United States District Court, W.D. Pennsylvania
For William Giacone, Plaintiff, Counter Defendant: Jordan L. Strassburger, LEAD ATTORNEY, Strassburger McKenna Gutnick & Gefsky, Pittsburgh, PA USA; Gretchen E. Moore, Strassburger, McKenna, Gutnick & Gefsky, Pittsburgh, PA USA.
For Virtual Officeware, Llc, Defendant: Melissa L. Evans, LEAD ATTORNEY, Jackson Lewis P.C., Pittsburgh, PA USA; A. Patricia Diulus-Myers, Jackson Lewis P.C., Pittsburgh, PA USA.
For David Harel, Defendant, Counter Claimant: A. Patricia Diulus-Myers, Melissa L. Evans, LEAD ATTORNEYS, Jackson Lewis P.C., Pittsburgh, PA USA.
For Virtual Officeware, Llc, Counter Claimant: A. Patricia Diulus-Myers, Melissa L. Evans, LEAD ATTORNEYS, Jackson Lewis P.C., Pittsburgh, PA USA.
FINDINGS OF FACT AND CONCLUSIONS OF LAW
Arthur J. Schwab, United States District Judge.
This is a breach of contract action brought by Plaintiff, William Giacone (hereinafter " Plaintiff" or " Mr. Giacone"), a former employee and minority shareholder of Virtual Officeware, LLC (VOW), who claims that Defendants Virtual Officeware, LLC and David Harel (hereinafter " Defendant Harel" or " Mr. Harel"), breached his valid and fully integrated Employment Agreement in numerous respects.  Plaintiff, in turn, seeks to recover alleged unpaid wages pursuant to the Pennsylvania Wage Payment and Collection Law (" WPCL"). 43 P.S. § 260.1, et seq . Defendants filed Counterclaims against Plaintiff alleging that he also breached the applicable Employment Agreement, including breach of restrictive covenants. This Court held a bifurcated non-jury trial addressing liability, which commenced on December 1, 2014, and concluded on December 2, 2014. For the reasons that follow, the Court finds in favor of Plaintiff and against Defendants on the Plaintiff's breach of contract Claim and in favor of Defendants' on its breach of restrictive covenant Counterclaim in the liability phase of this matter. The Court will order the parties to participate in a further mediation, and will schedule the damages portion of the non-jury trial for March 2, 2015 at 8:30 a.m.
A. Summary of Issues
Although there are many moving parts to this litigation, the core issues are whether the parties had a valid, integrated contract, and whether that contract was materially breached by both parties, one party, or neither party. The crux of the matter boils down to the following queries (and answers):
First, did the parties enter into a valid and fully integrated fixed-term contract (Employment Agreement) with all essential terms relating to the sale of the business of which Plaintiff was a former minority shareholder on December 31, 2012? The answer is yes. See P-2.
Second, did the parties engage in lengthy, detailed negotiations in an attempt to modify this valid and fully enforceable Employment Agreement once the new sales strategy was put into place with a new commission structure? (P-17). The answer is yes.
Third, did the parties, despite their efforts, ultimately come to terms on any modification to the valid and fully enforceable Employment Agreement? The answer is no.
Fourth, did the implementation of the new commission structure at P-17 and new sales strategy, which was published in an email sent to the staff (including Plaintiff) (P-17) on June 28, 2013, effective June 3, 2013, constitute a material breach/violation of the Employment Agreement at P-2? The answer is yes.
Fifth, in addition to the violation of the Employment Agreement with respect to the commission structure, did the new sales strategy (" restructuring of sales force") perpetuate other material violations of the Employment Agreement? The answer is yes, because Plaintiff was stripped of his title of senior executive, and was also stripped of commissions on his sales force and for repeat customers.
Sixth, in light of the above material violations, did Plaintiff have " good reason/cause" to terminate his Employment Agreement? The answer is yes.
Seventh, were there deficiencies (breaches) in the manner in which Plaintiff served or noticed his termination under the Employment Agreement, and if so, were they material? The answers are yes, and no. Both the form and content of the July 3, 2013 notice of termination, in addition to the parties' course of dealing over the last several months, was more than sufficient to place Defendants on notice of its need to cure the material breaches of the contract. Although the manner in which the notice of termination was delivered did not fully comport with the terms of the contract, Defendants had timely and actual notice of Plaintiff's position regarding his view of the breaches though the intense " modification" negotiations, and had an opportunity to cure. Thus, the breach is a technical one that is not material.
Eighth, did Plaintiff breach the restrictive covenants portion of the Employment Agreement? The answer is yes, but there is no evidence that said breach caused any harm to Defendant, nor were the breaches material since there is no evidence that Plaintiff ever used any Confidential Information that he retained.
B. Summary of Credibility Determinations
Although this case involves voluminous documentary evidence, mostly in the form of email communications, this Court, sitting as the finder of fact is required to judge the credibility of the witnesses and has observed their demeanor. As a general matter, the Court finds that the testimony of Plaintiff is credible and consistent with the documentary evidence. The Court finds the testimony of Defendants' witnesses to be less credible (in particular Mr. Harel), primarily because their testimony was less consistent with the documentary evidence.
C. Summary of Defenses
Defendants' positions at trial fluctuated on the issue of why their actions did not constitute a breach of the Employment Agreement. At one point, Defendants' took the position that they had no intention of not adhering to the terms of the Employment Agreement and that the Employment Agreement remained unchanged, meaning there was no breach. However, the documentary evidence and especially the testimony of the witnesses, in particular, Mr. Harel, are not consistent with that position. At another point, Defendants contended that the restructuring of the sales force was not at all inconsistent with the terms of the Employment Agreement, and in any event, they always intended to comply with the terms of the Employment Agreement, thus no breach occurred. However, that position begs the question, why would Defendants intensively labor to modify the existing contract if the restructuring changes were allowed/proper under the existing Employment Agreement? The documentary evidence refutes that position. Also, as for Defendants contention that they always intended to comply with the terms of the Employment Agreement, the documentary evidence belies this argument because Mr. Harel told Plaintiff and wrote emails communicating to Plaintiff that any modified Agreement would not be consistent with the terms of the Employment Agreement because it would not include a Schedule A. (See P-20: July 3, 2014 email " Finally, a detailed commission sheet cannot be included. I will not have this colossal mess every time we add a product to our pricelist or change the commission model on a product"). Defendants further posited that Plaintiff stood to earn more money under the modified Employment Agreement and the " restructured sales force" document, and therefore, their actions could not constitute a material breach. However, the evidence demonstrates that under the modified Employment Agreement and/or the restructured sales forces, Plaintiff would no longer have had a management role which would have resulted in a loss of potential commissions. Also, the new plan did not include commissions on repeat business, as the Employment Agreement and Schedule A specifically states. While Defendants argue that the loss of Plaintiff's " title, " does not equate to a breach of the Employment Agreement, the implementation of the new sales structures and proposed modifications to the Employment Agreement would have resulted in much more than simply a loss of " title." Finally, Defendants took the stance that nothing in the Employment Agreement " guarantees" managed sales staff or bonuses, only that Schedule A represents a formula to be used if there was commissioned sales staff. Simply put, the language of the fully integrated Employment Agreement and Schedule A unequivocally guarantees Plaintiff's rights thereto. And, in any event, the documentary evidence of Mr. Harel to his board members unequivocally establishes his belief that these items were " guaranteed" and were being removed under the sales force restructuring. P-16.
II. Findings of Fact
1. Mr. Giacone is an adult individual who resides at 1130 Little Peconic Bay Road, Cutchoque, N.Y. 11935. Complaint, ¶ 1. Joint Stipulations at ¶ 1.
2. Defendant, Virtual Officeware LLC, is a Delaware limited liability company with its principal place of business in Pittsburgh, Pennsylvania. Id. at ¶ 2. VOW provides software solutions to physicians' practices addressing their clinical, financial, and administrative needs. VOW is a one source IT vendor that offers proprietary and third party software solutions in healthcare management. VOW also provides product training, support, and technical services to healthcare providers. Joint Stipulations at ¶ 2.
3. Defendant, David Harel (hereinafter " Mr. Harel" or " Defendant Harel"), is an adult individual who is a citizen of Israel and resident of the Commonwealth of Pennsylvania. At all relevant times to this action, Mr. Harel was an officer of VOW and served as its President. Joint Stipulations at ¶ 3.
4. On December 31, 2012, VOW completed its acquisition of the assets of Virtual OfficeWare, Inc. (" VOW, Inc."). At the time of the acquisition, Plaintiff held the position of Regional Sales Manager (Managing Sales Staff), in addition to being a minority shareholder of VOW, Inc. Joint Stipulations at ¶ 4.
B. The Employment Agreement Was Negotiated and Executed
5. On December 31, 2012, the same day that VOW completed its acquisition of the assets of VOW Inc., Mr. Giacone and VOW executed the subject two-year Employment Agreement after extensive negotiations between the attorneys for Plaintiff and for Defendants. Joint Stipulations at ¶ 5. P-2
6. The Employment Agreement was the result of a collaborative effort between Mr. Giacone and VOW and was negotiated by attorneys for both sides. Numerous drafts were exchanged and both parties made changes to the Employment Agreement prior to its execution. Joint Stipulations at ¶ 6. P-2.
7. Defendant Harel, as President, executed the Employment Agreement on behalf of VOW. Mr. Harel exercised policy-making functions with respect to VOW and was involved in the decisionmaking process related to Mr. Giacone's employment and compensation. Joint Stipulations at ¶ 5. Defendant Harel originally had planned for Plaintiff's employment to be at-will, but after negotiations with Plaintiff, the Employment Agreement was executed by the parties. Joint Stipulations at ¶ 7.
C. Key Provisions of Employment Agreement/Duties of Plaintiff
8. The Employment Agreement was for a fixed term, and had a commencement date of December 31, 2012, and an end date of January 1, 2013. P-2 at ¶ 2(a).
9. According to the language of the " Whereas Clause, " Plaintiff " was, prior to the transaction, a senior executive of VOW, Inc." The Agreement provided that Plaintiff agreed to become an " employee" and " senior executive." Although the term " senior executive, " was not specifically defined in the Employment Agreement, it entitled Plaintiff to " certain enhanced benefits" not provided to other employees, such as medical benefits for Plaintiff and his family (with no contribution from Plaintiff), and a $1, 000 per month car allowance. Doc. No. 74 at ¶ 8. P-2. Paragraph 2(b) also stated that, " as a senior executive of the Company, [he] shall have such duties and responsibilities as are customarily assigned to individuals serving in such positions."
10. Under the Employment Agreement, Giacone was a Regional Sales Manager. He was responsible for VOW's sales in eastern Pennsylvania, Vermont, Massachusetts, New Hampshire, Connecticut, New York, New Jersey, and Rhode Island. Joint Stipulations at ¶ 7.
11. The Employment Agreement provided for an annual base salary in the amount of $89, 000. Joint Stipulation at ¶ 8.
12. Paragraph 3(b) further stated that, " [i]n addition to the Base Salary, [VOW] shall pay [Plaintiff] a bonus and commission as set forth on Schedule A, as computed under the Company's policy on the date hereof." Joint Stipulation at ¶ 9. Accordingly, Schedule A was specifically referenced and incorporated into the Employment Agreement. Contrary to Defendants' position, the above italicized language unambiguously spelled out the requirement that Defendants pay a bonus and commissions as set forth in Schedule A.
D. Schedule A of the Employment Agreement
13. Plaintiff credibly testified that during counseled negotiations of the Employment Agreement (December of 2012), he specifically desired a detailed commission schedule (Schedule A) to address how he would be compensated once he began working for VOW. It is not clear whether it was Plaintiff or Defendants who created the draft of Schedule A (Plaintiff testified that Gary Cindrich (Vice President of Sales) forwarded the commission sheet schedule to Plaintiff's attorney), but there was some testimony elicited on behalf of Plaintiff (on cross-examination) that it was counsel for Defendants who included Schedule A in the Employment Agreement as the attached letter was sent with defense counsel's letterhead (letterhead was of Damon Morey). P-10; Doc. No. 86 at 28.
14. Plaintiff credibly testified that Schedule A accurately reflected Plaintiff's intentions and that he had no intention to defraud or trick anyone in executing this or any other portion of the Employment Agreement. Joint Stipulations at ¶ 13; Doc. No. 86 at 30-31. The Court finds there is no evidence that the inclusion of Schedule A was deceptive or was a " mistake, " only that Defendant Harel, with the benefit of counsel, apparently did not read or understand the import of the terms thereof. There is no further evidence that Plaintiff ...