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Nein v. HostPro

June 3, 2009


APPEAL from a judgment of the Superior Court of Los Angeles County, Haley J. Fromholz, Judge. Affirmed. (Los Angeles County Super. Ct. No. BC346190).

The opinion of the court was delivered by: Suzukawa, J.



Plaintiff Randy Nein was employed by defendants HostPro, Inc. and Interland, Inc. (collectively, defendant) as a salesperson between October 1999 and December 2001. In December 2000, plaintiff approached AT&T Corporation (AT&T) and suggested that defendant provide web-hosting services to some of AT&T‟s business customers. Such a transaction was still being negotiated when defendant terminated plaintiff in December 2001, and it was consummated the following month.

Plaintiff seeks through the present action to recover commissions he claims are due him in connection with the AT&T transaction. The trial court granted summary judgment for defendant, concluding that the entire action is barred because plaintiff was not a licensed business opportunity broker. Additionally, the court found that plaintiff‟s termination cut off his right to any additional commissions under the plain language of plaintiff‟s written employment agreement.

We do not agree with the trial court that plaintiff‟s action is barred by his failure to procure a broker‟s license. In this regard, we reject defendant‟s claim that plaintiff is collaterally estopped by the Court of Appeal‟s opinion in a related case from raising the broker‟s license issue. (Salazar v. Interland, Inc. (2007) 152 Cal.App.4th 1031, 1033-1034 (Salazar).) Like the trial court, however, we conclude that under the plain language of the written employment agreement, plaintiff was not permitted to recover additional commissions after his termination. Accordingly, we affirm the grant of summary judgment.


I. Plaintiff's Employment and the AT&T Transaction*fn1

Defendant hired plaintiff as a sales representative on October 4, 1999. On that date, the parties entered a written employment agreement, which provided (among other things) that: (1) plaintiff was responsible for web-hosting sales; (2) plaintiff‟s starting salary was $24,000 per year, plus commissions of 4 percent "on all direct initial sales"; (3) defendant "will be eligible for commission pay as set forth in this [document], so long as [plaintiff] remains employed with the Company as a Sales Representative"; and (4) the employment agreement "may be amended only by a written agreement executed by each of the parties hereto."

In April 2001, defendant promoted plaintiff to "Channel Manager." The parties entered a new oral agreement that provided (among other things) that: (1) plaintiff‟s salary was increased to $75,000 per year, and (2) plaintiff would receive commissions of ""20% of the up front costs‟ revenues on all accounts brought in by [plaintiff] or through [plaintiff‟s] contacts or efforts."

In December 2000, plaintiff introduced himself to Vincent Salazar, then an agent for AT&T, at a networking event. Subsequent to that introduction, Salazar proposed to defendant and AT&T that defendant acquire all of AT&T‟s small to medium-sized web-hosting clients. Plaintiff "was not involved in the "nuts and bolt‟ negotiations" concerning defendant‟s acquisition of AT&T‟s web-hosting clients, but he "was responsible for procuring and advising HostPro of the potential to consummate a lucrative deal with AT&T." Further, he did not "at anytime solicit AT&T regarding the deal," but he "was responsible for engineering the getting together of AT&T and HostPro which ultimately led to the acquisition of AT&T‟s web hosting business by HostPro following months of extended negotiation by higher ups at HostPro."

Defendant terminated plaintiff on December 6, 2001. Subsequently, on January 14, 2002, defendant and AT&T executed an asset purchase agreement pursuant to which defendant purchased all of AT&T‟s contractual rights relating to its small and medium-sized web-hosting customer accounts and the equipment used to service those customers.

After defendant and AT&T executed the asset purchase agreement, plaintiff sought compensation for his role in the transaction. Defendant has never paid plaintiff any commission in connection with the AT&T transaction.

II. The Present Action

Plaintiff filed the present action on January 20, 2006. The operative second amended complaint, filed December 29, 2006, asserts four causes of action: (1) breach of contract; (2) breach of the implied covenant of good faith and fair dealing; (3) violation of Labor Code sections 206 and 2926; and (4) unfair business practices in violation of Business and Professions Code section 17200. It alleges that plaintiff entered an employment contract with defendant in 1999. The employment contract provided that plaintiff would market defendant‟s web-hosting services and would be compensated by a salary and commissions of 4 percent. Later, plaintiff was promoted to manager and his commissions were increased to 20 percent. In this capacity, plaintiff initiated a deal with AT&T, valued at more than $12 million, pursuant to which defendant acquired all of AT&T‟s small to medium-sized web-hosting clients. However, approximately 30 days before the AT&T deal closed, defendant summarily terminated plaintiff and withheld his commissions.

Defendant moved for summary judgment. The trial court granted summary judgment on March 28, 2007, finding as follows:

1. The entire action is barred because plaintiff was not a licensed broker at the time of the AT&T transaction. Under the plain language of Business and Professions Code, section 10030, the AT&T deal must be considered a "business opportunity" because it is indisputable that the sale of customers and assets constitutes a sale of AT&T‟s "business."*fn2 Thus, "[t]he analysis is straightforward: (1) a license is required to solicit prospective sellers of business opportunities; (2) the AT&T deal was a business opportunity; (3) Plaintiff solicited the AT&T deal; (4) Plaintiff did not have a license. Thus, Plaintiff‟s entire action for commission is barred under Bus. & Prof. Code §§ 10131 and 10136. The motion for summary judgment is granted on this basis."

2. There is a triable issue of fact as to whether plaintiff is entitled to a commission under the terms of his employment contract. "Defendant first argues that Plaintiff‟s Employment Agreement does not provide for Plaintiff to receive any commission for the AT&T transaction. Defendant argues that although Plaintiff alleges that the Employment Agreement was modified to provide him with a 20% commission on sales of new business brought in by him, no written agreement, modification, or addendum was ever executed. Furthermore, Defendant argues that the Employment Agreement by its terms provides that it may be amended or modified only by a writing signed by both parties. [Citations.] Plaintiff presents his declaration, in which he states the initial Employment Agreement was not amended, but that he entered into a new agreement when he was promoted to Channel Manager and that this agreement provided for a commission of 20%.... Plaintiff here argues that Defendant has redacted information from relevant pay records that would show that he was paid a 20% commission under the later agreement. There appears to be a triable issue of material fact as to whether Plaintiff entered into a new oral agreement. However, as stated above, the motion is nevertheless granted because Plaintiff did not possess a broker‟s license."

3. Plaintiff was not entitled to any further commissions after his employment was terminated. "[T]he Employment Agreement clearly states that Plaintiff will only be eligible for commission pay while he is employed as a Sales Representative. Plaintiff has not provided any authority showing that where an employment agreement is clear that commission payments cease upon termination, an employee is nevertheless entitled to commissions for transactions that he might have initiated as an employee but which were consummated after his termination."

4. Plaintiff's claims are not barred by the statute of limitations. "Defendants argue that all of Plaintiff‟s contract-related causes of action accrued on January 14, 2002, the date on which the AT&T transaction closed.... [¶] Plaintiff argues that his cause of action did not accrue until he received a letter from Defendant‟s counsel Michael French on April 28, 2004, which constituted an anticipatory repudiation. [Citation.] Plaintiff argues that prior to that date, Defendants had not given him any indication that he would not eventually receive a 20% commission on the AT&T deal. Defendants have not presented any evidence to the contrary. Since the action was filed on January 20, 2006, it is timely[.]"

5. Second cause of action: breach of the implied covenant of good faith and fair dealing. "Defendants‟ arguments as to this cause of action are substantially identical to their arguments as to the first cause of action. Essentially, Defendants argue that Plaintiff did not have a contract entitling him to a 20% commission, and that the cause of action is time-barred. The above discussion applies equally to these arguments."

6. Third cause of action: violation of the Labor Code. "Defendant‟s arguments as to this cause of action are again substantially identical to those discussed above. Defendant argues that although commissions are wages under the Labor Code, contractual terms authorizing the commissions must be established before the wages are due. Defendant argues that the express terms of the contract prevent Plaintiff from obtaining commissions after he was terminated. As discussed above, the Court agrees."

7. Fourth cause of action: unfair business practices. "Where a UCL claim is derivative of another claim that fails as a matter of law, the UCL claim must similarly fail. [Citation.] As discussed above, Plaintiff‟s first three causes of action fail as a matter of law." "Plaintiff also argues that "Defendants have not raised any credible challenge to plaintiff‟s UCL claim that defendant‟s practice of terminating its employees in order to avoid the payment of earned commission is a fraudulent business practice and thus prohibited by the UCL.‟ [Citation.] The Court is unable to find any allegation in the [Second Amended Complaint] that Defendant had a practice of terminating its employees to avoid payment of commission. The pleadings serve as the "outer measure of materiality‟ in a summary judgment motion, and the motion may not be granted or denied on issues not raised by the pleadings. [Citation.]"

Judgment was entered on June 22, 2007, and notice of entry of judgment was served on June 27, 2007. Plaintiff timely appealed.*fn3

III. The Salazar Litigation

Meanwhile, in a separate action, Vincent Salazar (plaintiff‟s contact at AT&T) sued defendant for breach of contract and fraud on March 8, 2004. Salazar alleged that he was an agent of AT&T and was authorized to market internet and web-hosting services to small and medium-sized businesses. In 2001, he advised defendant, which also provided web-hosting services to small and medium-sized businesses, that AT&T no longer wished to provide these services. Defendant expressed an interest in acquiring AT&T‟s small and medium-sized business clients. On February 13, 2001, Salazar entered a written contract with defendant to market defendant‟s web-hosting services to small and medium-sized business customers and to arrange the acquisition of AT&T‟s small and medium-sized business customers. Defendant represented to Salazar that he would receive a 10 percent commission on all monthly recurring fees received by defendant up to $10,000, a 20 percent commission on monthly recurring fees over $10,000, and a 5 percent commission payment as a one-time setup fee for each customer acquired due to his efforts. However, defendant subsequently refused to pay Salazar the commissions allegedly due him. (Salazar, supra, 152 Cal.App.4th 1031, 1033-1034.)

Defendant moved for summary judgment, contending that Salazar could not recover the claimed commissions because he did not have a broker‟s license. On December ...

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