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Richard B. Melbye, Also Known As Brent Melbye v. Accelerated Payment Technologies

January 11, 2012

RICHARD B. MELBYE, ALSO KNOWN AS BRENT MELBYE,
PLAINTIFF,
v.
ACCELERATED PAYMENT TECHNOLOGIES, INC., A DELAWARE CORPORATION; AND DOES 1-10, INCLUSIVE, DEFENDANTS.



The opinion of the court was delivered by: Irma E. Gonzalez, Chief Judge United States District Court

ORDER GRANTING IN PART AND DENYING IN PART MOTION FOR SUMMARY JUDGMENT

[Doc. No. 35]

This is an employment action alleging breach of contract for failure to pay post-termination wage commissions. Currently before the Court is Defendant Accelerated Payment Technologies, Inc. ("APT")'s motion for summary judgment. Having considered the parties' arguments, and for the reasons set forth below, the Court GRANTS IN PART and DENIES IN PART the motion.

BACKGROUND

This suit arises from Plaintiff Richard B. Melbye's employment by Defendant's predecessor, CAM Data Systems (later renamed CAM Commerce Solutions, and hereinafter referred to as "CAM Commerce"). CAM Commerce was formed by Melbye's college friend, Geoffrey Knapp. After he graduated college, Melbye joined CAM Commerce as a salesman. At that time, CAM Commerce sold "point of sale" ("POS") hardware and software for small retailers.

According to Knapp, Melbye quickly became a good salesman and, within a short time, was a top performer. (Knapp Depo. 116:19-23 (Pl. Opp., Ex. 6).) By 2000, Melbye had been earning more than $200,000 a year in commissions for sales of POS systems. (Knapp Depo. 12:9-11 (Pl. Opp., Ex. 7).) Knapp called Melbye a "big part of the success of the company early on and later." (Knapp Depo. 11:1-4 (Pl. Opp., Ex. 8).)

Around 2001, CAM Commerce developed "X-Charge," a software program that allowed retailers to process credit cards directly from their computerized cash registers, without the need to buy a separate card reader. X-Charge amplified and speeded up the payment process. CAM Commerce's approach was to identify specialty software developers in certain retail industries, such as dry cleaners, salons, tire stores, dentists, and veterinarians, and convince them to integrate X-Charge into their respective software for managing those businesses. CAM Commerce would give away X-Charge software for free, in exchange for the oppourtnity to sell payment processing services to the reseller's customers. (Knapp Depo. 13:22-14:22 (Pl. Opp., Ex. 11).)

Knapp asked Melbye to be the one to go out, find resellers, and make these "sales." After the "sale" was made, it could take years before it would result in any revenue to CAM Commerce. As such, Knapp convinced Melbye to trade his current income for a new plan that offered residual commissions. (Knapp Depo. 12:9-19 (Pl. Opp., Ex. 13).) Knapp told Melbye that "this is going to be better for you in the long run." (Id.) He promised Melbye that Melbye would be able to build a "long-term residual income" that would allow him to share in the success of the business, similar to stock options or continuing profits on insurance renewals. (Knapp Depo. 15:15-21, 16:1-23 (Pl. Opp., Ex. 14).) As long as the company kept earning money from that customer, Melbye wold get his small percentage, graduating down to one percent and staying there. (Id. at 16:1-23.) The company benefitted by keeping the remaining revenue. (Melbye Decl. ¶ 8 [Doc. No. 45-1].)

Knapp believed that other companies took advantage of their employees, and therefore his philosophy as the CEO of CAM Commerce was that his company would be different, to attract and keep good sales talent. (Knapp Depo. 42:1-43:6 (Pl. Opp., Ex. 15).) Knapp realized that after the employees had amassed sizable commissions, it might seem that they are "worth more dead than alive" to the company. (Knapp Depo. 43:7-22 (Pl. Opp., Ex. 16).) Therefore, he was very clear in telling his employees, including Melbye, that the company was not going to fire them just to take their commissions away. (Id.) At his deposition, Knapp indicated that it was his intention that if an employee was fired without cause, the employee would get to keep collecting the commissions. (Id.) Similarly, according to Melbye, the agreement between him and the company was that: (a) his commissions are still his if he is terminated without cause, and (b) the company wasn't going to fire him to take his money away. (Melbye Decl. ¶ 9.)

Because there would be a long lag between recruiting a reseller and collecting revenue, Knapp set up an initial commission schedule for his employees that paid a higher percentage from the first several years. Knapp explained this declining scale in his May 19, 2003 email to Melbye and others:

When a reseller brings in a new account the sales rep will get 6% of the first years [sic] processing from that account, 5% for the 2nd year, 4% for the 3rd year, 3% for 4th year and 2% for the 5th year and 1% thereafter. If the rep makes quota (to be determined), the percentage will jump up to 1% for all years for all accounts signed up during that year. (Pl. Opp., Ex. 20; see also Knapp Depo. 38:1-40:24 (Pl. Opp., Ex. 17); Melbye Decl. ¶ 10.)

The May 19, 2003 email contained the following language regarding termination: "You must be employed by the company to continue receiving the commissions, i.e. if you quit or are fired for "cause (stealing, etc.) you don't get to keep collecting the commissions." (Pl. Opp., Ex. 20.) In their depositions, Knapp and Melbye indicated that they understood this language to mean that if Melbye was terminated without cause, he had a right to continued residual commissions. (See Melbye Depo. 194:4-195:19 (Pl. Opp., Ex. 18); Knapp Depo. 43:7-22 (Pl. Opp., Ex. 18); see also Melbye Decl. ¶¶ 11, 12.) In other words, Melbye's right to receive commission would terminate only if he (a) quit, or (b) was fired for cause. (See Melbye Depo. 194:4-195:19 (Pl. Opp., Ex. 18).) Knapp reiterated these "contractual commitments" to Melbye on a number of occasions.*fn1 (See Melbye Decl. ¶ 13; see also Knapp. Depo. 44:4-24, 47:14-23 (Pl. Opp., Ex. 22).)

On April 26, 2006, Melbye signed a form acknowledging that he was an at-will employee and that he received the company's Employee Handbook:

I agree that I am employed by CAM on an at-will basis, and that my employment can be terminated at any time with or without cause or advance notice, either by CAM or me. This agreement supersedes all prior agreements, promises, or understandings concerning termination of my employment.

I also acknowledge that I have received a copy of the Employee Handbook and have read and understood all of its provisions. This includes reading and understanding CAM Commerce Solutions' Code of Business Conduct & Ethics and CAM's Compliance Program.

I acknowledge that CAM retains the right and sole discretion to modify, delete, or add to any of the policies set forth in the Handbook, except for the agreement that my employment can be terminated at will, which can only be changed in a formal written contract signed by me and the Chief Executive Officer of CAM. I understand that no supervisor has the authority to modify, delete, or add to the policies in the Handbook, and that in the event of a conflict between the terms of the Handbook and anything told to me by a supervisor or co-employee, the terms of the Handbook shall control. (Awrey Dcl., Ex. C [Doc. No. 35-1].) In the section on "Sales Commission Policy," the Employee Handbook provided as follows:

Some employees will be eligible for commissions. Commissions will be earned when products are shipped and payment is received from the client. Commissions will be paid on the paycheck following CAM's receipt of payment from the client. Commissions for products shipped prior to termination of employment will be forwarded once payment is received from the client. If the contract has been signed, but the order has not yet shipped prior to the last day of employment, the commission will be split 50/50 with the Sales Representative who takes over the account.

Eligibility for any commission ends on the last day of employment.

Therefore, commission will not be paid for credit card processing revenue for any dates following the end of your employment. (Awrey Decl., Ex. D.) According to Melbye, he was required to acknowledge receipt of the Employee Handbook if he wanted to keep his job. (Melbye Decl. ¶ 15; see also Knapp Depo. 62:15-63:12 (Pl. Opp., Ex. 25).) Nonetheless, he was reassured by Knapp that this did not change their agreement because Melbye was not on the kind of plan referred to in the Handbook. (Melbye Decl. ¶ 15; see also Knapp Depo. 47:4-23 (Pl. Opp., Ex. 26).)

Some time before January 30, 2007, Melbye asked Knapp for a document that would protect him in the event Knapp was "hit by a bus" and the future CEO decided not to honor Knapp's promises. (Knapp Depo. 31:1-22 (Pl. Opp., Ex. 27).) On January 30, 2007, Melbye and CAM Commerce entered into a Change of Control Agreement ("COC Agreement"), which provided that Melbye would be paid a lump sum if he was terminated without cause. (COC Agreement ¶ 7.4.1(ii) (Awrey Decl., Ex. E).) However, according to Melbye and Knapp, due to a drafting error, and in contravention of the agreement's specific purpose, the COC Agreement indicated in § 6 that it could be canceled or terminated unilaterally by the company after a change of control. (Melbye Decl. ¶ 17; Knapp Depo. 176:4-18, 177:5-178:19 (Pl. Opp., Ex. 29).) According to Melbye, the provision in § 6 contradicted the provision in § 12.1, which provided that the COC Agreement "may be modified only by a written instrument duly executed by the Executive and the Board." (See Melbye Decl. ¶ 18.) At his deposition, Knapp indicated that he might not have reviewed Melbye's agreement closely, and therefore was unaware of the unilateral termination provision. (Knapp Depo. 179:19-23 (Pl. Opp., Ex. 30); Knapp Depo. 177:5-178:19, 181:14-25 (Pl. Opp., Ex. 31).) Melbye indicates that he would not have signed the COC Agreement if § 6 would have been brought to his attention. (Melbye Decl. ¶ 18.)

Great Hill Equity Partners purchased CAM Commerce in 2008. On June 1, 2008, during the due diligence leading up to the sale, Knapp told Great Hill Partners that CAM Commerce had required its employees to sign new employment contracts setting forth that "commissions are only earned on revenue that is obtained while they are employed." (Awrey Decl., Ex. F.) According to Knapp, this was designed "in part to address any long term exposure to paying out commissions on continuing revenue from accounts signed up by reps who have departed (for whatever reason)." (Id.) At the same time, Knapp specifically indicated that Melbye "ha[d] a separate employment agreement that addresses a pay out," which he saw as "a worst case scenario." (Id.)

Knapp indicated that he also made it "crystal clear" to Great Hill Partners that the deal depended on them keeping the company as is and not trying to terminate any of the employees. (Knapp Depo. 55:14-57:4 (Pl. Opp., Ex. 32).) According to Knapp, he specifically mentioned Melbye and indicated that the agreement with him was that he would continue earning commissions even after termination. (Knapp Depo. 222:3-223:16 (Awrey Decl., Ex. K).)

On December 10, 2008, shortly before leaving the company, Knapp sent a letter to Robyn Thompson, Vice President of Human Resources at CAM Commerce, addressing his concerns regarding salesperson compensation after his departure as the CEO. Notably, Knapp wrote to express his concern that the new management might "take away what the sales people had worked so hard for in the form of future commissions." (Awrey Decl., Ex. G.) He discussed how he built a culture at CAM Commerce that "encouraged sales people to take a lower salary than they might otherwise be able to get" because the company "gave them the opportunity to build a residual income." (Id.) He indicated that his belief was that the company was obligated to pay post-termination commissions to its employees. (Id.) He reiterated that the only reason the company was so successful and would continue to be successful was because the employees took lower salaries at the beginning, with the idea of receiving a continuous stream of commissions:

We built a sales culture at CAM with X-Charge that encouraged sales people to take a lower salary than they might otherwise be able to get in the market because we gave them the opportunity to build a residual income. . . . An employee who leaves would actually have lots of sales they were paid nothing on depending on when they were approved, installed and went live. This is obviously unfair. And we didn't give the ...


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