Piacquadio v. Vertis, Inc.
Filing
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MEMORANDUM AND ORDER denying 17 Motion of defendant for Judgment on the Pleadings. Signed by Judge James K. Bredar on 7/12/12. (hmls, Deputy Clerk)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
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RONALD PIACQUADIO,
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Plaintiff
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v.
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VERTIS, INC.,
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Defendant
CIVIL No. JKB-12-245
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MEMORANDUM and ORDER
Ronald Piacquadio (“Plaintiff”) brought this suit against his former employer, Vertis, Inc.
(“Defendant”), alleging breach of contract and violation of the Maryland Wage Payment and
Collection Law (“WPCL”), MD. CODE ANN., LAB. & EMPL. § 3-501, et seq. Now pending before
the Court is Defendant’s Motion for Judgment on the Pleadings (ECF No. 17), which seeks
dismissal of Plaintiff’s claim under the WPCL. The issues have been briefed and no oral
argument is required. Local Rule 105.6. For the reasons explained below, the motion will be
DENIED.
I.
BACKGROUND
In this employment dispute, Plaintiff sues his former employer to recover severance pay
that he alleges is due.
Plaintiff began working for Defendant as an account executive in its “Integrated Media
Solutions” division in 2002. He alleges that around 2008 Defendant’s financial condition began
to deteriorate and that rumors began to circulate among its employees that it might go out of
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business. According to Plaintiff, Defendant offered special severance pay packages to certain
employees, including himself, to give them an incentive to stay with the company during its hard
times. The offer, contained in a document called the “Key Employee Agreement” (or “KEA”),
consisted, in pertinent part, of the following terms:
1.
Retention/Release Payment. Provided Employee:
(a)
Remains employed for as long as the Company requires
and is not terminated for Cause;
(b)
Performs all services and tasks presently assigned to
Employee and actively performs any additional services that may be
assigned to Employee by the Company;
(c)
Returns any and all Company property in Employee’s
possession as of Employee’s last day of employment, including, but not
limited to, Company documents, files, computers and accessories, and any
other Company owned items or equipment;
(d)
Has contemporaneously with execution of the Retention
Agreement, executed a Business Responsibilities Agreement with the
Company; and
(e)
Executes a General Release Agreement (“Release”) in a
form to be provided by the Company to Employee on the last day of
Employee’s employment;
The Company will, on the first pay date following the eighth day after
Employee’s execution of the Release, pay Employee Employee’s weekly
severance payment, for a period of Fifty-Two (52) weeks, from which the
Company will deduct the necessary state and federal withholding and FICA (the
“Retention/Release Payment”). As a commissioned employee, your weekly
severance payment is calculated by using your average weekly income as
determined by your previous year’s W-2 form. … If Employee either resigns or is
terminated for “Cause” (as defined in paragraph 2, below), or fails to satisfy any
of the conditions precedent to payment in subparagraphs (a)-(e), above, Employee
will not be entitled to any Retention/Release Payment.
Plaintiff singed the KEA on or about March 31, 2008. Shortly thereafter, Defendant filed
a Chapter 11 bankruptcy petition. Plaintiff remained an employee of Defendant throughout the
bankruptcy process.
Defendant managed to emerge from its 2008 bankruptcy and stay in
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business for another two years. But, in November of 2010, Defendant filed a second Chapter 11
bankruptcy, which involved a more sweeping reorganization of the company. Plaintiff alleges
that one result of the reorganization was that Defendant was forced to downsize several of its
divisions, including IMS, as a condition of procuring new loans. In February of 2011, Defendant
terminated Plaintiff’s employment, allegedly due to poor performance. Because Defendant
asserted that it had terminated Plaintiff “for cause” it refused to pay him the 52 weeks of
severance pay promised in the KEA. Plaintiff, however, alleges that Defendant’s real reason for
terminating him was its need to downsize, and that it fabricated the “poor performance” rationale
solely to avoid having to give him the severance pay, which he calculates at about $140,000.
In January of 2012, Plaintiff filed a complaint in this Court, alleging the facts set out
above and asserting causes of action for breach of contract and violation of the Maryland Wage
Payment and Collection Law. Defendant filed an answer shortly thereafter. On May 7, 2012,
Defendant filed the instant motion, seeking dismissal of Plaintiff’s WPCL claim on the grounds
that the severance payments described in the KEA are not “wages” within the meaning of that
statute.
II.
LEGAL STANDARD
Federal Rule of Civil Procedure 12(c) allows a party to move for judgment on the
pleadings “[a]fter the pleadings are closed[,] but early enough not to delay trial.”
When
considering a motion for judgment on the pleadings, a court applies “the same standard” as for
motions made pursuant to Rule 12(b)(6). Burbach Broad. Co. v. Elkins Radio Corp., 278 F.3d
401, 405–06 (4th Cir. 2002). A motion to dismiss under Rule 12(b)(6) is a test of the legal
sufficiency of a complaint. Edwards v. City of Goldsboro, 178 F.3d 231, 243 (4th Cir. 1999).
To pass this test, a complaint need only present enough factual content to render its claims
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“plausible on [their] face” and enable the court to “draw the reasonable inference that the
defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009).
The plaintiff may not, however, rely on naked assertions, speculation, or legal conclusions. Bell
Atlantic v. Twombly, 550 U.S. 544, 556-57 (2007). In assessing the merits of a motion to
dismiss, the court must take all well-pled factual allegations in the complaint as true and construe
them in the light most favorable to the Plaintiff. Ibarra v. United States, 120 F.3d 472, 474 (4th
Cir. 1997). If after viewing the complaint in this light the court cannot infer more than “the mere
possibility of misconduct,” then the motion should be granted and the complaint dismissed.
Iqbal, 129 S.Ct. at 1950.
III.
ANALYSIS
The sole issue raised in this motion is whether the Retention/Release (“R/R”) payments
described in the KEA constitute “wages” under the Maryland Wage Payment and Collection
Law. As explained below, the Court finds that they do.
Maryland courts employ a two-part “bright line” test to determine whether a given
payment is a “wage.” First, the payment must “have been promised as part of the compensation
for the employment arrangement,” and, second, “all conditions agreed to in advance” for earning
the compensation must have been fulfilled. Catalyst Health Solutions, Inc. v. Magill, 995 A.2d
960, 969 (Md. 2010) (citing Whiting-Turner Contracting Co. v. Fitzpatrick, 783 A.2d 667, 67273). The Court finds that the terms of the KEA, as well as the facts alleged in the complaint,
taken as true, establish that the R/R payments that Plaintiff seeks to recover in this action meet
both criteria. First, there cannot be any dispute that the R/R payments were “promised as part of
the compensation” for Plaintiff’s “employment arrangement” with Defendant. The very first
requirement set out in the KEA is that Plaintiff “remain employed [with Defendant] for as long
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as [it] requires ….” Second, the complaint alleges that Plaintiff “fulfilled all his obligations
under the Key Employee Agreement that would entitle him to the Retention/Release Payments.”
(Compl. at 5, ECF No. 1). Plaintiff is not required to plead with any more specificity than this,
and because this is a motion for judgment on the pleadings, the Court must draw all plausible
inferences in his favor. In the Court’s view, it is entirely plausible to construe the above-quoted
allegation as meaning that Plaintiff performed all of the obligations listed in Paragraph 1 of the
KEA, including executing a Business Responsibilities Agreement (“BRA”), performing all tasks
assigned to him, and returning all company property and signing a release of claims on the last
day of his employment. Assuming, as the Court must, that these allegations and the inferences
drawn from them are true, it is clear that Plaintiff satisfied “all conditions agreed to in advance”
for earning the R/R payments. Thus, the R/R payments, as alleged in the complaint, are “wages”
within the meaning of the WPCL.
Defendant urges the opposite conclusion, arguing that the R/R payments cannot be wages
under the WPCL because one of the conditions of Plaintiff’s receiving the payments was his
execution of the BRA, which contained post-employment obligations, such as agreements not to
compete with Defendant, disclose its confidential information, or solicit its customers or
employees.
In Defendant’s view, Maryland case law establishes that payments made in
consideration of an employee’s agreement to undertake such post-employment obligations
cannot be wages. The Court finds this reading of the case law to be inaccurate.
The seminal Maryland case on this subject, which Defendant cites in support of its
motion, is Stevenson v. Branch Banking and Trust Corp., 861 A.2d 735, 749 (Md. 2004). There,
the Maryland Court of Appeals held that severance pay could constitute a wage if it represented
“deferred compensation for work performed during the employment,” but not if it was “explicitly
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a quid pro quo” for a non-compete agreement. Id. at 749-50. The Stevenson court determined
that the severance pay provision at issue in that case fell into the latter category because of
“cross-references” between it and another provision that forbade the employee from competing
with the employer for a certain number of months after employment. Specifically, the agreement
provided that if the employee breached the non-compete provision, she would no longer be
entitled to receive the severance payments. The court reasoned that, under these circumstances,
the employee could not possibly perform all the work necessary to earn the severance pay before
the end of her employment, and that it therefore could not be a wage. Id. at 750.
Defendant argues that the same result should obtain here because the R/R payments
provided for in the KEA were a quid pro quo for Plaintiff’s agreement not to compete with
Defendant after his employment. The Court finds this reasoning to be flawed. The key feature
of the agreement in Stevenson that made it a quid pro quo of severance pay for non-competition
was the fact that the plaintiff’s receipt of the severance pay was actually conditioned on her
conduct after employment. That is, it provided explicitly that if the employer found that the
plaintiff was competing with it while the agreement was in effect, then she would cease to be
entitled to the severance payments. Here, on the other hand, Plaintiff was required only to
execute the BRA to become entitled to the R/R payments. There is no suggestion in the KEA
that Defendant would stop making R/R payments to Plaintiff if it discovered that he was
competing with it post-employment. In fact, the KEA does not mention any specific terms of the
BRA at all. And, the BRA, for its part, does not mention the KEA. 1 Rather, it states in clear
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Even though the BRA has come to the Court in exhibit form only as an attachment to Defendant’s motion, and not
the original pleadings, the Court may nonetheless rely on it in deciding this motion, as Plaintiff necessarily relies on
an implied allegation that he executed the document in stating his claims in this case. See Fare Deals, Ltd. v. World
Choice Travel.com, Inc., 180 F.Supp.2d 678, 683 (noting that on a motion to dismiss, a court may consider “any
documents referred to in the complaint and relied upon to justify a cause of action-even if the documents are not
attached as exhibits to the complaint.”).
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terms that Plaintiff’s execution of it is in consideration of his “employment or continued
employment” with Defendant. Furthermore, the only remedy that it refers to for its breach is
injunctive relief. Nowhere does it say or even suggest that a breach of its terms would divest
Plaintiff of his right to any payments or benefits promised in another agreement. The Court
therefore does not find that the R/R payments were a quid pro quo for Plaintiff’s noncompetition after employment.
Defendant also relies on this Court’s decision in the case of Makowski v. Bovis Lend
Lease, Inc., Civil Action No. RDB 10-1844, 2011 WL 1045635 (D. Md. March 17, 2011). The
agreement at issue in that case was a “separation agreement” that the defendant had allegedly
offered to the plaintiff when he was terminated as part of a company-wide reduction-in-force.
Id. at *4,10. Judge Bennett observed that the Separation Agreement offered severance pay in
exchange for, among other things, certain promises from the plaintiff, including a release of
claims and a covenant-not-to-compete. Id. at *10. Judge Bennett concluded that, “[a]s in
Stevenson, the Separation Agreement in this case offers the severance payment in exchange for
certain promises made by Makowski,” and that “Thus, [his] right to severance payment was not
solely based upon the work he performed before he was terminated as required under the Wage
Act.” Id.
This does little, if anything, to support Defendant’s argument. The agreement at issue in
Makowski was apparently offered to the plaintiff only when he was terminated, which is
undoubtedly why it was titled a “separation agreement.”
By definition, the only possible
consideration plaintiff could have given for the promised severance pay would have been a
promise either to do or not to do something post-employment. That is almost the exact opposite
of the scenario in this case, in which Defendant offered Plaintiff severance pay explicitly to
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induce him to continue his employment. Thus, Makowski could hardly be less apposite to the
facts of this case, and the Court rejects Defendant’s arguments to the contrary.
Instead, the Court finds that the case of Provident Bank of Md. T/A v. McCarthy, 383
F.Supp.2d 858 (D. Md. 2005) is instructive. There, Judge Quarles of this Court ruled that an
“imputed interest” provision in an employment agreement (which entitled the employee to
receive a certain sum of money if he were terminated without cause) constituted a “wage”
despite the existence of a non-compete provision and other restrictive covenants in the same
agreement. Judge Quarles distinguished the facts of that case from Stevenson by noting that
while the non-compete and imputed interest provisions were contained in the same agreement,
there were no cross-references between them that made plaintiff’s receipt of the imputed interest
contingent on his adherence to the non-compete provision. Id. at 861. He also noted that the
lack of connection between the provisions was reinforced by the fact that the employer’s sole
remedy in the event that plaintiff breached the non-compete provision was injunctive relief, and
did not include the right to withhold the imputed interest payment. Id.
The only significant difference between the facts of this case and those of Provident Bank
is that all of the contractual provisions at issue in Provident Bank were contained in a single
document, whereas here the severance pay provisions and the post-employment restrictive
covenants appear in separate documents.
Defendant attempts to turn this difference to its
advantage by arguing that because the KEA required Plaintiff to execute both it and the BRA
contemporaneously, it therefore contained the elusive “cross-reference” that was missing in the
Provident Bank agreement.
That is a non-sequitur.
The “cross-reference” referred to in
Provident Bank, and in Stevenson, which Provident Bank cited, was a statement in a provision
for severance pay that explicitly conditioned an employee’s receipt of the pay on the fulfillment
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of a specific post-employment obligation. In other words, the “cross-reference” is not simply
any reference to another document or obligation, but one that creates an explicit quid pro quo.
As already discussed above, the KEA’s requirement that Plaintiff simultaneously execute a BRA
does not accomplish this.
Indeed, the fact that Plaintiff had to execute the KEA and the BRA simultaneously in
order to receive the R/R payments is merely a red herring with respect to the instant dispute.
That scenario is no different than if Defendant had offered Plaintiff a single agreement
containing all the provisions from both the KEA and the BRA. There, too, he would necessarily
have had to agree to the non-compete provision and other post-employment obligations in order
to get the promised severance pay. But, that is precisely the same contractual relationship that
was at issue in Provident Bank; and, for that matter, it is the same relationship that is created by
every employment contract that contains provisions for both compensation and post-employment
restrictive covenants.
In all of these instances, the employee must agree to the restrictive
covenants in order to get the benefit of employment, i.e., compensation, and yet that fact does
not preclude the compensation’s being considered wages.
Rather, compensation has to be
conditioned on the employee’s actual performance of the post-employment obligations, not just
his agreement to them in the first instance, before the compensation is removed from the
category of “wages.” The agreements in this case do not appear to contain any such condition.
For all of the above-stated reasons, the Court concludes that Plaintiff has stated a claim
under the WPCL.
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IV.
ORDER
Accordingly, it is ordered that Defendant’s Motion for Judgment on the Pleadings (ECF
No. 17) is DENIED.
Dated this 12th day of July, 2012
BY THE COURT:
/s/
James K. Bredar
United States District Judge
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