Elite Supplier Group, Inc. v. D.H. Smith & Associates, LTD.

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IN THE UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF ARKANSAS
FAYETTEVILLE DIVISION
ELITE SUPPLIER GROUP, INC.
d/b/a ELITE GLOBAL BRANDS 	PLAINTIFF/COUNTER-DEFENDANT
V. 	CASE NO. 5:24-CV-5209
D.H SMITH & ASSOCIATES, LTD.
d/b/a CREATIVES SALES & MARKETING 	DEFENDANT/COUNTER-PLAINTIFF
ORDER
Now before the Court are Defendant/Counter-Plaintiff D.H. Smith & Associates,
Ltd., d/b/a Creatives Sales & Marketing’s (“CSM”) Motion to Dismiss Count II of the
Counterclaim (Doc. 11) and Brief in Support (Doc. 12) and Plaintiff/Counter-Defendant
Elite Supplier Group, Inc., d/b/a Elite Global Brands’s (“EGB”) Response in Opposition
(Doc. 16) and Brief in Support (Doc. 17). On January 7, 2025, the Court held a motion
hearing by videoconference and entertained oral argument.
EGB, an Arkansas citizen and manufacturer of household and decorative goods,
retained CSM, a Texas citizen, to promote and sell EGB’s retail products to a nationwide
retailer––Hobby Lobby. According to EGB and CSM’s March 8, 2024 sales brokerage
agreement (Doc. 7, pp. 13–15), CSM would be paid a three-percent commission on all
consummated orders of EGB products procured for Hobby Lobby stores. See id. at p. 15.
On or about August 8, 2024, EGB terminated the parties’ brokerage agreement after
learning that CSM allegedly provided EGB’s competitor “with critical information and
advice on how to obtain [Hobby Lobby] business, including providing information that
CSM obtained through its agency with EGB.” (Doc. 4, ¶ 19). EGB then sued CSM for
breach of fiduciary duty and breach of contract. CSM filed an Answer denying EGB’s
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allegations and a Counterclaim (Doc. 7) asserting that EGB owes it $151,037.09 in
brokerage commissions on millions of dollars of product sold to Hobby Lobby. The
Counterclaim includes four counts: breach of contract, violations of the Texas Sales
Representative Act (“TSRA”), failure to pay on an open account, and unjust enrichment.
EGB now moves to dismiss Count II of the Counterclaim for violations of the TSRA.
According to that statute, a business will owe treble damages and attorney’s fees to a
sales representative for failing to tender unpaid commissions. See Tex. Bus. & Com. Code
Ann. § 54.001, et seq. However, the TSRA only applies to contracts “between a principal
and a sales representative under which the sales representative is to solicit wholesale
orders within this state . . . .” Id. at § 54.002(a). (emphasis added). ESG argues that CSM
did not solicit wholesale orders of ESG’s products from Hobby Lobby “within” Texas
because: (1) Hobby Lobby is headquartered in Oklahoma, (2) all orders were billed to
Hobby 	Lobby’s 	headquarters 	in 	Oklahoma, 	and 	(3) 	all 	of 	ESG’s 	products 	were
manufactured in China and shipped directly to Hobby Lobby’s warehouse in Oklahoma.
See Doc. 7, pp. 16–39. CSM responds that the TSRA applies whenever a sales
representative is physically located in Texas and brokers the sales from there—regardless
of the end-customer’s location.
The text of the TSRA provides no guidance to the Court in resolving this dispute,
but three cases cited by the parties are helpful. First, it appears the Texas Court of
Appeals dismissed a TSRA claim when it was clear that a sales representative’s territory
was entirely outside the state of Texas. See PenWell Corp. v. Ken Assocs., Inc., 123
S.W.3d 756, 769 (Tex. Ct. App. 2003). Similarly, the United States District Court for the
District of New Hampshire dismissed a TSRA claim by a sales representative that was
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not “engaged to solicit orders within the state of Texas,” but instead targeted customers
in the Northeast. Sky Sys. of Plymouth, NH, LLC v. Sentech Architectural Sys., LLC, 2012
WL 3689066, at *2 (D.N.H. Aug. 27, 2012). Finally, the United States District Court for the
Northern District of Texas dismissed a TSRA claim where there was “no evidence in the
record that [the sales representative] ever solicited wholesale orders in Texas.” Thomas
v. First Fitness Int’l, Inc., at *5 (N.D. Tex. June 30, 2010).
In the case at bar, it is undisputed that Hobby Lobby retail stores are located
nationwide, including Texas; however, CSM solicited orders exclusively within Oklahoma,
where the retailer’s headquarters, buyers, and warehouse are located. Counsel for CSM
confirmed this fact during the motion hearing, when the Court asked him whether he was
“aware of facts in which there was a physical act of solicitation that occurred entirely within
the state of Texas, whether it be wining and dining a Hobby Lobby buyer in Texas, whether
it be meeting with a Hobby Lobby Buyer in the state of Texas, or whether it be delivering
the product to a warehouse in Texas.” Counsel responded, “No.”
Since CSM did not broker sales to Hobby Lobby within the state of Texas, IT IS
ORDERED that ESG’s Motion to Dismiss (Doc. 11) is GRANTED and Count II of the
Counterclaim is DISMISSED for failure to state a claim.
IT IS SO ORDERED on this 23 rd day of March, 2025.
_____________________________
TIMOTHY L. BROOKS
UNITED STATES DISTRICT JUDGE
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