make a sale

until approximately one year after Mendoza's ninety-day extension

period expired, Mendoza was not entitled to a commission under the

terms of the Representative Agreement.

III.

A.

The district court allowed the jury to go beyond the four

corners of the Representative Agreement by submitting Mendoza's

procuring cause issue to the jury. The District of Columbia Court

of Appeals has specifically noted that "[t]he application of the

'procuring cause' principle 'presupposes the existence of a valid

and unconditional contract.'" Dale Denton Real Estate, Inc. v.

Fitzgerald, 635 A.2d 925, 928 (D.C. 1993) (quoting Krebs v. Morgan,

143 A.2d 518, 519 (D.C. 1958)) (emphasis added). This case,

5
The parties disagree on the effective date of termination.
COMSAT contends January 21, 1992 was the effective date, while
Mendoza's brief suggests that the effective date was February 15,
1992. Because the parties did not consummate the sale until nearly
one year after either alleged effective date, we find this issue
immaterial to the present appeal.

10
however, involves a written agreement wherein the parties expressly

conditioned Mendoza's right to a commission upon a sale being made

either before or within ninety-days following his termination. In

other words, the parties replaced common law procuring cause with

a fixed time period during which Mendoza could receive a commission

for any sale made as a "direct result" of his efforts. We must

decide whether this condition should control unless COMSAT acted

wrongfully to prevent its occurrence.6

As a general rule, if a contract expressly conditions the duty

to perform upon the occurrence of a specified event, the duty to

perform does not arise until that condition occurs. The doctrine

of prevention is a well-recognized exception to this rule. This

doctrine provides that when a promisor wrongfully prevents a

condition from occurring that condition is excused. According to

the Restatement of Contracts, the prevention doctrine is subsumed

under the duty of good faith and fair dealing.

The obligor's duty [of performance] is not discharged if
occurrence of the event (a) is the result of a breach by
the obligor of his duty of good faith and fair dealing,
or (b) could not have been prevented because of
impracticability and continuance of the duty does not
subject the obligor to a materially increased burden.

Restatement (Second) Contracts § 230 (1979) (emphasis added). The

6
In Facchina v. Sullivan, 109 A.2d 581 (D.C. 1954), a case
heavily relied upon by Mendoza, the District of Columbia Court of
Appeals held that the issue of good faith was immaterial to whether
a broker was entitled to a commission under the procuring cause
doctrine. Mendoza's reliance is misplaced because Facchina did not
involve an agreement where the parties consented to impose a
condition upon the broker's right to a commission.

11
Restatement view is consistent with District of Columbia law. See

Reiman v. International Hospitality Group, 558 A.2d 1128, 1132

(D.C. 1989). In Reiman, the District of Columbia Court of Appeals

suggested that wrongful conduct, as opposed to some less culpable

form of fault, is a prerequisite to application of the prevention

doctrine:

Although the party who promises to pay the broker's
commission can make its performance contingent upon the
consummation of the sale between the seller and the
buyer, or any other lawful condition to which the parties
agree if the promisor wrongfully prevents the occurrence
of that condition, then the condition is excused.

Id. (emphasis added). Using slightly different language, District

of Columbia courts have similarly observed that "if the failure to

fulfill a condition is attributable to the fault or misconduct of

the seller, then the broker may be entitled to a commission

provided he can show that he was the procuring cause of the sale."

Fitzgerald, 635 A.2d at 928 (emphasis added).

Mendoza argues that a showing of bad faith is not required to

trigger application of the prevention doctrine under District of

Columbia law. We are not persuaded. Before a broker can escape

the express conditions of a contract, the broker must prove that

the seller acted wrongfully to prevent the broker from receiving a

commission under the terms of a contract. See id.; Reiman, 558

A.2d at 1132. In other words, the jury should not have been

allowed to consider common law procuring cause unless it first

found that COMSAT wrongfully denied Mendoza a commission by

12
preventing a contractual condition from occurring.

B.

After dismissing Mendoza's breach of contract claim,7 the

district court submitted Mendoza's procuring cause claim to the

jury. The district court first instructed the jury as follows:

The law implies a duty of good faith and fair
dealing in the contract between the defendant COMSAT and
plaintiffs Jose Mendoza and MarAli Corporation. . . .
This duty of good faith and fair dealing prevents a party
from evading the spirit of the contract, willfully
rendering imperfect performance, or interfering with the
other party's performance.

You may find a breach of the duty of good faith and
fair dealing under the above definition if you find that
either of the following occurred:

1. if COMSAT terminated Plaintiffs' representative
contract for the purpose of depriving Plaintiffs of
commissions for work already done; or

2. if COMSAT intentionally delayed in making a sale
to the Ivory Coast or agreed to a lapse in negotiations
with the Ivory Coast with the intent that the sale occur
after Plaintiffs' right to a commission under the terms
of the contract had expired.

The district court bundled this instruction with a definition

of "procuring cause" and instructed the jury that it could consider

the procuring cause issue only if it found that Mendoza breached

the duty of good faith and fair dealing. The jury found that

COMSAT did not breach this duty.

In a completely separate instruction, the district court

7
Mendoza appeals the district court's granting of summary
judgment on his breach of contract claim. We find this appeal
meritless and affirm the district court's grant of summary
judgment.

13
instructed the jury that it could find in favor of Mendoza under

the procuring cause doctrine regardless of whether COMSAT acted in

bad faith to prevent Mendoza from receiving a commission under the

terms of the Representative Agreement:8

Under the doctrine of procuring cause, sales
representatives are entitled to commissions even after
their representative contracts expire if they were the
procuring cause of a sale that was ultimately consummated
and if the seller hindered or prevented the consummation
of the sale prior to the termination of the
representative contract.

COMSAT argues that the district court erred in giving this

instruction. We agree. In this case, the jury specifically found

that COMSAT did not violate its duty of good faith and fair

dealing. Under both the Restatement and District of Columbia law,

an opposite finding is necessary before a broker can disregard

conditions clearly expressed in the representative agreement and

recover an ex contractu commission.

III.

For the foregoing reasons, we reverse and vacate the judgment

below insofar as it awards Mendoza judgment on his procuring cause

claim. Based on our decision, we need not reach the other issues

COMSAT raises on appeal. After careful consideration of the issues

Mendoza raises in his cross-appeal, we affirm the district court's

8
We reject Mendoza's argument that the terms "hindered or
prevented" should be interpreted to mean some form of "wrongful
conduct." The terms "hindered or prevented" can also encompass
completely innocent behavior insufficient to trigger application of
the prevention doctrine.

14
rulings in their entirety without further comment.

15