Estate of William J. Burford v. Accounty Practice Sales, Inc. and Gary L. Holmes

Defendant Accounting Practice

Sales (APS) terminated its brokerage contract with William

Burford after he failed, in his exclusive territory for APS, to

meet his minimum yearly sales volume for four consecutive

years. Burford sued. APS defended on the grounds that Burford

failed to meet his sales requirement and that his contract

was terminable at will. The case was tried after an earlier appeal

in the case, and the jury ruled in favor of APS. While this

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appeal by Burford was pending, he passed away. His estate

has carried on the appeal, arguing that the district court erred

by permitting APS to defend on the basis of Burford’s failure

to meet his sales volume requirement, by refusing to admit an

exhibit, and by refusing to order a new trial on the theory that

the jury verdict was contrary to the weight of the evidence as

to whether APS waived its right to terminate the contract.

None of these arguments warrants a new trial. We affirm the

judgment of the district court in favor of APS.

I. Factual and Procedural Background

Defendant APS acts as a broker for the purchase and sale

of accounting practices. APS works through brokers who are

treated as independent contractors and are assigned exclusive

sales territories for APS. The brokers and APS share commissions

for successful sales. Plaintiff Burford became a broker

for APS in 2003, and over the next several years, he and APS

agreed to add additional states as part of his exclusive territory.

Burford’s contract included a “minimum yearly sales

volume” requirement. On appeal, the parties do not dispute

that Burford did not meet this requirement for four consecutive

years.

In March 2010, APS owner Gary Holmes spoke with Burford

about his poor performance. Burford acknowledged that

he needed to improve, but he failed to meet his minimum

yearly sales volume requirements again in 2010 and 2011. In

2012, APS terminated Burford’s contract and reassigned his

sales territory.

Burford brought suit in an Illinois state court, claiming

that APS breached his contract by terminating it without the

required good cause. He also sought to pierce the corporate

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veil to hold Holmes personally liable for the breach. The district

court granted summary judgment in favor of the defendants

on the theory that Burford’s contract with APS was terminable

at will. In the earlier appeal, we reversed on that

point, finding that the contract’s provision that “APS cannot

terminate this agreement unless it is violated by Burford”

meant that the contract was not terminable at will. Burford v.

Accounting Practice Sales, Inc., 786 F.3d 582, 587–88 (7th Cir.

2015). We remanded for trial on the contract claim. The jury

found for APS, and the district court entered judgment on the

verdict.

On appeal, Burford raises three issues. First, he claims that

the trial court erred by supposedly allowing APS to change

the legal theory for its defense in violation of the “mend‐thehold”

doctrine in Illinois law. Second, Burford argues that the

district court abused its discretion by denying admission of

an exhibit. Third, he claims that the jury’s verdict was contrary

to the weight of the evidence on whether APS waived its

right to enforce the minimum sales requirement.

II. Analysis

“Mend the Hold”

Burford’s first argument on appeal is that APS should not

have been allowed to assert its defense that it terminated Burford’s

contract for good cause since he had missed his minimum

sales requirements for several years. Burford’s theory is

a variation of the “mend‐the‐hold” doctrine in Illinois law.

That doctrine, which takes its name from a nineteenth‐century

wrestling phrase, is less a set of rules than a flexible concept

of equity. It prevents one party to litigation, especially in

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contract disputes, from trying to change its position or theories

at such a late stage in the dispute as to cause unfair prejudice

to the opposing party. See Harbor Ins. Co. v. Continental

Bank Corp., 922 F.2d 357, 362 (7th Cir. 1990) (“[W]here a party

gives a reason for his conduct and decision touching any thing

involved in a controversy, he cannot, after litigation has begun,

change his ground, and put his conduct upon another

and a different consideration. He is not permitted thus to

mend his hold.”), quoting Ohio & Mississippi Railway Co. v.

McCarthy, 96 U.S. 258, 267–68 (1877); see also Ryerson Inc. v.

Federal Ins. Co., 676 F.3d 610, 614 (7th Cir. 2012) (collecting

cases); Horwitz‐Matthews, Inc. v. City of Chicago, 78 F.3d 1248,

1251 (7th Cir. 1996); FHP Tectonics Corp. v. American Home Assurance

Co., 57 N.E.3d 575, 587–88 (Ill. App. 2016) (declining

to apply doctrine in absence of unfair surprise or arbitrariness).

The doctrine seems to correlate fairly closely to federal

courts’ approach to efforts to amend pleadings under Federal

Rule of Civil Procedure 15. The doctrine also lies close to the

boundary between matters of substance and procedure for

purposes of Erie Railroad Co. v. Tompkins. See Harbor Insurance,

922 F.2d at 363–65.

Whatever the scope of the mend‐the‐hold doctrine, and

whether it is procedural or substantive, it does not help Burford

in this case. From its earliest discovery responses, APS

advanced two central arguments in defense: first, it terminated

Burford’s contract for good cause because he failed to

meet his minimum yearly sales volume, and second, the

agreement was terminable at will. Dkt. No. 129, Ex. 1 at 4 (response

to interrogatories).

Burford bases his mend‐the‐hold argument on the strategy

APS pursued, but that strategy was perfectly reasonable

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and not unfair in any way to Burford. It is easy to imagine that

a motion for summary judgment based on Burford’s failure to

meet his sales volume requirements could quickly bog down

in disputes about accounting, waiver, and competing equities.

APS chose instead to move for summary judgment on the narrow

ground that its contract with Burford was terminable at

will. There was nothing unfair or unsound about that strategic

choice, and the district court granted summary judgment

for APS on that basis. We reversed in the earlier appeal, holding

that the contract was not terminable at will. Burford, 786

F.3d at 588.

It is not unusual or unfair for a defendant who believes he

has a solid legal defense to assert that defense first in a Rule

12(b)(6) motion or summary judgment motion in the hope of

winning an early and relatively inexpensive victory. Filing either

sort of motion simply does not waive other defenses that

may be available to that party. (Consider for a moment the

consequences of a contrary ruling on that point, treating as

waived a substantive defense that the defendant did not include

in a summary judgment motion. That rule would create

powerful incentives for defendants to load up summary judgment

motions with all of their defenses, including theories

that would have no hope on summary judgment even though

they might be winners at trial. Imagine the costs and burdens

for civil litigation, in return for no apparent benefit. And Rule

56 has no such waiver rule, as compared to Rule 12(h).)

In the trial after remand, APS pursued its alternative, more

fact‐centered defense, arguing that it had good cause to terminate

the contract because Burford had failed for several

years to meet his minimum yearly sales volume. Burford attempted

to block this route, arguing in a motion in limine that

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APS could not assert any defense other than the terminableat‐

will defense without violating the “mend‐the‐hold” doctrine.

The district court denied that motion. Burford’s claim

went to trial, and the jury returned a verdict in favor of APS.

Even the most aggressive versions of the mend‐the‐hold

doctrine would not block APS from proving it had good cause

to terminate Burford’s contract. APS did not change its defense.

APS maintained two defense theories from the start,

and they are not inconsistent with each other (though a party

is allowed to pursue even inconsistent theories for its claims

or defenses, see Fed. R. Civ. P. 8(d)). In addition, there was no

prejudice to Burford, who was not surprised by APS’s argument

that it terminated him for cause. See Dkt. No. 73 at 3

(transcript from Nov. 1, 2013 pretrial conference where Burford’s

counsel identified cause to terminate as a key issue); see

also Ryerson Inc., 676 F.3d at 614 (“When there is no prejudice

to the opposing party, invoking the doctrine of mend the hold

to bar a valid defense is overkill.”). The district court did not

err by allowing APS to defend its termination for cause.

B. Trial Exhibit 13

Burford next argues that the district court erred when it

did not admit his Exhibit 13, which was a document that Gary

Holmes sent to APS brokers in 2010 to answer frequently

asked questions about APS’s proposed transition into a franchise

operation. One answer in the document said: “There

will be a minimum production requirement. This has been

discussed but never really enforced. But it is time that territories

all be productive. This will not affect all brokers but will

some.” While Burford had rejected APS’s franchise overtures,

he argues the document was nonetheless relevant to show

that APS had waived its right to enforce its minimum yearly

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sales requirement. We review such an evidentiary ruling only

for abuse of discretion. Morgan v. City of Chicago, 822 F.3d 317,

338 (7th Cir. 2016).

The district court did not abuse its discretion by denying

admission of Exhibit 13. Federal Rule of Evidence 403 provides:

“The court may exclude relevant evidence if its probative

value is substantially outweighed by a danger of … undue

delay, wasting time, or needlessly presenting cumulative

evidence.” While Exhibit 13 may have been relevant, its exclusion

was not an abuse of discretion because it would have

been needlessly cumulative.

Burford sought to introduce Exhibit 13 to prove that APS

had not previously enforced the minimum sales volume requirement

in his contract. His theory was that APS had

waived its right to terminate for such failures. Burford argued

that Exhibit 13 “related only to what APS had admittedly

done previously in not enforcing any minimum production

requirement.” However, this point was not in real dispute.

The issue at trial was not whether APS had enforced the minimum

yearly sales volume in the past; it clearly had not. Gary

Holmes himself readily testified to this effect. The real dispute

at trial was whether APS’s earlier failure to enforce the sales

requirement amounted to an implicit waiver of its right to enforce

the sales requirement later.

Burford himself acknowledged that APS’s past non‐enforcement

was well established at trial: “there was ample and

conclusive testimony at trial to establish that APS had waived

the minimum yearly sales volume.” Whether the earlier failure

to enforce minimum sales requirements amounted to a

waiver was controversial, but not the point from Exhibit 13

that the requirements had not been enforced in the past. Since

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this point was already established, it was not unreasonable for

the court to exclude Exhibit 13 as cumulative under Rule 403,

and Burford’s substantial rights were not affected by the exclusion.

See Fed. R. Civ. P. 61.

C. Sufficiency of the Evidence

Finally, Burford argues that the jury’s verdict was contrary

to the weight of the evidence because there was “overwhelming

and indisputable evidence of waiver.” Waiver is “the intentional

relinquishment of a known right, [and it] can arise

either expressly or by conduct inconsistent with an intent to

enforce the right.” Wald v. Chicago Shippers Ass’n, 529 N.E.2d

1138, 1147 (Ill. App. 1988) (Illinois contract law). Burford

sought to establish waiver by showing that APS could have

terminated him sooner but did not do so.

We review for abuse of discretion the district court’s ruling

on a Rule 59 motion for a new trial. Davis v. Wisconsin Dep’t of

Corrections, 445 F.3d 971, 979 (7th Cir. 2006), citing Latino v.

Kaizer, 58 F.3d 310, 314 (7th Cir. 1995). A new trial should be

granted “only when the record shows that the jury’s verdict

resulted in a miscarriage of justice or where the verdict, on the

record, cries out to be overturned or shocks our conscience.”

Id., citing Latino, 58 F.3d at 314.

There was sufficient evidence here for the jury to find that

APS did not waive its right to terminate Burford. The contract

gave APS the option to terminate its contract with Burford if

he failed to meet certain thresholds. It did not require APS to

fire Burford in such instances. When we last considered this

contract, we said: “APS could terminate the contract only if

Burford violated it. There is a decisive difference between saying

that A may terminate if B breaches and saying that A may

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terminate only if B breaches.” Burford, 786 F.3d at 587. At that

point, we made this distinction to show that APS could fire

Burford only for cause, not at will.

Those same terms in the contract illustrate a different but

equally valid point: saying that A may terminate if B breaches

does not mean A must do so immediately or else lose forever

the right to terminate. Adopting Burford’s theory of this contract

would lead to perverse results. In any case of material

breach, the non‐breaching party would need to terminate the

contract promptly or forever waive the right to terminate.

Such a draconian approach would destabilize commercial relationships

where breaches may be tolerated for a host of reasons,

from the difficulty in finding substitutes to recognizing

headwinds from macroeconomic troubles, or to humane reasons

like excusing Burford’s failure to record any sales in a

year when he had serious health problems.

At trial, APS’s Holmes testified to such reasons. He said he

did not terminate Burford’s contract earlier because he

“wanted to be fair” and wanted “to give him a chance” to improve

his performance. Holmes noted that Burford had received

surgery in one year, and that 2008 was a bad economic

time for everyone. During another year, Burford was involved

in a lawsuit, which had evidently taken up much of his time.

For these reasons, Holmes testified, APS gave Burford multiple

chances to improve his performance. When Burford continued

to struggle, Holmes ultimately had a “heart‐to‐heart”

with him in 2010 before terminating his contract at the beginning

of 2012. The jury was not required to accept APS’s explanation,

but given this and other evidence offered at trial, the

jury’s verdict that APS had not waived its right to terminate

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Burford was certainly not contrary to the weight of the evidence.

This result is entirely consistent with our reasons for reversing

in the earlier appeal and finding that the contract was

not terminable at will. It made good sense for the parties to

agree that Burford would have an exclusive territory and that

his contract could be terminated only for cause. Otherwise,

APS could have watched while Burford built up his territories

and then terminated his contract, grabbing for itself all the

fruits of his labors. 786 F.3d at 587–88. At the same time, if a

manufacturer or other upstream company like APS agrees to

give a sales representative an exclusive territory, its right to

terminate for poor performance is critical. Without that right,

it risks effectively abandoning the territory, unable to replace

the poor performer in his exclusive territory. For that reason,

neither courts nor juries should quickly find waiver when the

manufacturer or upstream company tolerates poor performance

but ultimately loses patience and terminates the contract

for the exclusive territory.

The judgment of the district court is AFFIRMED.