Breach of Contract Cases

Nicholas J. DeSantis vs. Commonwealth Energy System & another. No. 06-P-538. Worcester. December 14, 2006. April 26, 2007. Present: Lenk, Armstrong, & Cypher, JJ. Contract, Performance and breach, Employment. Damages, Breach of contract, Interest. Labor, Wages, Failure to pay wages. Federal Preemption. Statute, Federal preemption. Employee Retirement Income Security Act. Employment, Employee benefit plan. Judgment, Interest. Practice, Civil, Interest. In an action brought by an employee against a former employer, alleging breach of contract and violation of the wage act, G. L. c. 149, § 148, arising from the employer’s failure to pay commissions to the employee for his securing contracts for the sale of natural gas, the judge did not err in denying the employer’s motion for judgment notwithstanding the verdict (or, in the alternative, for a new trial), where the evidence supported the judge’s conclusion that an agreement existed to pay commissions to the employee upon his sale of a supply contract, and not at some later date [763-766]; further, the evidence was sufficient to support the judge’s determination that the commissions fell within the scope of the wage act, and the judge did not abuse his discretion in trebling the damages under the act, given the employer’s intentional and wilful violation of the parties’ agreement and the employer’s conduct showing a reckless indifference to the employee’s rights [766-769]. In an action brought by an employee against a former employer, seeking pension-related damages arising from the employer’s failure to pay commissions to the employee, there was no merit to the employer’s argument that the claim was preempted by the Federal Employee Retirement Income Security Act of 1974, where the employee’s claim did not require the interpretation of any retirement plan document [769-770]; however, the trial court judge erred in denying the employer’s motion for judgment notwithstanding the verdict (or, in the alternative, for a new trial) insofar as it requested amendment of the award of prejudgment interest, where the interest had been improperly calculated on the present value of future lost pension benefits [770-772], Civil action commenced in the Superior Court Department on February 7, 2002. Claims for breach of contract were tried before John S. Mc-Cann, J.; claims for treble damages, loss of pension benefits, and attorney’s fees were heard by him; and a motion for judgment notwithstanding the verdict was heard by him. Christopher Novello for the defendants. Paul M. Stein for the plaintiff. COM/Energy Marketing, Inc. (CEM Co.), a subsidiary of Commonwealth Energy System (System). Cypher, J. This case arose from a challenge by the plaintiff, Nicholas J. DeSantis, to the method his former employer, COM/ Energy Marketing, Inc. (CEM Co.), used in paying him commissions for his securing contracts (supply contracts) for the sale of “natural gas commodity.” DeSantis’s complaint contained two counts alleging breach of express and implied contract for severance benefits, and two counts alleging breach of express and implied contract for sales commissions. A fifth count alleged violation of G. L. c. 149, § 148 (the wage act), for nonpayment of commissions. By agreement of the parties, the case was bifurcated. A jury trial was conducted to address the questions whether there was an agreement for a severance package, or “lifeline,” and whether any commissions were owed. The jury were also asked special questions related to whether the commissions fell within the parameters of the wage act. The matters reserved for the jury-waived portion of the trial were whether any damages for lost commissions would be tripled pursuant to the wage act, whether the value of DeSantis’s pension had been diminished, and attorney’s fees. After a seven-day trial in November, 2004, the jury determined that there was no lifeline severance agreement, but that CEM Co. was in breach of its employment contract with DeSantis. The jury awarded damages for commissions due of $79,598.10. Subsequently, the judge addressed the matters that had been reserved to him. Based on the jury’s answers to special questions, the judge concluded that the wage act had been violated by the failure to pay commissions and, pursuant to G. L. c. 149, § 150, trebled the damages, to $238,794.30. The judge also found that, as a result of the commissions not paid, DeSantis suffered a loss of $42,841.56 in pension benefits from October 1, 2001, when he began receiving benefits, up to the date of trial. The present value of lost pension benefits from the date of trial for the duration of DeSantis’s life expectancy was determined to be $209,422.54. The judge thereafter ordered judgment for total damages of $491,058.48, and also awarded DeSantis attorney’s fees of $60,932.10, and costs of $2,346.55. The defendants submitted a combined motion for judgment notwithstanding the verdict (judgment n.o.v.); to amend the judgment; or alternatively for a new trial. The combined motion was denied by the judge on December 30, 2005. This appeal by both parties followed. The defendants argue that the judge abused his discretion in denying their combined motion for judgment n.o.v. and other relief, principally claiming that (1) DeSantis was not owed further commissions; (2) the judge erroneously ruled that the wage act was applicable; (3) DeSantis’s claim for pension damages was preempted by the Employee Retirement Income Security Act of 1974, 29 U.S.C. §§ 1001 et seq. (ERISA); and (4) the calculation of prejudgment interest was incorrect. In his cross appeal, DeSantis agrees that prejudgment interest was incorrectly determined and proposes an alternative calculation. Background. In 1997, Commonwealth Energy System (System) formed CEM Co. to sell natural gas supply contracts to commercial and industrial customers in the market that resulted from the deregulation of the gas industry in the 1990’s. DeSantis, who had been an employee of Commonwealth Gas Company (another subsidiary of System) since 1985, was offered a position in CEM Co. as a sales representative by Robert T. Bucknell, CEM Co. vice-president of sales. DeSantis accepted in July, 1997. During the course of his employment with CEM Co., DeSantis sold some seventy-five single- and multiple-year supply contracts. On February 23, 1999, CEM Co. was sold to Reliant Energy Retail, Inc. (Reliant), and DeSantis’s employment with CEM Co. was terminated effective a few days later. DeSantis thereafter accepted employment with Reliant as a salesman. During his employment with CEM Co., DeSantis received monthly salary payments, but he received no commissions until October, 1998, followed by two additional payments, one in December, 1998, and another in June, 1999, after he had left CEM Co. Occupied with his sales work, and thinking CEM Co. would pay, DeSantis did not complain about the delayed payment of commissions. Beginning in October, 1998, CEM Co. informed its employees that a buyer was being sought for the company. In that month, DeSantis was asked to meet with Victor DiNardo, director of human resources, and Carol Cormier, benefits administrator, to discuss the effect of the sale on his future employment. DeSantis was informed of benefits available upon termination; when he was told about company policy on severance payments, he said that it was not what he expected from earlier discussions with Bucknell. Particularly concerned that he had sold nearly seventy-five supply contracts for which commission payments had been delayed, DeSantis stated that those commissions had to be paid. DeSantis was told that his commissions would be paid only as long as he remained an employee of CEM Co. He testified that he did not recall what his response was, but that “I had a funny feeling in the pit of my stomach, to say the least.” DeSantis contacted an attorney soon after that meeting. Discussion. We recite the familiar standard: “When acting on a defendant’s motion for judgment notwithstanding the verdict, the judge’s task, ‘taking into account all the evidence in its aspect most favorable to the plaintiff, [is] to determine whether, without weighing the credibility of the witnesses or otherwise considering the weight of the evidence, the jury reasonably could return a verdict for the plaintiff.’ ” Tosti v. Ayik, 394 Mass. 482, 494 (1985), S.C., 400 Mass. 224, cert. denied sub nom. United Auto Wkrs., Local 422 v. Tosti, 484 U.S. 964 (1987), quoting from Rubel v. Hayden, Harding & Buchanan, Inc., 15 Mass. App. Ct. 252, 254 (1983). “Conflicting evidence alone does not justify judgment notwithstanding the verdict. . . . The court may not substitute its judgment of the facts for that of the jury.” Tosti v. Ayik, supra. It is unavailing for a defendant to argue that there was evidence warranting a contrary finding by the jury. CurtissWright Corp. v. Edel-Brown Tool & Die Co., 381 Mass. 1, 4 (1980). “[W]e inquire . . . whether from the evidence it was possible to draw enough reasonable inferences to make out the elements of the plaintiffs case.” Hall v. Horizon House Microwave, Inc., 24 Mass. App. Ct. 84, 89-90 (1987), and cases cited. 1. Breach of contract — payment of commissions. The defendants argue that there was no evidence of a contractual agreement to pay DeSantis’s commission upon his sale of a supply contract rather than at a later date. The judge stated, “There was evidence from which the jury could reasonably conclude that, according to the terms of DeSantis’[s] employment, commissions were due and payable when DeSantis booked a sales contract.” The judge also referred to evidence relating to the “nature of trading natural gas commodity futures” and “CEM Co.’s method of recording [supply] contracts and its calculation of commissions based on this method.” Our examination of the evidence supports the judge’s conclusion. The terms of DeSantis’s compensation were stated in a letter dated July 1, 1997, from John R. Williams, vice-president of COM/Energy Services Company. It confirmed the offer of a position made by Bucknell, and stated: “You will maintain your current base salary of $64,372 plus a commission equal to 20% of gross margins earned on sales of natural gas commodity.” It was DeSantis’s contention that this language indicated that he would earn commissions upon the sale of a supply contract, and that the commissions were to be paid “up front,” based on the “gross margin” determined at the beginning of the supply contract. DeSantis introduced the following evidence explaining how gross margins were determined in the sale of supply contracts for natural gas commodity in the unregulated market. Sales in the unregulated market generally were made through longer term “requirements contracts” with larger commercial and industrial users. The customer obtained a fixed price for gas supplied for the contract term. CEM Co. purchased the gas for that term in the “energy futures market.” Accordingly, a gross margin of profit could be determined at the beginning of the supply contract, and the contract had an “intrinsic value” which was “booked” in CEM Co.’s financial records and treated as an asset. The evidence established that “gross margin” was a term that had meaning only when determined at the beginning of a supply contract, and had no significance in how customers later were charged for the gas actually used. When DeSantis sold a supply contract, he prepared a worksheet containing data on quantities of gas sold, the cost to CEM Co., and the price to be charged the customer, all in the ordinary course of his duties. The gross margin was determined for each customer. At that time his work was completed and, DeSantis claimed, his commission had been earned. He performed no further work on those supply contracts. DeSantis also kept a summary of all the supply contracts he sold, based on the worksheets, from which he could determine the commission due him from the gross margin applicable to each sale. DeSantis began preparing the summary at the end of 1997 or the beginning of 1998. The defendants did not dispute any of the data in the worksheets or in the summary. There was also no dispute over the meaning or significance to CEM Co. of “gross margin.” According to Bucknell, gross margin is “the difference between the price we sold the gas at and what we actually paid for the gas.” He also described a “booking” as “essentially a projection of revenue expectations from a sale of a contract,” and stated that “[a] booking means[] it’s on the books,” i.e., the total value of a supply contract over its term has been entered in CEM Co.’s financial records. According to Michael Collins, another sales representative, it was his understanding that commissions were earned when a supply contract was sold and executed by the parties, and commissions were paid at that point. He described the contract worksheet as the basis for how his commissions were paid. According to Bucknell, after hiring the sales force, there were no discussions about how they would be paid, but there were discussions about when they would be paid. He agreed that it was their expectation that they would receive commissions regularly with monthly paychecks. Bucknell testified that after calculating the gross margin on a sale, the “sales representative who signed that contract would be paid a percentage of [the gross] margin, and that payment would be made once the customer had received the gas and had actually paid ... for the gas.” Robert Paul, president of CEM Co., testified similarly, and also stated that commissions could not be paid earlier because, in accordance with CEM Co.’s business plan, it had to have cash flow to operate. No one in the sales force was paid commissions for at least one year after CEM Co. began operations. Bucknell was sure that DeSantis and others were concerned that the commissions were not timely paid. Bucknell stated that a major reason for the delay was the unavailability of computer software to process payments, and that commissions could not be calculated until customer invoices and payments could be examined. DeSantis never received any regular reports, documentation, or computer runs on his commissions. The commission checks he received in October and December, 1998, were not accompanied by any documentation. It was not until June, 1999, that DeSantis saw any documentation indicating how his commissions were calculated and, in an exchange with DiNardo, disagreed with the amount presented; DeSantis subsequently accepted a different amount as partial payment. There was no error in the denial of the defendants’ motion for judgment notwithstanding the verdict, as the evidence readily supported a finding that commissions were due and payable when DeSantis booked a sales contract. 2. The wage act. The defendants argue that the evidence was insufficient to support a finding that the wage act applied to De-Santis’s commissions. General Laws c. 149, § 150, second par., as amended by St. 1999, c. 127, § 145, states in relevant part: “Any employee claiming to be aggrieved by a violation of section 148 . . . may, at the expiration of ninety days after the filing of a complaint with the attorney general . . . and within three years of such violation, institute and prosecute in his own name and on his own behalf . . . , a civil action for injunctive relief and any damages incurred, including treble damages for any loss of wages and other benefits. An employee so aggrieved and who prevails in such an action shall be entitled to an award of the costs of the litigation and reasonable attorney fees.” General Laws c. 149, § 148, third par., as appearing in St. 1956, c. 259, is violated where an employer fails to pay commissions “when the amount of such commissions . . . has been definitely determined and has become due and payable to [an] employee.” Special questions were developed for the jury, formulated to address the elements of the wage act. The jury were to determine the underlying factual grounds for the applicability of the act; that is, (1) whether DeSantis’s commissions were “definitely determined” and “due and payable” at the time of the sale of a supply contract; (2) whether the commissions were a significant part of his compensation; and (3) whether the commissions should have been paid on a regular basis. The jury answered “yes” to all of these questions, implicitly finding in addition that (1) DeSantis’s commissions were determined on the basis of the gross margin calculated and booked at the time DeSantis completed his work on a supply contract; and (2) the offer of commissions was stated together with the salary offered DeSantis. Accordingly, the jury’s findings were sufficient to provide the factual underpinnings for the judge’s determination that the commissions fell within the scope of the wage act. The jury found the defendants in breach of DeSantis’s employment contract, and assessed damages of $79,598.10, the difference between DeSantis’s calculation of the commissions due him of $139,033.40, and the $59,435.30 he had received. The judge summarily trebled the damages to $238,794.30, relying on the language in G. L. c. 149, § 150, second par., that an employee may prosecute a “civil action for injunctive relief and any damages incurred, including treble damages for any loss of wages and other benefits.” Subsequently, in his memorandum of decision on the defendants’ combined posttrial motion, the judge reconsidered the trebling of the damages in light of the decision in Wiedmann v. The Bradford Group, Inc., 444 Mass. 698 (2005), decided some seven months after his January, 2005, decision (see note 11, supra). In Wiedmann, the court stated that “[bjecause the plain language of [G. L. c. 149, § 150,] does not require a judge to award treble damages, we decline to create such a requirement and conclude that such an award is in a judge’s discretion.” Id. at 710. The Wiedmann court further stated: “Our conclusion is similar to the conclusion in Goodrow v. Lane Bryant, Inc., 432 Mass. 165, 178-179 (2000), and cases cited . . . [, where t]he court stated that treble damages are punitive in nature, . . . and appropriate where conduct ‘is outrageous, because of the defendant’s evil motive or his reckless indifference to the rights of others.’ ” Wiedmann, supra. In reviewing the evidence in light of the decision in Wiedmann, the judge stated, “[I]t is clear that the award of treble damages in the instant case remains in this Court’s discretion.” He found that the defendants knew DeSantis was to receive commissions regularly but sought to excuse the lack of payments because of a shortage of funds resulting from the start-up of a new business, and because no automated financial system was available. The judge concluded, however, that because CEM Co. was managed by experienced employers such as Bucknell, and was a subsidiary of System, an established business, these reasons were without merit and the defendants acted in knowing and wilful disregard of DeSantis’s rights. The judge did not abuse his discretion in trebling the damages. Here, CEM Co.’s business plan placed a controlling priority in its favor on cash flow rather than paying commissions. Moreover, where the sale of CEM Co. inevitably resulted in cutting off full payment of DeSantis’s commissions, there was an intentional and wilful violation of the parties’ contract, and conduct showing a reckless indifference to DeSantis’s rights. 3. Alleged ERISA preemption of pension damages claim. De-Santis, who had a “defined benefit” pension plan, alleged that his pension benefits had been reduced as a result of the failure to pay his commissions. The claim was reserved as a jury-waived issue, and a hearing was held to determine the present value of the lost benefits. The defendants argue that DeSantis’s claim for pension damages was preempted by ERISA. They invoke the broad preemp