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Wall Systems, Inc. v. Pompa

Supreme Court of Connecticut

March 7, 2017

WALL SYSTEMS, INC.
v.
WILLIAM POMPA ET AL.

          Argued December 13, 2016

          Benjamin M. Wattenmaker, with whom, on the brief, was John M. Wolfson, for the appellant-appellee (plaintiff).

          Gerald A. Del Piano, with whom was P. Jo Anne Burgh, for the appellees-appellants (named defendant et al.).

          Rogers, C. J., and Palmer, Eveleigh, McDonald, Espinosa and Robinson, Js.

          OPINION

          ROGERS, C. J.

         The primary issue raised by this appeal and cross appeal is the range of monetary remedies available to an employer once it has proven that its employee breached his common-law duty of loyalty. The plaintiff, Wall Systems, Inc., appeals from the judgment of the trial court awarding it damages of $43, 200, plus statutory interest and attorney's fees, after concluding that the defendant, William Pompa, had breached his duty of loyalty by working simultaneously for the plaintiff and for a competitor, and further, by accepting three kickbacks from a subcontractor in connection with his work for the plaintiff. The court, as part of its remedy, imposed a constructive trust on a bank account held jointly by the defendant and his wife, Jill Pompa.[1]

         On appeal, the plaintiff claims that the trial court, in fashioning a remedy for the defendant's breach of loyalty, improperly declined to order that the defendant forfeit all of the compensation he had received during the period in question, both from the plaintiff and from its competitor. The defendant responds that the court's ruling in this regard was a proper exercise of its discretion, but he claims in the cross appeal that the damages award, in other respects, lacked evidentiary support. Jill Pompa contends that the court's imposition of a constructive trust on the joint bank account was unjustified because there was no proof that she had participated in any of the defendant's wrongdoing or that the monies gained from that wrongdoing had been deposited in the account. We conclude that the trial court's award of damages had sufficient evidentiary support and that the court's refusal to order additional monetary relief was an appropriate exercise of its discretion, but that the court's imposition of a constructive trust on the joint bank account was not warranted on the evidence presented. Accordingly, we affirm in part and reverse in part the judgment of the trial court.

         The following facts, which either were found by the trial court or are not disputed, are relevant to the appeal. The plaintiff is a building contractor comprised of various divisions. The defendant began working for the plaintiff in or around 1995, when the company was under different management, and ultimately became the head of its exterior insulation finish systems division.[2] As division head, the defendant's duties included finding the plaintiff jobs with general contractors, estimating and bidding jobs, hiring and negotiating with subcontractors, obtaining materials, overseeing work, ensuring proper billing, and arranging payment for subcontractors. The defendant was considered part of the plaintiff's management team. He was well compensated by the plaintiff, receiving a base salary plus annual bonuses. From 2005 to 2010, the defendant received a total of approximately $894, 000 in compensation from the plaintiff.

         Among the subcontractors working regularly for the plaintiff, who were hired and supervised by the defendant, were MK Stucco, LLC (MK Stucco), and B-Jan Stucco, LLC (B-Jan). MK Stucco was owned by Michael Kowalczyk, and B-Jan was co-owned by Michael Bochenek and his father.

         In 2005, Richard Valerio, who previously had worked for the plaintiff as an employee and a subcontractor, became the plaintiff's owner. In the years that followed, the defendant received less compensation than that to which he believed he was entitled, leading to a breakdown in the employer-employee relationship.

         Because he was dissatisfied with his reduced income from the plaintiff, the defendant began to work for MK Stucco as an independent contractor, doing estimating work for jobs that MK Stucco then would bid on. From 2005 to 2010, the defendant received a total of approximately $89, 782 in compensation from MK Stucco for this work.[3] The defendant never informed Valerio that he was working for MK Stucco, nor did he ask permission to do so. Some of the jobs that the defendant estimated for MK Stucco were jobs on which the plaintiff also submitted bids.[4]

         In the spring of 2010, Valerio became suspicious, believing that the defendant was working against company interests. Around that time, Bochenek informed Valerio that the defendant was demanding kickbacks from the plaintiff's subcontractors, in essence, increasing the cost of their jobs by adding extra work to their contracts, then demanding that one half of the additional amount paid by the plaintiff be returned, in cash, to the defendant personally. The plaintiff terminated the defendant's employment in October, 2010, and filed this action against him at that time. At some point thereafter, Valerio learned that the defendant also had been working for MK Stucco.

         Ina revised complaint dated July 11, 2011, the plaintiff alleged that the defendant had breached the duty of loyalty that he owed by virtue of his employment by, inter alia, charging kickbacks to subcontractors and performing work on his own behalf, rather than the plaintiff's, during the plaintiff's work day. He further claimed that the defendant's actions constituted conversion, statutory theft and fraud. The plaintiff claimed that the defendant's malfeasance had caused it damages of more than $500, 000 and that, in light of the statutory theft allegations, it was entitled to treble damages.[5] As to both the defendant and Jill Pompa, the plaintiff alleged unjust enrichment and requested that the trial court impose a constructive trust over both of their assets, contending that those assets included moneys belonging to the plaintiff that the defendant wrongfully had obtained.[6] The defendant filed a cross complaint and counterclaims against the plaintiff and Valerio alleging, in essence, that the plaintiff had not paid him all of the compensation to which he was entitled.

         After a bench trial, the trial court held that the defendant had violated his duty of loyalty to the plaintiff by working for MK Stucco, a competitor of the plaintiff, and by receiving compensation for that work. It found that, although the plaintiff had performed only estimating duties for MK Stucco, and not bidding work, some of the jobs at issue had been bid on by both MK Stucco and the plaintiff. See footnote 4 of this opinion. In the court's view, the defendant's actions in this regard were deliberate, wrongful and intentional. The court further concluded, however, that the plaintiff had failed to prove that it had suffered any financial harm as a result of those actions. Specifically, there was no evidence that the plaintiff had lost any bids to MK Stucco due to the defendant's work for both companies, or that the defendant had worked for MK Stucco during the plaintiff's work day rather than on evenings or weekends, as he had testified without contradiction. Moreover, the plaintiff had not produced any evidence to show how much it would have earned on the jobs it purportedly had lost wrongfully, even assuming that the lost jobs were attributable to the defendant's actions or inactions.

         The trial court held additionally that the defendant had breached his duty of loyalty to the plaintiff by engaging in a kickback scheme with B-Jan, but not with any other subcontractors.[7] It relied particularly on testimony from Bochenek as to three jobs on which B-Jan was working as a subcontractor and, according to Bochenek, the defendant had effected an increase to the contract price and, thereafter, required B-Jan to return one half of the price increase, in cash, to the defendant personally. Because the amount of the contract increases for those jobs were, respectively, $7000, $1400 and $6000, the court concluded that the total proven damages to the plaintiff, as a result of the kickback scheme, were $14, 400, i.e., the aggregate of the individual increases. The court further concluded that the defendant's actions vis-a`-vis B-Jan constituted conversion, statutory theft, fraud and unjust enrichment and, on the basis of the statutory theft, tripled the damages found to result in an award to the plaintiff in the amount of $43, 200. Finally, the court imposed a constructive trust against both the defendant and Jill Pompa, reasoning that ‘‘[t]he latter, by having a joint bank account with [the defendant], was in receipt and holds some of the [moneys] which were taken illegally by [the defendant].'' As to the defendant's counterclaim for unpaid bonuses, the trial court rejected it as unsupported by the evidence.

         Regarding the plaintiff's contention, advanced in its trial brief, that the defendant should be required to forfeit all of the compensation he had earned from both the plaintiff and from MK Stucco during the period of his disloyalty, the trial court, in a footnote in its memorandum of decision, stated only that it was ‘‘not persuaded.'' In response to the plaintiff's motions for articulation/clarification and reconsideration, the court, after hearing argument, reiterated that there was no evidence that the plaintiff had been harmed due to the defendant's working for MK Stucco, and it observed that the plaintiff also had failed to prove its allegations as to the defendant requiring kickbacks from any subcontractor other than B-Jan. The court cited the amount of damages it had found flowing from the B-Jan kickbacks and noted that, even trebled, that amount was insignificant in comparison to the amount of compensation that the plaintiff believed the defendant should have to forfeit. The court elaborated that the plaintiff had worked for MK Stucco on his own time, and there was no evidence that that work had interfered with his work for the plaintiff. In making its ruling, the court expressly stated that it ‘‘has the discretion as to what damages go to the plaintiff . . . .'' After an additional hearing was held for the determination of attorney's fees, [8] a final judgment was rendered. This appeal and cross appeal followed. Both the plaintiff and the defendant challenge the propriety of the trial court's monetary remedy, while Jill Pompa contends that the imposition of a constructive trust was unwarranted. We will address these claims in turn.

         I

         The plaintiff claims that the trial court, as a matter of law, improperly declined to order the defendant to forfeit everything he had earned between 2005 and 2010, because certain authority provides that a disloyal employee is not entitled to the compensation he was paid during a period of disloyalty. According to the plaintiff, when an employee, such as the defendant here, is radically unfaithful, or wilfully breaches his duty of loyalty, his employer is entitled to recover the employee's entire salary, and that such is the case even when there is no proof of specific damages to the employer. In the plaintiff's view, given the facts found, and the trial court's legal conclusions that the defendant committed fraud, conversion and statutory theft, the court was required to order the remedy of forfeiture. The plaintiff claims additionally that the defendant, due to his breach of loyalty, also should be required to disgorge the compensation that he had received from MK Stucco, regardless of whether he had worked for MK Stucco on his own, or the plaintiff's, time. In support of its contentions, the plaintiff relies on substantial extrajurisdictional jurisprudence and various provisions of the Restatement of Agency, and it claims that the court, when fashioning its remedy, failed to acknowledge and apply those authorities although the plaintiff had discussed them in its trial memoranda.

         The defendant responds that the amount of damages to be awarded for an employee's breach of his duty of loyalty is a matter within a trial court's discretion. He further contends that, given all of the circumstances, the trial court in the present case properly exercised its discretion in declining to order him to forfeit all of the compensation that he had earned from the plaintiff, and to disgorge that which he had received from MK Stucco, during his period of disloyalty. In the defendant's view, such a remedy would have been inequitable and harsh, particularly in light of the plaintiff's failure to prove that it had suffered any harm as a result of his working for MK Stucco. In response, the plaintiff points out that the court did find that it had suffered a financial loss in connection with the kickback scheme and that, in any event, proof of such a loss is unnecessary particularly because the defendant's breach was wilful and intentional.

         We agree with the plaintiff that the remedies of forfeiture of compensation paid by an employer, and disgorgement of amounts received from third parties, are available when an employer proves that its employee has breached his or her duty of loyalty, regardless of whether the employer has proven damages as a result of that breach. Nevertheless, the remedies are not mandatory upon the finding of a breach of the duty of loyalty, intentional or otherwise, but rather, are discretionary ones whose imposition is dependent upon the equities of the case at hand. Moreover, while certain factors, including harm to the employer, should not preclude a finding that the employee has committed a breach of the duty of loyalty, they nevertheless may be considered in the ...


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