Ellicott v. American Capital Energy Inc. et al

Filing 75

Judge F. Dennis Saylor, IV: ORDER entered granting in part and denying in part #61 Motion. Order for real estate attachment and reach and apply will follow separately. (Stearns, Ian)

UNITED STATES DISTRICT COURT
DISTRICT OF MASSACHUSETTS
_____________________________________
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STEPHEN ELLICOTT,
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Plaintiff,
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v.
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AMERICAN CAPITAL ENERGY, INC., )
THOMAS HUNTON, and
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ARTHUR HENNESSEY,
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Defendants,
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and
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REDWOOD SOLAR
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DEVELOPMENT, LLC,
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Reach and Apply Defendant.
)
_____________________________________)

Civil Action No.
14-12152-FDS

MEMORANDUM AND ORDER ON PLAINTIFF’S MOTION TO
AMEND THE COMPLAINT AND PLAINTIFF’S MOTION FOR A
REAL ESTATE ATTACHMENT AND REACH AND APPLY ORDER
SAYLOR, J.
This is a contract dispute between a solar energy company and a former sales employee
over unpaid commissions for eight solar-installation projects. Plaintiff Stephen Ellicott has
brought suit against American Capital Energy, Inc. and its two principals, Thomas Hunton and
Arthur Hennessey (collectively, “ACE”). The complaint alleges claims for breach of contract
and violation of the Massachusetts Wage Act, Mass. Gen. Laws ch. 149, § 148.
Ellicott has moved for an attachment of ACE’s real property in Massachusetts and a
reach and apply order against certain funds owed to ACE by reach and apply defendant
Redwood Solar Development, LLC. Ellicott has also moved to amend the complaint in order to

add Redwood as a reach and apply defendant. Ellicott contends that ACE owes him $1.3 million
in unpaid commissions according to the terms of his employment agreement, and thus seeks an
attachment order and reach and apply order to secure that amount. ACE contends that Ellicott
owes it $286,391 in overdrawn advances against his commissions.
The parties have both submitted, among other evidence in support of their respective
positions, expert reports by certified public accountants. Ellicott has also submitted excerpts of
various depositions. After reviewing the employment agreement, the parties’ expert reports, and
the other evidence, the Court concludes that Ellicott has a reasonable likelihood of prevailing on
his breach of contract claim and recovering a judgment of at least $722,266. Accordingly, the
motion for a real estate attachment will be granted in part. The motion for a reach and apply
order will be granted, and the motion to amend the complaint to add Redwood Solar
Development, LLC as a reach and apply defendant will be granted.
I.

Background
Stephen Ellicott worked for ACE as a sales employee from 2007 to 2013. (DeProspo

Aff. ¶¶ 3, 7). The parties do not dispute that from 2008 to 2013, Ellicott sold eight solarinstallation projects for which he now claims commissions. (Id. at ¶ 6; Ex. C at 6). Ellicott was
an employee of ACE, not a partner or joint-venturer. (Id. at ¶ 21; Ex. F at 49:5-20).
On April 23, 2008, Tom Hunton, the President of ACE, signed a letter that he described
as a “[c]omp plan confirmation for Steve Ellicott with American Capital Energy.” (Id. at ¶ 4; Ex.
B). Among other things, ACE agreed to pay a sales commission to Ellicott of “40% of profit
margin on each sale and installation to be paid within 30 days after the client pays ACE and

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installation is complete.” (Ex. B at ¶ 2). The letter also provided that “[t]here is a draw paid
monthly at the annual rate of $120,000.” (Id.).
ACE contends that the parties orally modified the commission rate to 30 percent in early
2011. (Id. at ¶ 11; Ex. A at 67:8-68:14). Ellicott contends that any alleged modification, if it
occurred at all, did not occur until after his last sale; he notes that Hennessey, at his deposition,
admitted that Ellicott was entitled to 40 percent commissions on all eight projects because they
all began incurring costs before the alleged oral modification. (Id. at ¶ 13; Ex. F at 61:7-67:23).
The letter also stated that “[t]he commissions may be reasonably split with various sales
support personnel by mutual agreement.” (Id. at ¶ 14; Ex. B at ¶ 2). At his deposition, Ellicott
testified that he never agreed to share his commissions. (Id. at ¶ 15; Ex. D at 46:22-24). Hunton
testified that ACE did not have an agreement with sales support staff to pay them portions of
Ellicott’s commissions. (Id. at ¶ 18; Ex. A at 48:16-23).
In calculating Ellicott’s commissions, ACE’s auditor deducted “direct labor costs” from
the gross profit margins of Ellicott’s projects; it appears that deduction was calculated as 5.6
percent of direct project costs. (Id. at ¶ 23; Ex. C at 6).
In 2013, ACE contracted with Redwood Solar Development, LLC to build solar arrays on
Cape Cod and Martha’s Vineyard. (Id. at ¶ 39). On January 20, 2015, ACE brought suit against
Redwood for breach of contract, alleging more than $12 million in damages. (Id. at ¶¶ 35, 3940).
In April 2014, Ellicott filed a complaint against ACE in state court. The complaint
alleges one claim for breach of contract and one claim for violation of the Massachusetts Wage
Act, treble damages, attorneys’ fees, and costs pursuant to Mass. Gen. Laws ch. 149, § 148.

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ACE removed the action to this Court in May 2014. On December 15, 2015, after conducting
discovery, Ellicott moved for an attachment of ACE’s Massachusetts real estate in the amount of
$1.3 million, as well as a reach and apply order against funds allegedly owed to ACE by
Redwood. Ellicott also moved to amend the complaint to narrow the scope of its pleadings and
to add Redwood as a reach and apply defendant. During the hearing on Ellicott’s motions, the
Court indicated that it would grant his motion to amend the complaint’s substantive allegations
because he had met the Rule 16 “good cause” standard; however, the Court took under
advisement his motion for a real estate attachment and reach and apply order.
II.

Analysis
In order to obtain a real estate attachment under Massachusetts law, a plaintiff must

demonstrate “(1) a reasonable likelihood of success on the merits and (2) a reasonable likelihood
of recovering a judgment equal to or greater than the amount of the attachment sought that is
(3) over and above any liability insurance shown by the defendant to be available to satisfy the
judgment.”1 Greenbriar Cos. v. Springfield Terminal Ry., 477 F. Supp. 2d 314, 317 (D. Mass.
2007) (citing International Ass'n of Bridge, Structural and Ornamental Iron Workers v. Burtman
Iron Works, Inc., 164 F.R.D. 305, 306-07 (D. Mass. 1995)). As to a reach and apply order
against money owed to a defendant by a third party, Mass. Gen. Laws ch. 214, § 3(6) authorizes
“creditors to reach and apply, in payment of a debt, any property, right, title or interest, legal or
equitable, of a debtor, within or without the commonwealth . . . .” Under that statute, “the court
must engage in a two-step process to establish (1) the indebtedness of the defendant [to the
plaintiff] and (2) [that] the defendant has property that can be reached by the plaintiffs in

Ellicott’s counsel has stated in an affidavit that he is not aware of any liability insurance carried by ACE
that would be available to satisfy a potential judgment. (DeProspo Aff. ¶ 41).
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satisfaction of the defendant’s debt.” Hunter v. Youthstream Media Networks, Inc., 241 F. Supp.
2d 52, 57 (D. Mass. 2002) (citations omitted). “While not all contract claims must be reduced to
judgment before the statutory reach and apply is available, a plaintiff may not seek to reach and
apply assets where . . . the defendant[’s] liability ‘is hotly contested and there are disputed issues
of fact which must be resolved.’” Neponset Landing Corp. v. Northwestern Mut. Life Ins. Co.,
2011 WL 2417128, at *6 (D. Mass. June 10, 2011) (quoting Hunter, 241 F. Supp. 2d at 58).
Ellicott contends that, based on the terms of his employment agreement, the deposition
testimony, and his expert report, there is more than a reasonable likelihood that he will recover a
judgment of $1.3 million. Ellicott’s expert report, prepared by a certified public accountant at
PricewaterhouseCoopers, states that ACE owes him $1.3 million in unpaid commissions from
the sale of eight projects. The report, however, also includes a more conservative estimate of
$722,266, as detailed below. ACE contends that the underlying facts are too “hotly contested” to
conclude that there is a reasonable likelihood that Ellicott will recover a judgment; in fact,
ACE’s expert report states that Ellicott actually owes ACE overdrawn allowances against his
commissions in the amount of $286,391. (Defs. Mem. 2).
There appear to be four major disputed issues that affect the parties’ respective
calculations. First, Ellicott contends that he earned 40 percent commissions on the gross profits
of all eight projects in question. ACE contends that the final five projects that Ellicott sold
occurred after the parties orally modified his employment agreement to decrease his
commissions to 30 percent. Second, Ellicott contends that he did not agree to split his
commissions with any sales support staff; ACE contends that he did. Third, Ellicott contends
that the terms of his employment agreement did not mandate that he pay “negative commissions”

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for unprofitable projects; he would simply earn no commission on those projects. ACE contends
that Ellicott did agree to pay negative commissions on unprofitable projects. Fourth, Ellicott
contends that ACE arbitrarily reduced the gross profits for his projects by 5.6 percent of their
direct costs in order to cover “labor burden” expenses. He also contends that the 5.6 percent
figure is inaccurate because it covers the salaries of ACE’s owners; according to him, labor
burden expenses should include direct labor, such as project managers and engineers, but not
indirect labor or overhead expenses. ACE contends that it is generally accepted within the
industry to deduct overhead and direct labor expenses from sales commissions.
The $1.3 million calculation by Ellicott’s expert resolves each of those four disputed
issues in his favor––that is, it assumes 40 percent commissions on all eight profitable projects, no
commission split with sales support staff, zero (not negative) commissions for unprofitable
projects, and no deduction for overhead or direct labor expenses.2 The report, however, also
includes a more conservative, $722,266 estimate of Ellicott’s unpaid commissions. That
estimate assumes that the first three disputed issues are resolved in Ellicott’s favor, but applies
ACE’s 5.6 percent deduction for labor burden expenses.3 ACE’s estimate in its expert report
appears to resolve all four disputed issues in its favor.
After reviewing, among other things, the parties’ expert reports and the deposition
testimony, the Court finds that there is a reasonable likelihood that Ellicott will recover a

Ellicott’s expert does not appear to dispute that some deduction of Ellicott’s commissions for direct labor
costs is appropriate. However, the report indicates that because ACE’s 5.6 percent figure is arbitrary and Ellicott
does not have sufficient data to calculate a more appropriate percentage, it does not include any deduction for direct
labor costs.
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Ellicott’s conservative estimate also appears to exclude his commission on the “Houwelings Solar
Thermal” project, which is included in the higher estimate, because there is a dispute over whether that project was
separate from the significantly unprofitable “Houwelings PV” project.
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judgment of at least $722,266 on his breach of contract claim.4 First, there appears to be a
reasonable likelihood that Ellicott earned 40 percent commissions on all eight profitable projects,
either because the parties did not mutually agree to orally lower his commissions to 30 percent,
or, even if they did, because the obligation to pay Ellicott’s commissions was triggered before
any such oral modification occurred. Second, the employment agreement stated only that the
parties “may” split commissions with sales-support staff by “mutual agreement,” and there
appears to be a reasonable likelihood that Ellicott did not agree to any split, much less a 50
percent split as ACE contends. Third, there appears to be a reasonable likelihood that the
employment agreement, whether by its explicit terms or according to generally accepted
practices in the sales industry, did not obligate Ellicott to reimburse ACE for “negative
commissions” on unprofitable projects. Finally, there appears to be a reasonable likelihood that
at least some deduction from Ellicott’s commissions for direct labor costs is appropriate.
Ellicott’s expert appears to concede the issue, at least somewhat, by including ACE’s 5.6 percent
deduction in the conservative estimate. Accordingly, there appears to be a reasonable likelihood
that Ellicott will recover a judgment of at least $722,266, and a real estate attachment against
ACE’s Massachusetts real property in that amount is appropriate.
As to Ellicott’s motion for a reach and apply order, having found that there is a
reasonable likelihood that ACE is indebted to Ellicott, the Court need only determine whether
ACE has property that can be reached by Ellicott in satisfaction of the debt. ACE has stipulated
that reach and apply defendant Redwood owes it money, and it indicated during the hearing on

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Counsel for Hunton and Hennessey have indicated that they will be moving for summary judgment on
Ellicott’s Wage Act claim because the commissions are not “definitely determined” and “due and payable.” Mass.
Gen. Laws ch. 149, § 150. Without passing judgment on that argument, the Court will consider only Ellicott’s
breach of contract claim for the purposes of the present motion.

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Ellicott’s motions that it had entered into arbitration with Redwood. Accordingly, to the extent
that ACE’s real property in Massachusetts does not fully cover the $722,266 real estate
attachment, the Court will grant Ellicott’s motion for a reach and apply order and his motion to
amend the complaint in order to add Redwood Solar Development, LLC as a reach and apply
defendant.
III.

Conclusion
For the foregoing reasons, it is hereby ordered that:
1. The motion for a real estate attachment is GRANTED in part and DENIED in part.
That order of attachment in the amount of $722,266 shall issue separately from this
memorandum and order.
2. The motion for a reach and apply order is GRANTED. That order shall issue
separately from this memorandum and order.
3. The motion to amend the complaint is GRANTED, and the proposed first amended
complaint filed on December 15, 2015 (Docket No. 60 Ex. 1) is hereby the effective
complaint in this action as of the date of this memorandum and order.

So Ordered.

/s/ F. Dennis Saylor
F. Dennis Saylor IV
United States District Judge

Dated: February 19, 2016

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