O'Shea v. Bidcom Inc

United States District Court, S.D. New York.

Sean O'SHEA, Plaintiff,
v.
BIDCOM, INC. and Citadon, Inc, Defendants.
No. 01 Civ.3855 WHP.
July 22, 2002.

MEMORANDUM & ORDER

PAULEY, J.

In this diversity action, plaintiff Sean O'Shea ("O'Shea"), a New York resident, alleges that his former employers, defendants Bidcom, Inc. and its successor Citadon, Inc., both of whom are California corporations, breached an employee compensation agreement when they failed to pay him his full commissions. Plaintiff and defendants move for summary judgment. For the following reasons, defendants' motion is granted and plaintiff's motion is denied.

Background

Bidcom provides internet-based services and software to construction and real estate companies. (Pl.'s 56.1 Stmt. ¶ 1; Defs.' 56.1 Stmt. ¶¶ 1-2.) On February 18, 1999, Bidcom's chief executive officer and O'Shea executed a letter agreement setting forth the employment terms for O'Shea to act as a sales manager in Bidcom's New York office. (Pl.'s 56.1 Stmt. ¶ 1; Defs.' 56.1 Stmt. ¶ 3.) That letter agreement provided in part: "You will be eligible to participate in [Bidcom's] Sales Compensation Plan and will receive a non- recoverable draw of $6,250 for each of the first 3 months of your employment. Any commissions earned in excess of the non-recoverable draw will be paid according to the Company's Sales Compensation Plan." (Pl.'s 56.1 Stmt. ¶ 1; Declaration of Aimee Meltzer Florin, dated Jan. 10, 2002 ("Florin Decl.") Ex. 1 at 1.) Throughout 1999, Bidcom paid O'Shea "commissions for his sales of Bidcom's products under the terms set forth in the Bidcom Sales Compensation Plan." (Pl.'s 56.1 Stmt. ¶ 1.)

In January 2000, Bidcom provided O'Shea with the Bidcom 2000 Sales Compensation Plan (the "Bidcom 2000 Plan" or the "Plan"). (Pl.'s 56.1 Stmt. ¶ 2; Defs.' 56.1 Stmt. ¶ 4.) In part, the Bidcom 2000 Plan stated that Bidcom would pay a "variable incentive commission" based, in part, on "booking amounts [i.e., projected revenues] as accepted, and reported in Bidcom's monthly financial reports" and the "recognized revenues as reported in Bidcom's monthly financial reports." (Pl.'s 56.1 Aff. ¶ 6; Certification of Jeff Smurthwaite, dated Jan. 9, 2002, ¶ 3; Florin Decl. Ex. 2: Bidcom 2000 Plan. at 2.) However, Bidcom reserved the right "to deduct from bookings attainment any canceled booking" and "to defer any booking for any project that did not commence within 6 months of the booking date." (Florin Decl. Ex. 2: Bidcom 2000 Plan at 2.) In addition, the Bidcom 2000 Plan provided that Bidcom's vice- president of sales had the right to "modify, change or terminate the Plan at any time for any reason" so long as the modification was in writing. (Pl.'s 56.1 Stmt. ¶ 3; Florin Decl. Ex. 2: Bidcom 2000 Plan at 2.) Further, the Bidcom 2000 Plan advised that: Final interpretation of the Plan as it may apply to any one individual person, matter or circumstance will be made by the VP of Sales. This Plan is not intended and shall not be construed to imply a contract of employment or continued employment between Bidcom and any Plan participant for any particular period of time and shall not affect the "at will" nature of any Plan Participant's employment relationship with Bidcom. (Florin Decl. Ex. 2: Bidcom 2000 Plan at 2.) On February 15, 2000, O'Shea executed an acknowledgment stating that he agreed to the terms of the Bidcom 2000 Plan. (Pl.'s 56.1 Stmt. ¶ 2; Defs.' 56.1 Stmt. ¶ 5.)

In October 2000, Bidcom signed a merger agreement with its major competitor, Cephren Inc., to form defendant Citadon. Shortly thereafter, Alfred Merriweather, the former chief financial officer of Cephren Inc., assumed that same position at the newly created Citadon.

In December 2000, O'Shea oversaw the closing of a contract to sell software and services to Gale and Wentworth ("G & W"), a privately held real estate investment and services organization. (Defs.' 56.1 Stmt. ¶¶ 7-8.) The G & W agreement consisted of 525 distinct projects and provided that G & W would "utilize the Bidcom System for all its Projects, other than those Projects for which the Company's customer requires that a different service provider be utilized." (Florin Decl. Ex. 4 ¶ 2.) The agreement also provided that G & W could terminate their relationship without suffering any penalties or further obligations by giving ninety days written notice. (Florin Decl. Ex. 4 ¶ 9(b).)

On December 18, O'Shea met with Bidcom management to discuss the G & W agreement and the $223,000 commission that he believed was generated by the G & W agreement's $2.7 million "booking amount." (Florin Decl. Ex. 8: O'Shea Dep. at 185.)

In January 2001, Merriweather reviewed the Bidcom 2000 Plan and noted that Bidcom paid commissions based on "bookings as accepted and reported in the monthly financial report." (Pl.'s 56.1: Merriweather Dep. at 55.) Shortly thereafter, Citadon introduced a revised compensation plan that paid sales executives based on "contract value," with emphasis on revenues earned during the first year of a contract's life, as opposed to "booking value." (Pl.'s 56.1 Stmt. Ex F.: Merriweather Aff. at 19, 69, Ex. V.: Citadon Plan at 4.) Later that month, Bidcom paid $100,000 in commissions to three employees who worked on the G & W contract, including $45,000 to O'Shea. (Defs.' 56.1 Stmt. ¶ 15.) No formula was used to calculate those commissions. (Defs.' 56.1 Stmt. ¶ 16.) Although defendants assert that those commissions were not part of the Bidcom 2000 Plan, O'Shea maintains that the $45,000 was a partial payment of his $223,000 commission. (Defs.' 56.1 Stmt. ¶ 16; Pl.'s Reply 56.1 Stmt. ¶ 16.)

On February 14, 2001, John Albanese, the vice-president of sales for O'Shea's territory, sent a report to O'Shea that listed Citadon's "December Bookings and Revenue detail" listing the G & W "booking" as $2,725,000. (Pl.'s 56.1 Stmt. Ex. J: Report at 1, 7; see also Ex. G: Albanese Dep. at 48-51; valuing the 525 G & W projects at approximately $2.7 million.) Two months later, Bidcom completed its merger with Cephren. (Defs .' 56.1 Stmt. ¶ 6.) Shortly thereafter, Merriweather rebuffed O'Shea's $233,000 commission request after concluding that the G & W agreement lacked a "fixed or determinable" value because Bidcom's earnings depended on G & W deploying the discretionary projects. (Defs .' 56.1 Stmt. ¶ 13.) Later that spring, Citadon terminated O'Shea in a workforce reduction. (Defs.' 56.1 Stmt. ¶ 18; Pl.'s Reply 56.1 Stmt. ¶ 16.) On May 7, 2001, O'Shea commenced this action. As of November 2001, defendants invoiced $36,000 of the G & W agreements' $2.7 million potential projects. (Pl.'s 56.1 Stmt. Ex. F: Merriweather Aff. at 38.)

Discussion

I. Summary Judgment Standard

Rule 56(c) of the Federal Rules of Civil Procedure provides that summary judgment "shall be rendered forthwith if the pleadings, depositions, answers to interrogatories and admissions on file, together with the affidavits, if any, show there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Anderson v.. Liberty Lobby, Inc., 477 U.S. 242, 247, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). The burden of demonstrating the absence of any genuine dispute as to a material fact rests with the moving party. See, e.g., Adickes v. S.H. Kress & Co., 398 U.S. 144, 157, 90 S.Ct. 1598, 26 L.Ed.2d 142 (1970); Grady v. Affiliated Cent., Inc., 130 F.3d 553, 559 (2d Cir.1997). In evaluating the record to determine whether there is a genuine issue as to any material fact, "[t]he evidence of the nonmovant is to be believed, and all justifiable inferences are to be drawn in his favor." Liberty Lobby, 477 U.S. at 255.

II. Contractual Obligations Under the Bidcom 2000 Plan

Defendants assert that the Plan was not a contract, but a discretionary policy. (See Defs.' Mem. in Supp. at 5.) In the alternative, defendants contend that even if the Plan were a contract, its terms did not mandate the payment of commissions but afforded Bidcom the discretion to do so. (See Defs.' Mem. in Supp. at 5-8.) O'Shea contends that the Bidcom 2000 Plan is a contract unambiguously entitling him to commissions based on the $2.725 million booking amount of the G & W agreement.

It is axiomatic that a promise to pay incentive compensation is unenforceable if the written terms of the compensation plan make clear that the employer has absolute discretion in deciding whether to pay the incentive. Culver v. Merrill Lynch & Co., No. 94 Civ. 8124(LBS), 1995 WL 422203, at *3 (S.D.N.Y. July 17, 1995); see also Valentine v. Carlisle Leasing Int'l, No. 97 Civ. 1406(RSP)(GJD), 1998 WL 690877, at *3 (N.D.N.Y. Sept. 30, 1998) (citations omitted); Canet v. Gooch Ware Travelstead, 917 F.Supp. 969, 985 (E.D.N.Y.1996); Namad v. Salomon Inc., 74 N.Y.2d 751, 753, 545 N.Y.S.2d 79, 80, 543 N.E.2d 722 (1989). However, such discretion will not be implied if there exists no contractual provisions assigning the employer absolute discretion to pay such compensation. If the incentive "constitutes a term of employment and 'there exists a reasonable basis for calculating the [compensation incentive] due an employee, a court may enforce the contract term." ' Canet, 917 F.Supp. at 985 (citing Giuntoli v. Garvin Guybutler Corp. 726 F.Supp. 494, 508 (S.D.N.Y.1989)).

When finding that a specific employment contract vested an employer with the absolute discretion whether to award incentives, courts have relied on clauses that "unambiguously" vest such power. See Namad, 74 N.Y.2d at 753, 545 N.Y.S.2d at 80, 543 N.E.2d 722 (no contract where "[t]he amounts of other compensation and entitlements, if any, ... shall be at the discretion of management"); see also Valentine, 1998 WL 690877, at *3 (finding employer had discretion where terms provided that employee would be eligible for a bonus but was not promised one, and that the bonus depended on both the performance of the employee and the company); Sathe v. Bank of New York, No. 89 Civ. 6810(LBS), 1990 WL 58862, at *3 (S.D.N.Y. May 2, 1990) (no obligation existed where compensation provided that "[n]othing in this Plan shall give rise to any special compensation or other sum under this Plan unless and until any such amounts shall have been paid to such individual, and prior to such payment the Chairman shall have the power to revoke and nullify any and all steps previously taken towards making any award to any person"); Diakoff v. American Re-Insurance Co., 492 F.Supp. 1115, 1120 (S.D.N.Y.1980) (finding discretion where clause provided that profit-sharing "shall be allotted among all or any of the participants and in such proportions as the Committee shall determine, and all amounts allotted to any participant shall be subject to the approval of the board of directors"); Foss v. Am. Tel. & Telegraph Co., 199 A.D.2d 668, 669, 605 N.Y.S.2d 143, 144 (3d Dep't 1993) (discretion existed where employer reserved the right to "reduce, modify, or withhold compensation based on ... management determination of special circumstances at any time for any reason without prior notice").Similar to the agreement in Culver, the Bidcom 2000 Plan lacks the "magic words" to relegate the payment of compensation incentives to the discretion of Bidcom management. Culver, 1995 WL 422203, at *3. 

Other attributes of the Plan further evidence the parties' intent to be contractually obligated. For example, the Plan provided that "Incentive Compensation ... is earned upon a Plan Participant's attainment of goals prescribed in his/her Plan," (Pl.'s 56.1 Stmt. Ex. B at 9) (emphasis added). In addition, the Plan required that the parties both execute notice of acceptance "for the plan to take effect" (Florin Decl. Ex. 2: Plan at 8; Ex. 3: Notice.). See Kaplan v. Vincent, 937 F.Supp. 307 (S.D.N.Y.1996) (including an execution page for the parties' signatures was indicative of the parties' intent to be bound only by a signed writing). Thus, the Bidcom 2000 Plan created a contractual obligation for Bidcom to pay O'Shea's commission in accord with the terms and conditions of the Plan. Moreover, the Plan did not permit Bidcom the absolute discretion to pay or withhold commissions. Defendants maintain that the Plan's discretionary nature derives from its provisions giving Bidcom the "right to review all transactions at any time to adjust a Plan Participant's ... Variable Incentive Compensation payments as permitted" and the "final interpretation of the Plan as it may apply to any one individual person, matter or circumstance." (Pl.'s 56.1 Stmt. Ex. B at 8, 10.) However, those clauses unambiguously contemplate that any adjustment could only be carried out in accord with the Plan's "terms and conditions," and not simply at Bidcom's discretion. [FN1]

FN1. For example, the Plan permitted Bidcom to deduct from revenue attainment figure used to calculate incentives any customer payment Bidcom did not receive within a certain period; to deduct revenue that failed to qualify as incentive compensation pursuant to specific criteria; and to modify the Plan in writing. (See Pl.'s 56.1 Stmt. Ex. B: Plan at 2.)

Thus, while those clauses reserved for Bidcom the right to review and interpret the Plan's provisions, they do not grant Bidcom the discretion to disregard completely Bidcom's obligation to make commission payments. See Canet, 917 F.Supp. at 985 (discretion to determine amount of bonus did not equate with discretion whether to pay a bonus). Accordingly, that branch of defendants' motion for summary judgment based on the grounds that the Bidcom 2000 Plan was not a contract or that its terms provided Bidcom with the absolute discretion whether to make commission payments is denied.

III. Determining Commission Payments Under the Bidcom 2000 Plan

O'Shea moves for judgment in the amount of $178,351 in commissions based on the $2.725 million booking amount of the G & W agreement. Defendants respond that, pursuant to the Plan, no commissions were owed to O'Shea under Merriweather's interpretation of the value of the G & W agreement. (Defs.' Reply Mem. at 5.) Under New York law, a court may only grant summary judgment in a contract dispute where the language of the contract is wholly unambiguous. See Nowak v. Ironworkers Local 6 Pension Fund, 81 F.3d 1182, 1192 (2d Cir.1996); Mellon Bank, N.A. v. United Bank Corp., 31 F.3d 113, 115 (2d Cir.1994). The question of whether a contract is clear or ambiguous is to be decided by the court as a matter of law. See Alexander & Alexander Servs., Inc. v. These Certain Underwriters at Lloyd's, 136 F.3d 82, 86 (2d Cir.1998); Mellon Bank, 31 F.3d at 115; Consarc Corp. v. Marine Midland Bank, N.A., 996 F.2d 568, 573 (2d Cir.1993); Norfolk Southern Ry. Co. v. Flexi-Van Leasing, Inc., No. 99 Civ. 0055(WHP), 2000 WL 1855112, at *5 (S.D.N.Y. Dec 18, 2000).

O'Shea maintains that his commissions from the G & W agreement should be based solely on the $2.7 million reported in Bidcom's Monthly Bookings and Revenue Detail issued on February 14, 2001. However, as set forth above, the Plan also provided that Bidcom had "the right to review all transactions at any time and to adjust a Plan's Participant's ... Variable Incentive Compensation payments as permitted under these Terms and Conditions." (Pl.'s 56.1 Stmt. Ex. B: Plan at 10.) In addition, Bidcom reserved the right "to deduct from bookings attainment any customer booking that does not commence within 6 months of booking date." (Defs.' 56.1 Stmt. Ex. 2: Plan at 2.) Thus, the Bidcom 2000 Plan unambiguously contemplated that a reported bookings attainment figure could require later adjustment and specified that such adjustment could be made "at any time." Moreover, the Plan's provision granting Bidcom's vice-president of sales "final interpretation as it may apply to any one individual person, matter or circumstance" provided Bidcom with wide discretion in making any such determination. (Pl.'s 56.1 Stmt. Ex. B: Plan at 8.) However, accepting O'Shea's interpretation of the Bidcom 2000 Plan, i.e., that commissions vested as soon as a booking value was first reported, would read out of the Plan those provisions providing Bidcom with the ability to deduct from bookings attainment. Accordingly, O'Shea's motion for summary judgment is denied. Further, O'Shea asserts that the G & W agreement was first booked in February 2001, but it is undisputed that as of November 2001, defendants had invoiced only $36,000 of the G & W agreement's potential $2.7 million in projects. (Merriweather Dep. at 38.) Pursuant to the Plan, defendants could reduce the "bookings attainment" figure by all but the $36,000 because the remainder of the projects had not commenced within six months of the asserted bookings attainment date. Thus, defendants' deduction of the majority of the bookings attainment from the G & W agreement, and their resulting nullification of O'Shea's commissions, did not breach the Bidcom 2000 Plan. Accordingly, defendants' motion for summary judgment on the ground that Bidcom's interpretation was not an abuse of discretion is granted.

Conclusion

For the preceding reasons, plaintiff's motion for summary judgment is denied and defendants' motion for summary judgment is granted. The Clerk is further directed to close this case.