Fried v. Aftec, Inc.

• Decision Date: 25 February 1991
• Citation: 587 A.2d 290,246 N.J.Super. 245
• Parties: Sigmund B. FRIED, Plaintiff-Respondent, Cross-Appellant, v. AFTEC, INC., a Corporation, Defendant-Appellant, Cross-Respondent.
• Court: New Jersey Superior Court — Appellate Division

Page 245

246 N.J.Super. 245

587 A.2d 290

Sigmund B. FRIED, Plaintiff-Respondent, Cross-Appellant, v. AFTEC, INC., a Corporation, Defendant-Appellant, Cross-Respondent.

Superior Court of New Jersey,

Appellate Division.

Argued Jan. 14, 1991.

Decided Feb. 25, 1991.

David I. Fox, for defendant-appellant, cross-respondent (Fox & Fox, attorneys, David I. Fox, Newark, of counsel and on the brief).

Robert J. Sussman, for plaintiff-respondent-cross-appellant (Robert J. Sussman, Bloomfield, on the brief).

Before Judges J.H. COLEMAN, DREIER and ASHBEY.

The opinion of the court was delivered by

DREIER, J.A.D.

The parties have cross-appealed from a judgment entered on a jury verdict and from various orders entered by the trial judge. Defendant, Aftec Inc., is the former employer of plaintiff, Sigmund B. Fried. Fried served as defendant's vice president of sales and marketing under a written employment agreement. Plaintiff contended that he was illegally denied a termination bonus of $75,000 per year, equal to his $75,000 per year salary, for the 18 months he was employed by defendant. Defendant appeals not only from the court's award of this bonus, but also from the dismissal of its substantial counterclaims for losses allegedly occasioned by plaintiff's failure to perform his contract. Plaintiff's cross-appeal challenges the trial court's refusal to award prejudgment interest on the molded $112,500 verdict entered after the judge accepted the jury's liability finding, but rejected its $20,000 award. We do not pass upon plaintiff's cross-appeal, since we here determine that a new trial is required on all issues.

Defendant is a computer software company founded in 1978 by its three principals, John Foss, Edward Murphy, and Anna Edson. In the summer of 1985, after seeing an advertisement in the Wall Street Journal, plaintiff began to negotiate an employment agreement with defendant. He was offered a $75,000 per year salary and a 25% stock option. In order for plaintiff to receive the stock, sales had to increase significantly and the company's principals had to agree that plaintiff's personality and performance were sufficiently satisfactory (to them) for him to be accepted, in effect, as a full partner. Plaintiff testified that the sales requirements appeared so unrealistic that he also negotiated a cash bonus to be paid even if defendant's sales requirements were not met.

The agreement, principally prepared by Mr. Foss for the Corporation, specified in paragraph seven the various conditions for plaintiff's receipt of the stock, namely plaintiff's acceptance by the other principals, an increase in profitability reflected by a sales figure in the six months prior to the second anniversary of the contract at a $6,000,000 annual sales rate, and plaintiff's acceptance of the obligations of a principal by adding his guaranty to those of the other principals on outstanding corporate loans.

Since, however, plaintiff was terminated six months prior to the second anniversary date, ¹ it is the alternative payment provisions of paragraph eight of the contract that are in issue here. Paragraph eight reads as follows:

If you leave Aftec for any reason prior to the anniversary, and you do not acquire stock in the company loans, you will receive a cash bonus equal to your annual salary for each year that annual sales for Aftec increased profitably. Termination for cause shall result in immediate dismissal without bonus or further claim for compensation. [Emphasis added].

After being hired on August 12, 1985, plaintiff's responsibilities included all aspects of sales, from direct contact with customers, to the hiring, training and managing of the sales force, and even the development of marketing plans. According to him, notwithstanding his impressive sales record, Foss berated and belittled him on minor points within earshot of plaintiff's co-workers and repeatedly interfered with his decisions.

According to plaintiff, he had served in his capacity as vice president of sales and marketing for slightly over a year, when in September 1986 Foss hired another employee to take over a portion of plaintiff's marketing responsibilities, leaving plaintiff free to concentrate on sales. Within five months, however, and after plaintiff's responsibilities were reduced even further, this new employee also entered the sales area. Plaintiff allegedly saw that the $6,000,000 sales requirement would not be attainable, because Foss had fired all of the sales associates plaintiff had hired, and third-party vendors who sold defendant's software with their computer hardware then refused to sell the product due to the lack of technical support. Seeing the deteriorating condition around him, plaintiff quit his job on February 5, 1987. He was paid in full to that date, but when he approached Foss in March 1987 concerning the bonus, plaintiff was rebuffed.

At trial, plaintiff asserted that he met the profitability and sales increase requirements of paragraph eight of the contract, and supported this claim with the corporation's accrual-based financial statements showing sales increasing from $927,162 in 1984 (before plaintiff was hired), to $1,898,699 in 1985 and to $2,362,405 in 1986. Net earnings allegedly rose from $34,807 in 1984 to $86,352 in 1985 and to $113,438 in 1986. Defendant, however, claimed that these were accrual statements prepared for financial institutions and were not used in the operation of the firm. Defendant asserted that the corporate tax returns prepared on a cash basis were defendant's actual financial statements. Plaintiff's expert disputed this fact and asserted that the accrual statements provided an accurate picture of defendant's financial condition.

Defendant's proof consisted of testimony of the principals concerning plaintiff's failure to perform in an acceptable manner; testimony of plaintiff's former employer showing that plaintiff had falsified statements in his resume concerning his qualifications, experience and performance; and testimony by the corporate accountant demonstrating that the business actually generated a cash deficiency for the periods in question. To support its counterclaim, defendant's principals testified inter alia to plaintiff's failure to learn about defendant's products, his failure to provide accurate sales projections (causing serious cash flow problems), plaintiff's giving away of a shop-floor computer program valued at $15,000 to a customer where such action was not necessary to close the deal, and plaintiff's major unauthorized trade concessions to a large customer, Aerojet, after the sale had already been booked, (reducing profits by tens of thousands of dollars). ²

The accountant also reconstructed the financial statements to cover the specific periods of plaintiff's employment. The resultant figures showed a net loss to the company prior to plaintiff's employment (August 12, 1984 to August 11, 1985) of $6,805. For the period August 12, 1985 to August 11, 1986, plaintiff's only full year of employment, defendant was alleged to have suffered a net loss of $119,071. For the period August 12, 1986 to February 5, 1987 (just under six months), defendant asserted a loss of $77,492. Thus, defendant claims, the company saw no profits during the entire period of plaintiff's employment. ^{3 3} Defendant also contended that plaintiff was entirely ineffective in building a sales organization, and in fact, had abandoned an established network of third-party vendors in favor of hiring individual salesmen, although none of the new salesmen generated any appreciable sales.

The corporate principals also testified that plaintiff had made grandiose sales projections upon which defendant based its financial commitments, forcing the principals to infuse additional capital to offset the negative cash flow. They claimed to have expressed this displeasure with plaintiff on occasion, specifically citing his semi-annual review in September 1986, at which time Foss indicated to plaintiff that defendant intended to terminate his employment because of unsatisfactory performance. Defendant asserts that it was only plaintiff's pleading which caused the principals to provide a lesser role for plaintiff within the organization. The marketing responsibilities were assigned to a new employee; plaintiff no longer would be a director of the company; he no longer would be eligible for the stock option or cash bonus; and his compensation package was significantly restructured. As a face-saving device, plaintiff was permitted to retain a title of vice president of sales. Later, after further specific deficiencies were brought to the principals' attention, plaintiff's title was again reduced to a ceremonial title of vice president, strategic sales. These changes were memorialized in a memo to plaintiff dated November 5, 1986. He was to be merely a "senior salesman," with a "new compensation plan" of "base salary plus commissions with protection for [his] current earning level for a to be agreed upon period." By February 1987, it was determined to terminate plaintiff's employment for cause, and a memorandum to that effect dated February 5, 1987 so specified. The reasons were noted as having been reviewed in a face-to-face meeting.

The jury was thus faced with sharply conflicting factual issues when it found that plaintiff had established some basis for liability, but returned only a $20,000 verdict. On this appeal, defendant claims that at the very most the $20,000 verdict was sustainable, but as the trial judge's charge was clearly erroneous, even that verdict should not stand. ⁴ Certainly, defendant asserts, the trial judge had no basis to mold the $20,000 verdict into a judgment for $112,500. The central issue raised by defendant, however, is that the judge failed to charge the jury properly concerning the concept of "termination for cause." Lastly, defendant contends that the elements of its counterclaim...