BFV Perspectives, Noncompete & Trade Secrets, | Oct 01, 2014

Questions of Fact on Employer’s Breach of Fiduciary Duty Claim

Matthew Focht Enterprises, Inc. v. Michael Lepore, No. 1:12-CV-4479-WSD, 2014 WL 1153338 (N.D. Ga. March 21, 2014), involved claims against a former sales representative of a sales organization that sells credit card processing services to retail merchants on behalf of credit card processing companies.  This blog previously addressed a threshold decision in this case regarding claims based on the former employee’s restrictive covenants. This blog entry addresses the most recent decision in the case, which considers the parties’ cross-motions for summary judgment.

As noted above, Matthew Focht Enterprises, Inc. (“MFE”) sells credit card processing services to merchants on behalf of credit card processing companies.  MFE receives a portion of the processing fees that those companies charge the merchants.  MFE contracts with sales agents like Mr. Lepore to solicit merchants.  MFE pays such sales agents on commission.

In 2009, MFE and Mr. Lepore entered into an Independent Contractor Agreement.  That agreement, among other things, addresses the commissions to be paid to Mr. Lepore.  The agreement provides the method for calculating commissions.  It also provides as follows:  “[Mr. Lepore] shall have 60 days from the receipt of any compensation or residuals to notify [MFE] of any errors in payment of compensation or residuals.  If [Mr. Lepore] does not notify [MFE] within the 60 day time period, [Mr. Lepore] shall be deemed to have accepted without question such residual or compensation payment and may not in the future contest the amount he was paid or seek reimbursement for any discrepancies.”

One of the claims asserted was a claim by Mr. Lepore for commissions owed.  In this claim, he alleged that some of his commissions were not calculated in accordance with the parties’ agreement.  MFE argued that Mr. Lepore’s claims are barred because he failed to comply with the above paragraph.  That is, Mr. Lepore never notified MFE of “any errors” in the compensation he received.  Mr. Lepore argued he complied with this requirement because he complained from time to time that his commissions seemed too low.  The District Court rejected Mr. Lepore’s argument because he failed to satisfy the contractual requirement that he notify MFE of compensation errors.  Because the record showed that Mr. .Lepore did not comply with this requirement, the District Court granted summary judgment in MFE’s favor as to Mr. Lepore’s counterclaim for commissions owed.

The District Court also addressed MFE’s claim that Mr. Lepore had acted as an unfaithful agent in violation of O.C.G.A. section 10-6-31.  This statue provides that:  “[a]”n agent who shall have discharged his duty shall be entitled to his commission and all necessary expenses incurred about the business of his principal.  If he shall have violated his engagement, he shall be entitled to no commission.”

MFE argued that Mr. Lepore violated his engagement by breaching fiduciary duties owed to MFE.  MFE identified four examples which showed that Mr. Lepore had breached his fiduciary duties.  Mr. Lepore did not dispute that if he breached his fiduciary duty, he would be liable as an agent of MFE under O.C.G.A. section 10-6-31.  However, he disputed that the examples identified by MFE established that he breached his fiduciary duties.

The District Court reviewed each of the examples presented by MFE.  MFE’s position was that the examples showed Mr. Lepore having communications with clients of MFE while he was still in an employment relationship with MFE about moving the clients’ business to a new credit card processing firm or about no longer using MFE’s services.  However, the District Court found that the examples offered by MFE did not necessarily support the conclusions MFE proffered.  The evidence thus did not establish that there was no question of fact that Mr. Lepore had breached his fiduciary duties to MFE.  The Court therefore denied MFE’s motion for summary judgment.

In addition to addressing the parties’ motions for summary judgments, the District Court also ruled on a motion to amend filed by Mr. Lepore.  In his motion, he claims that he had recently discovered evidenced that MFE had intercepted and recorded certain telephone calls between him and third parties.  Based on this evidence, Mr. Lepore sought to add a claim for violation of the California Privacy Act.

The District Court found that Mr. Lepore’s proposed amended claim was unrelated to the pending claims.  The District Court further found that because the case was so advanced, with multiple motions for summary judgment having been filed and decided, and the case being ready to proceed to trial, the addition of the new claim would cause unreasonable delay.  The District Court therefore denied Mr. Lepore’s motion to amend.

The District Court’s rulings in Lepore, including its earlier ruling, indicate that while these two parties had serious disagreements and believe they had valid claims against each another, many if not all of those claims are unlikely to be successful.

BFV Perspectives, Noncompete & Trade Secrets, | Oct 01, 2014
Neal F. Weinrich
Neal F. Weinrich

Neal Weinrich knows noncompetes and trade secrets inside and out. A shareholder at Berman Fink Van Horn, Neal counsels clients in all industries on matters involving restrictive covenants, trade secrets and other competition-related issues.