SEVENSON ENVIRONMENTAL SERVICES, INC. v. DIVERSIFIED ROYALTY CORP. et al
Filing
432
OPINION. Signed by Judge Renee Marie Bumb on 10/16/2018. (rtm, )
[Dkt No. 401]
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY
CAMDEN VICINAGE
SEVENSON ENVIRONMENTAL
SERVICES, INC.,
Plaintiff,
Civil No. 08-1386
v.
OPINION
DIVERSIFIED ROYALTY CORP., et
al.,
Defendants.
APPERANCES:
PHILLIPS LYTLE LLP
By: Alan J. Bozer, Esq.
Erin C. Borek, Esq.
One Canalside
125 Main Street
Buffalo, New York 14203
Counsel for Plaintiff
GORDON MCDONALD, pro se
B.O.P. Register # 30211-050
Lexington Federal Medical Center
P.O. Box 14500
Lexington, Kentucky 40512
BUMB, UNITED STATES DISTRICT JUDGE:
This matter comes before the Court upon the Motion for Summary
Judgment filed by Plaintiff Sevenson Environmental Services, Inc.
1
against its former employee, Defendant Gordon McDonald. 1
not filed opposition to the motion.
McDonald has
For the reasons set forth
herein, the motion will be granted.
I.
Facts 2
Plaintiff Sevenson provides environmental clean-up and site
remediation services. (McDermott Aff., Dkt No. 401-9, ¶ 4)
McDonald
was employed by Sevenson from 1996 through late 2007. (Id. ¶ 5)
During that time, McDonald served as a project manager for Sevenson
at two New Jersey sites which are relevant to the instant motion: the
Diamond Alkali Site and the Federal Creosote Site. (Id.)
Sevenson alleges that, in the course of his employment, McDonald
stole from it in at least five different ways.
First, while working
at the Diamond Alkali site, McDonald, in his capacity as project
manager, received a $28,576.98 check for payment on an invoice
Sevenson had issued to Tierra Solutions.
401-9, ¶¶ 8-9)
7)
(McDermott Aff., Dkt No.
The check was drafted as payable to Sevenson.
(Id. ¶
McDonald deposited the check “into the bank account of his shell
company GMEC, Inc.”
(Id.)
“McDonald was not authorized to take the
1
Sevenson has also filed a Motion for Partial Summary Judgment
against Defendant Diversified Royalty Corp. and Diversified has filed
a Motion for Summary Judgment against Sevenson. The Court addresses
those motions in a separate opinion and order.
2
As stated previously, McDonald has filed no opposition to the
instant motion. The Court’s statement of facts is taken from the
record evidence submitted by Sevenson, and Sevenson’s Statement of
Material Facts Not in Dispute, which facts are deemed undisputed for
the purposes of the motion, pursuant to L. Civ. R. 56.1(a).
2
check for his personal benefit.”
(Id. ¶ 8)
“McDonald [did not]
inform Sevenson that he had received the funds.”
(Id. ¶ 11)
Instead, “McDonald told his supervisors that the customer had
adamantly refused to pay the invoice in question and that in the
interest of maintaining good relations with that customer the invoice
should be written off, which it was.”
(Id. ¶ 12)
Second, after learning of the alleged conversion of the Tierra
Solutions check, Sevenson conducted an audit of field accounts,
whereupon it was discovered that on other occasions, “McDonald wrote
checks from Sevenson’s field accounts (primarily at the Diamond
Alkali Site) to certain payee ‘entities’ and individuals which
investigation has found to be either (a) fictitious or (b) affiliated
with McDonald.”
(McDermott Aff., Dkt No. 401-9, ¶ 14-15)
Specifically, the audit revealed 99 “irregular checks issued out of
Sevenson’s funds in the Diamond Alkalai Site field account” over the
course of 1999 through 2006, totaling $193,836.58.
(Id., Ex. 2)
After a review of records, Sevenson has concluded that “no services
or materials were received” for any of the 99 checks identified on
Exhibit 2. (McDermott Aff. ¶ 16)
Third, “McDonald also periodically withdrew from Sevenson’s
field account certain monies intended for per diem cash payments to
job site employees.
McDonald was found to have been withdrawing more
cash than needed to pay per diems and concealing that fact by
entering false (i.e., higher) totals in the weekly record of per
3
diems paid, improperly keeping excess funds for himself.”
Aff. ¶ 26)
$23,640.00.
(McDermott
Sevenson’s audit revealed that those excess funds totaled
(Id. ¶ 27 and Ex. 3)
Fourth, over the course of 2002 to 2007, McDonald wrote 35
checks either to himself, or to cash, and deposited the total amount- $41,599.77-- into the account of his shell company, GMEC.
(McDermott Aff. ¶ 28-29 and Ex. 4)
Fifth, Sevenson has found other checks drawn on the field
account which were payable to, and apparently cashed by, existing
businesses but were not payments for any Sevenson expense.
For
example, Sevenson discovered “checks to RAC Marine for repairs to a
pleasure boat owned by McDonald, and not owned by Sevenson.”
(McDermott Aff. ¶ 31)
Sevenson has concluded that the “total thus
converted [in this manner] was $51,297.24.” (Id. and Ex. 5) 3
All of these asserted thefts, however, were not “discovered
[until] after McDonald was terminated from his employment with
Sevenson.” (McDermott Aff. ¶¶ 8, 15)
McDonald was officially “fired
on October 18, 2007,” however, he had been suspended without pay
beginning on September 30, 2007 because he “was absent from work in
August and through the last part of September, 2007.” (Id. ¶¶ 44, 85)
3
In addition to these alleged thefts, as set forth in some detail in
the Court’s accompanying Opinion addressing Sevenson’s and
Diversified’s motions for summary judgment, the record evidence
supports a finding that McDonald also participated in two kickback
schemes in connection with the Federal Creosote site. Sevenson has
determined that those kickbacks paid to McDonald totaled at least
$1,114,240.00. (McDermott Aff. ¶¶ 38-39)
4
During the time of McDonald’s suspension, McDonald was “unresponsive”
to Sevenson’s attempts to communicate with him. (Id. ¶¶ 44-45) 4
On
October 12, 2007-- six days before McDonald was fired, and while
McDonald was still suspended-- “Sevenson learned that McDonald had
received illegal kickbacks from BEI.” (Id. ¶ 47)
“Sevenson fired
McDonald because he stopped coming to work, and because he was
discovered to have taken kickbacks from BEI.”
(Id. ¶ 43)
From March 2000 through October 2007, Sevenson paid McDonald
compensation-- in the form of a salary, bonuses, pension and profit
sharing contributions-- totaling $1,088,086.41. (McDermott Aff. ¶ 3637)
Sevenson moves for summary judgment as to the following claims
against McDonald: (1) conversion of the Tierra Solutions check; and
(2) breach of fiduciary duty.
Sevenson also moves for summary judgment as to McDonald’s
counterclaims against it, which are (1) wrongful termination in
violation of New Jersey’s Conscientious Employee Protection Act,
“CEPA,” and (2) violation of the New Jersey Wage Payment Law.
4
By August 2007, it appeared that McDonald could be in legal
jeopardy. “The U.S. Department of Justice (DOJ) first subpoenaed
Sevenson in September 2006.” (McDermott Aff. ¶ 66) McDonald
assisted in collecting records responsive to that subpoena. (Id. ¶
67) Sevenson also interviewed McDonald in October 2006 and December
2006. The DOJ interviewed McDonald in June 2007. (Id. ¶¶ 74-75) In
August 2007, Sevenson told McDonald that he should retain counsel in
connection with the DOJ’s investigation. (Id. ¶¶ 76-78) Indeed,
McDonald was eventually tried and convicted of federal criminal
charges, and is currently serving his sentence in a federal
correctional facility.
5
II.
Summary Judgment Standard
Summary judgment shall be granted if “the movant shows that
there is no genuine dispute as to any material fact and the movant is
entitled to judgment as a matter of law.”
Fed. R. Civ. P. 56(a).
A
fact is “material” if it will “affect the outcome of the suit under
the governing law[.]”
248 (1986).
Anderson v. Liberty Lobby, Inc., 477 U.S. 242,
A dispute is “genuine” if it could lead a “reasonable
jury [to] return a verdict for the nonmoving party.”
Id.
“[W]hen a properly supported motion for summary judgment [has been]
made, the adverse party ‘must set forth specific facts showing that
there is a genuine issue for trial.’”
(citing Fed. R. Civ. P. 56(e)).
Anderson, 477 U.S. at 250
In the face of a properly supported
motion for summary judgment, the nonmovant’s burden is rigorous: he
“must point to concrete evidence in the record”; mere allegations,
conclusions, conjecture, and speculation will not defeat summary
judgment.
Orsatti v. New Jersey State Police, 71 F.3d 480, 484 (3d
Cir. 1995); accord., Jackson v. Danberg, 594 F.3d 210, 227 (3d Cir.
2010) (citing Acumed LLC v. Advanced Surgical Servs., Inc., 561 F.3d
199, 228 (3d Cir. 2009) (“[S]peculation and conjecture may not defeat
summary judgment.”)).
Failure to sustain this burden will result in
entry of judgment for the moving party.
The same basic legal analysis applies when a summary judgment
motion is unopposed, Anchorage Associates v. Virgin Islands Board of
Tax Review, 922 F.2d 168 (3d Cir. 1990), however, the material facts
6
put forth by the movant are deemed undisputed pursuant to L. Civ. R.
56.1(a) (“any material fact not disputed shall be deemed undisputed
for purposes of the summary judgment motion.”).
III. Analysis
A. Conversion of the Tierra Solutions check
Conversion is “the exercise of any act of dominion in denial of
another’s title to the chattels, or inconsistent with such title.”
Mueller v. Tech. Devices Corp., 8 N.J. 201, 207 (1951).
“To
constitute a conversion of goods there must be some repudiation by
the defendant of the owner’s right, or some exercise of dominion over
them by him inconsistent with such right, or some act done which has
the effect of destroying or changing the quality of the chattel.”
Id. 5
Sevenson’s evidence (which is unrebutted by McDonald since he
has filed no opposition) establishes that by taking the Tierra
Solutions check made payable to Sevenson, and depositing it in GMEC’s
account, McDonald exercised control over the check in a manner
inconsistent with Sevenson’s right to the money.
That is, in the
normal course, the Tierra Solutions check would have been deposited
in an account belonging to Sevenson, not McDonald.
5
See generally, Restatement (Second) of Torts § 231(1) (“one who, as
agent or servant, receives the possession of a chattel on behalf of
his principal or master in consummation of a transaction negotiated
by the actor for the purpose of giving a proprietary interest in the
chattel to the principal or master, is subject to liability for a
conversion to another who is entitled to the immediate possession of
the chattel.”).
7
Accordingly, summary judgment will be granted to Sevenson on the
conversion claim.
B. Breach of fiduciary duty to Sevenson
Sevenson contends that McDonald, as Sevenson’s project manager,
owed it fiduciary duties of honesty, fair dealing, and loyalty, and
that McDonald breached those duties by stealing from Sevenson and by
taking kickbacks.
According to Sevenson, McDonald’s breaches were so
egregious that the equitable remedy of wage disgorgement is
warranted.
“Loyalty from an employee to an employer consists of certain
very basic and common sense obligations.
An employee must not[,]
while employed[,] act contrary to the employer’s interest.”
Rosefielde, 223 N.J. 218, 229 (2015).
Kaye v.
Certainly such “basic and
common sense obligations” include the duty to refrain from repeatedly
stealing from the employer over the course of several years.
See
also, id. at 230 (“an employee’s self-dealing may breach [the] duty
[of loyalty].”).
Thus, the record evidence demonstrates that
McDonald breached his fiduciary duty when he committed thefts from
Sevenson. 6
6
Sevenson argues that McDonald’s participation in the two kickback
schemes at the Federal Creosote site were additional breaches of
fiduciary duty. The Court need not rule on this particular argument
because the Court holds that the thefts are independently sufficient
to establish the breach of fiduciary duty claim, and the equitable
remedy of compensation disgorgement. However, the Court notes that
Sevenson’s argument that the kickback schemes violated McDonald’s
fiduciary duties, which implies that McDonald acted “contrary to
[Sevenson’s] interest,” Kaye, 223 N.J. at 229, is not necessarily
8
Further, “if the employee breaches the duty of loyalty at the
heart of the employment relationship, he or she may be compelled to
forego the compensation earned during the period of disloyalty.
The
remedy is substantially rooted in the notion that compensation during
a period in which the employee is disloyal is, in effect, unearned.”
Kaye, 223 N.J. at 233.
The New Jersey Supreme Court has instructed,
[i]n this and other matters in which the trial court
finds a breach of the duty of loyalty, the trial court
should consider the following factors when considering
whether disgorgement is an appropriate remedy: the
employee’s degree of responsibility and level of
compensation, the number of acts of disloyalty, the
extent to which those acts placed the employer’s business
in jeopardy, and the degree of planning to undermine the
employer that is undertaken by the employee.
Id. at 237.
Sevenson’s evidence more than sufficiently establishes many of
these factors.
First, the record establishes that McDonald was a
supervisory employee in which Sevenson entrusted great
responsibility; he was the project manager at more than one hazardous
waste site, including one federal Superfund site. (McDermott Aff. ¶
5)
The project manager “ha[s] access to and control over the mail”
inconsistent with the Court’s holding in the accompanying opinion
addressing Sevenson and Diversified’s summary judgment motions that,
for the purposes of the in pari delicto analysis, a factfinder could
find that Sevenson benefitted from the kickback schemes. A
reasonable factfinder could find that the kickback scheme was
contrary to Sevenson’s long-term interest, thereby supporting the
breach of fiduciary duty claim, while simultaneously finding that
Sevenson did receive a more than an illusory short term benefit from
the kickback schemes, thereby supporting the imputation prong of the
in pari delicto analysis.
9
at the site he manages, “assures that payments are properly deposited
into corporate accounts,” and “control[s] the field account to cover
expenses up to $5,000.00.”
(Id. ¶¶ 9, 14, 17)
Second, McDonald was very well compensated, earning a salary
ranging from $97,342.45 in 2006 to $203,617.40 in 2002.
(McDermott
Aff. ¶ 36)
Third, McDonald was repeatedly disloyal over the span of at
least seven years.
The evidence of the 99 irregular checks McDonald
wrote on the Diamond Alkalai field account is just a fraction of the
disloyal acts established by Sevenson’s evidence.
(McDermott Aff.
Ex. 2)
Fourth, the record discloses that the thefts caused financial
losses to Sevenson of $338,950.57, which must have adversely affected
Sevenson’s business.
(McDermott Aff. ¶¶ 7, 17, 27, 29, 32)
Fifth, the record evidence demonstrating that McDonald used a
shell company to accomplish some of his thefts (McDermott Aff. ¶ 7),
as well as the other steps McDonald took to hide his thefts-including falsifying business records (Id. ¶¶ 12, 13, 18)-establishes that McDonald extensively planned the acts that breached
his duty to Sevenson.
Accordingly, Sevenson’s Motion for Summary Judgment as to the
breach of fiduciary duty claim, and the attendant claim for equitable
disgorgement of compensation, will be granted.
C. CEPA and Wage Payment counterclaims
10
McDonald has the burden of proof as to these claims.
He has
filed no opposition to Sevenson’s instant motion, and therefore
McDonald has put forth no evidence supporting his claims.
failure is fatal to his claims.
This
Orsatti, 71 F.3d at 484 (“In the
face of a properly supported motion for summary judgment, the
nonmovant’s burden is rigorous: he must point to concrete evidence in
the record; mere allegations, conclusions, conjecture, and
speculation will not defeat summary judgment.”).
Accordingly, Sevenson’s Motion for Summary Judgment will be
granted as to McDonald’s counterclaims.
IV.
Conclusion
For the forgoing reasons, Sevenson’s Motion for Summary Judgment
will be granted.
An order on the motion, as well as a judgment for
Sevenson in the amount of $1,116,663.39, which is the amount of the
converted Tierra Solutions check plus the compensation Sevenson paid
McDonald from March 2000 through October 2007, will be entered.
October 16, 2018
_ s/ Renée Marie Bumb _______
RENÉE MARIE BUMB
UNITED STATES DISTRICT JUDGE
11
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