In re Pre-Press Graphics Co., Inc.
| Decision Date | 22 June 2004 |
| Docket Number | No. 02 B 08292.,02 B 08292. |
| Citation | 310 B.R. 893 |
| Parties | In re PRE-PRESS GRAPHICS COMPANY, INC. d/b/a R & B Group, an Illinois Corp., Debtor. |
| Court | U.S. Bankruptcy Court — Northern District of Illinois |
David K. Welch, Esq., Crane, Heyman, Simon, Welch & Clar, Chicago, IL, for Debtor.
Alycia A. Fitz, Esq., Law Offices of Colleen M. McLaughlin, Wheaton, IL, for Movant David J. Azarela.
This matter comes before the Court on the motion of David J. Azarela ("Azarela") for allowance of post-petition administrative expenses while employed by Pre-Press Graphics Company, Inc. (the "Debtor"). Azarela claims that pursuant to the provisions of an alleged employment agreement with the Debtor, he is entitled to the payment of $23,461.28, which he asserts is a post-petition priority expense of administration under 11 U.S.C. § 503(b)(1)(A) and § 507(a)(1). For the reasons set forth herein, the Court denies Azarela's motion. The objection thereto lodged by the Debtor is sustained.
The Court has jurisdiction to entertain this matter pursuant to 28 U.S.C. § 1334 and Internal Operating Procedure 15(a) of the United States District Court for the Northern District of Illinois. This matter constitutes a core proceeding under 28 U.S.C. § 157(b)(2)(A), (B) and (O).
The Debtor is engaged in the graphic arts and printing business. On March 4, 2002, the Debtor filed a voluntary petition under Chapter 11. Previously, Azarela was employed by Vertis, Inc. ("Vertis") for several years as an account manager/salesman. On October 10, 2001, Azarela and Vertis entered into a Separation and Release Agreement (the "Release Agreement") pursuant to which Azarela's employment with Vertis was terminated.1 Specifically, the Release Agreement prohibited Azarela from soliciting any customers of Vertis for a twelve-month period following his termination through a non-compete clause (the "Non-Compete Clause").
In late March or early April 2002, Azarela met with David Nolte ("Nolte"), vice president of sales for the Debtor and a former colleague from their prior employment at Vertis, regarding Azarela's potential employment with the Debtor. Azarela Ex. No. 1. The Debtor's president, Robert Beevers ("Beevers"), also briefly attended the meeting. Thereafter, on April 10, 2002 Nolte sent Azarela an e-mail message with the subject heading "employment proposal." Debtor Ex. J; Azarela Ex. No. 2. Attached thereto was a proposal with respect to Azarela's prospective employment with the Debtor. Azarela Ex. No. 2; Debtor Exs. A and J. Subsequently, on April 17, 2002, Nolte sent Azarela another copy of the April 10, 2002 letter with handwritten notations on the bottom. Azarela Ex. No. 3; Debtor Ex. B. The typewritten portion of the letter thanked Azarela for considering a sales career with the Debtor and set forth several proposed terms including: an employment term of a minimum of nine months; biweekly draw based on $60,000.00 annually; that Azarela target new clients and previous clients per his sales strategy outline (Azarela Ex. No. 4); the sales expectations the Debtor had for Azarela; and the promise to provide Azarela with sales support to insure his "client's [sic] expectations" were met. Azarela Ex. No. 3; Debtor Ex. B. The April 17, 2002 letter specifically outlined the Debtor's sales expectations for the first six months of Azarela's employment: first month — $0 sales; second month — $15,000.00; third month — $25,000.00; fourth month — $35,000.00; fifth month — $40,000.00; and sixth month — $50,000.00 and beyond. Id.
The handwritten notations on the April 17, 2002 letter, which were made by Nolte and inserted below the typewritten portion, included a phone allowance of $150.00 per month for the first six months and a car allowance of $400.00 per month for the first six months. Id. Additionally, the letter provided under the heading of "Pay," that Azarela was to receive $1,500.00 per week for the first three month period; $1,150.00 per week for the second three month period; and $811.52 per week for the final three month period. Id. Finally, at the bottom of the letter was the handwritten notation "9 Month (Mutual) Contract." Id. It is undisputed that there was no formal employment contract signed by Azarela or the Debtor.
On May 6, 2002, Azarela began working for the Debtor as an account manager who was to make sales for and on behalf of the Debtor. Approximately five month later on October 10, 2002, Azarela was fired. Beevers testified that he fired Azarela due to his failure to make any sales for the Debtor. Azarela testified that many of the sales contacts he approached during his employment with the Debtor were the same contacts he had at Vertis, and were thus covered by the Non-Compete Clause in the Release Agreement. Debtor Exs. F, G & I.
Beevers stated that he met with Azarela prior to his October 10, 2002 termination date and informed Azarela that his pay was being reduced from $2,300.00 to $500.00 because of his failure to make any sales. Beevers testified that the $500.00 figure was to cover Azarela's expenses associated with his efforts to gain business from potential clients. Beevers further testified that he did not expect Azarela to make sales immediately upon commencement of his employment, but did expect to see sales within 30-90 days after being hired. Additionally, Beevers stated that he expected sales quotes to be sent to potential customers by all salespersons. He testified that Azarela sent only one quote to a potential customer which never materialized into any business for the Debtor. No other quotes were generated by Azarela. Beevers testified that of the eleven salespersons employed by the Debtor during the time of Azarela's employment, all made sales for the Debtor except Azarela. Finally, Beevers maintained that Azarela never told him about the Non-Compete Clause in the Release Agreement. Azarela testified that he disclosed the existence of the Non-Compete Clause to both Nolte and Beevers, but his testimony was uncorroborated.
Kinzie Thomas ("Thomas"), the Debtor's human resources manager and corporate secretary, testified that she is the individual responsible for collecting timekeeping reports, processing the payroll for the salespersons, preparing termination memoranda and calculating any salary, commissions, expenses and vacation time that would be due to Azarela with respect to his termination. Thomas stated that she prepared Azarela's paychecks, and made the determination as to how to record these payments in the Debtor's books based on information she received from Nolte. Azarela Ex. No. 29. Thomas recorded the payments to Azarela in the Debtor's commission payment ledger. Debtor Ex. D; Azarela Ex. No. 32. All of Azarela's biweekly payments were recorded as draws against future earned commissions, not as salary or wage payments. Id. Additionally, Thomas testified that all employees were required to punch a time clock, but Azarela often failed to do so. Debtor Ex. H. Further, all employees were required to work from the office, but Azarela often did not come to the office. Id. Finally, Thomas stated that employees were required to prepare expense reports in order to receive expense reimbursement, but Azarela rarely prepared such reports.
On September 4, 2003, Azarela filed the instant matter, a request for payment of administrative expenses under § 503(b)(1)(A) and § 507(a)(1). Azarela contends that the Debtor owes him $23,461.28, which is comprised of unpaid wages, phone and car allowance. Azarela Ex. No. 30; Debtor Ex. E. In addition, Azarela contends that the Debtor breached the employment agreement, violated the Illinois Wage Payment and Collection Act, 820 ILCS 115/1 et al, is liable for punitive damages under the Illinois Minimum Wage Law, 820 ILCS 105/12(a), and is liable for Azarela's attorney's fees under the Attorneys Fees in Wage Actions Act, 705 ILCS 225/1.
The dispute between the parties focuses on several principal issues: (1) whether there was an employment agreement between the Debtor and Azarela; (2) if there was such an employment agreement, whether Azarela was "guaranteed" certain monetary compensation thereunder; (3) whether the debt arose from a transaction with the Debtor; and (4) whether there was any benefit to the Debtor's business operations. The Court will address each issue in turn.
Azarela contends that the April 17, 2002 letter was a contractual offer of salaried employment with a duration of nine months. The Debtor does not dispute that Azarela was hired on May 6, 2002. The Debtor contends, however, that there was no written employment contract executed by it or Azarela and that his compensation was in the nature of a non-guaranteed draw against future commissions earned on sales he generated.
Initially, the Court must determine whether the April 17, 2002 letter from Nolte to Azarela was sufficiently clear and definite to constitute a contractual offer. "A contract, to be valid, must contain offer, acceptance, and consideration; to be enforceable, the agreement must also be sufficiently definite so that its terms are reasonably certain and able to be determined." Halloran v. Dickerson, 287 Ill.App.3d 857, 867-68, 223 Ill.Dec. 323, 679 N.E.2d 774, 782 (5th Dist.1997) (citing Ogle v. Hotto, 273 Ill.App.3d 313, 319, 210 Ill.Dec. 13, 652 N.E.2d 815, 819 (5th Dist.1995)); see also Church Mut. Ins. Co. v. Mount Calvary Baptist Church (In re Mount Calvary Baptist Church), 162 B.R. 181, 184 (Bankr.N.D.Ill.1993) (citation omitted). More specifically, an enforceable agreement exists when the following requirements have been satisfied: competent parties, valid subject matter, legal consideration, mutuality of obligation, and mutuality of agreement. Longview Aluminum, L.L.C. v. United Steel...
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