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Giacone v. Virtual Officeware, LLC

United States District Court, W.D. Pennsylvania

March 26, 2015



ARTHUR J. SCHWAB, District Judge.

I. Introduction

This is a breach of contract action brought by Plaintiff, William Giacone (hereinafter "Plaintiff" or "Giacone"), a former employee and minority shareholder of Virtual Officeware, LLC ("VOW"), who claimed that Defendants Virtual Officeware, LLC, and David Harel (hereinafter "Defendant Harel" or "Harel" and collectively "Defendants"), breached his valid and fully integrated Employment Agreement in numerous respects.[1] Plaintiff, in turn, seeks to recover alleged unpaid wages pursuant to the Pennsylvania Wage Payment and Collection Law ("WPCL"). 40 P.S. § 260.1, et seq .[2] Defendants filed Counterclaims against Plaintiff alleging that he also breached the applicable Employment Agreement, including restrictive covenants.

This Court held a bifurcated non-jury trial addressing liability, which commenced on December 1, 2014, and concluded on the next day. On December 12, 2014, the Court entered Findings and Fact and Conclusions of Law with respect to liability and found in favor of Plaintiff and against Defendants on Plaintiff's breach of contract claim under the WPCL, and in favor of Plaintiff (to the extent Plaintiff breached but found the breach was not material/caused no harm) on Defendants' breach of restrictive covenant Counterclaim. Doc. No. 88. The Court ordered the parties to participate in a further mediation before a neutral, which was unsuccessful, and then scheduled the damages portion of the non-jury trial for March 2, 2015 at 8:30 a.m. Doc. No. 90. The Court conducted the non-jury trial on damages on March 2, 2015 and March 3, 2015.

II. Brief Summary of the Relevant Liability Phase Rulings

In the liability phase of this case, the Court held that the Employment Agreement was a valid, fully integrated contract, and that the contract was materially breached by Defendants. Specifically, the Court held that the parties entered into a valid and fully integrated fixed-term contract (the 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 (see P-2). Second, the Court found that the parties engaged 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 (see P-17). Third, the Court found that the parties did not ultimately come to terms on any modification to the valid and fully enforceable Employment Agreement. Fourth, importantly, the Court held that 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, constituted a material breach/violation of the Employment Agreement at P-2 by Defendants. Fifth, in addition to the violation of the Employment Agreement with respect to the commission structure, the Court found that the new sales strategy ("restructuring of sales force") perpetuated other material violations of the Employment Agreement, 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, the Court held that Plaintiff had "good reason/cause" to terminate his Employment Agreement. Seventh, the Court found that there were deficiencies (breaches) in the manner in which Plaintiff served or noticed his termination under the Employment Agreement, but they were not material. Eighth, the Court held that Plaintiff breached the restrictive covenants portion of the Employment Agreement, but there was no evidence that said breach caused any harm to Defendants, nor were the breaches material, since there was no evidence that Plaintiff ever used any confidential information that he retained. Additionally, in the liability phase of the trial, the Court resolved the credibility determinations in favor of Plaintiff, whom the Court found to be credible, in part because his testimony was more consistent with the documentary evidence.

III. Findings of Fact - Damages Phase

1. On December 31, 2012, the same day that VOW completed its acquisition of the assets of VOW Inc., Plaintiff and VOW executed the subject two-year Employment Agreement, after extensive negotiations between the attorneys for Plaintiff and for Defendants. Joint Stipulations at ¶ 5.*(all paragraphs marked with an * denote findings that were previously made by the Court). P-2

2. The Employment Agreement was a fixed term contract, and had a commencement date of January 1, 2013, and an end date two years later. P-2 at ¶ 2(a).*

3. The Employment Agreement provided for an annual base salary in the amount of $89, 000.* Joint Stipulation at ¶ 8.

4. Paragraph 3(b) of the Employment Agreement 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.

5. Accordingly, Schedule A was specifically referenced and incorporated into the Employment Agreement. Contrary to Defendants' position, the above language unambiguously detailed the requirement that Defendants pay a bonus and commissions, as set forth in Schedule A.*

6. Prior to the December 31, 2012 acquisition, the applicable commission policy, pursuant to which Plaintiff was being paid, included a formula for calculating commissions on ASP ("Application Service Provider") sales orders as follows: total monthly rate charged to the customer × 12 months × 12% = commission amount.*

7. The parties agree that the calculation of the ASP deals reflected on Schedule A was different than the original formula listed immediately hereinabove. Instead, the applicable Schedule A states that commissions were to be calculated based on the term of the contract with the customer (12 months, 24 months, etc., as opposed to a fixed 12 month period). *

8. Schedule A further provides for a 4% commission - or "override, " based on the sales of representatives who worked under Plaintiff's supervision ("managed sales staff.") P-2.*

9. Schedule A also states that Plaintiff was "eligible for all Managers and Employee annual bonuses and incentives as well as Company 401k and profit sharing." Id.*

10. Schedule A provided for commissions based upon repeat business, and Plaintiff testified that about a 50% proportion of his commissions came from repeat business Id .; See also, Doc. No. 86 at 29.*

11. The Employment Agreement provided that Plaintiff would be permitted 4 weeks of paid vacation per year, and that he would be afforded health insurance and a $1, 000 per month car allowance as additional compensation.*

12. Paragraph 4(g)(ii), of the Employment Agreement, entitled "Payments Upon Certain Terminations, " provides, in pertinent part:

In the event of a termination of Employee's employment by Company... by the Employee for Good Reason during this Agreement, each such termination shall be a breach by the Company. (A) Upon such breach[3] or other breach by the Company, the Company shall pay to Employees (or, following his death, to Employee's beneficiaries) his full Base Salary, Additional Compensation and all other compensation earned through the Date of Termination, all Base Salary, Additional Compensation and all other compensation earned through the Date of Termination, all Base Salary, Additional Compensation and all other compensation expected to be earned though the end of the remaining Employment Period, and Company shall be liable for all damages caused by said termination. (B) Further, the Company shall, at its sole cost, maintain in full force and effect for the continued benefit of the Employee and his family, for a period of 12 months after the termination of Employee's employment hereunder all medical, dental, hospital and disability plans and programs ("Benefits").

P-2. (emphasis added).

13. Upon termination on July 8, 2013, for good reason by Plaintiff, as previously determined by this Court in the liability phase, Plaintiff credibly testified that he (through his counsel) made a demand for payment, but he received instead outstanding commissions over the period of the remaining 6 months.

14. As of the date of termination on July 8, 2013, Plaintiff had been paid $7, 043 for the following ASP contracts: Leigh Ann Hutchinson, Valley Management Services, Michael Antony, MD, Park Avenue Medical, Mattoo & Bhat Medical, Batzofin Fertililty, Sinan Kadayifci, M.D., and Berks Community Health Center. P-46A

15. Had Defendants calculated the above commissions in the manner stated in the Employment Agreement - i.e., term instead of fixed 12 months, Plaintiff would have received $31, 442 in commission payments.

16. Defendants therefore underpaid Plaintiff by $24, 039 on ASP contracts.

17. As of the date of termination, Plaintiff credibly testified that he was responsible for the execution of a sales contract, or the execution of a contract was "imminent, " with the following customers ("reflects customers that I had sold product to, as well as projects that were eminent to sign, and shows how it reflects against quota and commissions, et cetera."), which reflect a monetary value of $149, 498 (for a total of $173, 537 in commissions) (P-46A):

i. Sunrise Medical Labs,
ii. Pamel Vision & Laser Group,
iii. Michael Buchholtz, M.D.,
iv. Michael Buchholtz, M.D.,
v. Quality Community Health Care,
vi. Enzo Clinical Labs,
vii. Berks Community Health ...

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