Norick, Inc. v. Hays Companies

Background

Norick, Inc. and Hays Companies Inc. are insurance brokerage firms. Their predecessors entered into a 1994 agreement governing how they would divide commissions from shared customer accounts. Under the original arrangement, the company that originated an account received 60 percent of the revenue and the company that serviced it received 40 percent.

Norick originated the Summit Fire Protection Company account in 2003, and Hays serviced it. In 2010, the parties agreed to divide the Summit revenue equally. Hays made those 50-percent payments for approximately 11 years, then stopped paying Norick on September 15, 2021, while continuing to receive Summit revenue.

In a November 14, 2023 summary-judgment order, the court granted Norick’s motion and denied Hays’s cross-motion. The court determined that the parties had an enforceable agreement, that the agreement required Hays to pay Norick the agreed percentage of Summit revenue, that the parties had modified the split to 50 percent each, that Hays could not unilaterally terminate the agreement, and that Hays breached the agreement by stopping payments. The court did not then decide specific performance or whether the record established any remaining damages issue.

Licensing defense

Hays argued that Minnesota Statute section 60K.48 prohibited it from paying commissions to Norick because the licenses of Norick’s principals, Richard Glasgow and Norm Hagen, had lapsed. Norick argued that Hays had not timely raised the argument and that statutory exceptions applied.

The court treated Hays’s argument as an affirmative defense—an argument that can defeat liability even if the plaintiff proves its claim. The court found that Hays had not identified this illegality defense in its answers, summary-judgment briefing, or opposition to Norick’s summary-judgment motion. Hays investigated the licensing issue only after the summary-judgment proceedings. The court therefore found that Hays had forfeited the defense and that allowing it to be raised at that late stage would unfairly prejudice Norick.

The court also addressed the statutory argument on its substance. It concluded that Hays had not shown that section 60K.48 clearly prohibited the payments at issue. The court noted that Hays did not argue Norick was unlicensed when it sold or originated the Summit account in 2003. The court further found that the statute’s exception for deferred commissions applied at a minimum because the payments were made after the original sale when Hays received revenue from Summit. Accordingly, the court concluded that the statute did not preclude Norick’s recovery.

Requested offset

Hays sought an offset, meaning a reduction in the amount owed, for the increased costs it incurred servicing the Summit account. The court rejected that request. It found no provision in the 1994 agreement allowing Hays to subtract servicing costs from Norick’s share. The court also found no evidence that the 2010 modification allowed Hays to reduce its obligation below 50 percent. The parties’ years of performance after the modification supported that conclusion.

The court also rejected Hays’s reliance on Norick’s alternative promissory-estoppel claim. Because Norick prevailed on its breach-of-contract claim, the court found that the alternative claim was moot and did not provide a basis for reducing contractual damages.

Prejudgment interest

Prejudgment interest is interest that may accrue before a court enters a money judgment. The parties disputed when that interest should begin. Norick identified an October 10, 2021 communication, while Hays argued for April 13, 2022, the date of a letter that expressly demanded 50 percent of the Summit commissions received after September 2021.

The court selected April 13, 2022. It found that the October communication was not an explicit payment demand and did not notify Hays that Norick might seek relief through litigation. The court ruled that, when a money judgment is entered, prejudgment interest must be calculated using April 13, 2022, as the start date.

Assignability

The parties asked the court to decide whether Norick could assign its contract rights to the heirs of Mr. Hagen and Mr. Glasgow. The court declined to resolve that issue. Norick and Hays are the parties to this case, while the two men and their heirs are not parties. The court concluded that deciding assignability would amount to an advisory opinion—an opinion about an issue not properly presented for decision in the case.

Orders for completing the case

The court ordered Hays, within 10 days of the order’s date, to provide enough information for Norick to verify the revenue Hays received from Summit after it stopped making payments. It ordered the parties, within 30 days, to meet and discuss how to complete the case through entry of a final and appealable judgment. Norick must then notify the court about the substance of those discussions and the procedures the parties propose. If they cannot agree, Norick’s counsel must provide the parties’ proposals, after which the court will issue further orders.