Licocci v. Cardinal Associates, Inc., 1-785

• Decision Date: 29 April 1986
• Docket Number: No. 1-785,1-785
• Citation: 492 N.E.2d 48
• Parties: Samuel J. LICOCCI, Plaintiff-Appellant, v. CARDINAL ASSOCIATES, INC., Defendant-Appellee. Gil PAPP, Plaintiff-Appellant, v. CARDINAL ASSOCIATES, INC., Defendant-Appellee. A 172.
• Court: Indiana Appellate Court

Page 48

492 N.E.2d 48

Samuel J. LICOCCI, Plaintiff-Appellant, v. CARDINAL ASSOCIATES, INC., Defendant-Appellee.

Gil PAPP, Plaintiff-Appellant, v. CARDINAL ASSOCIATES, INC., Defendant-Appellee.

No. 1-785 A 172.

Court of Appeals of Indiana,

First District.

April 29, 1986.

R. Eugene Johnson, Thomas J. Kimpel, Donald J. Fuchs, Merrill, Johnson & Kimpel, Evansville, for plaintiffs-appellants.

Charles L. Martin, Boonville, for defendant-appellee.

NEAL, Judge.

STATEMENT OF THE CASE

Plaintiff-appellants, Samuel J. Licocci (Licocci), and Gilbert Papp (Papp), appeal

judgments rendered by the Gibson Circuit Court, without a jury, in favor of defendant-appellee and counterclaimant, Cardinal Associates, Inc. (Cardinal), in a claim for damages allegedly resulting from violations of covenants not to compete contained in two separate employment contracts. The suits were filed separately but were consolidated for trial and appeal. We reverse.

STATEMENT OF THE FACTS

Cardinal entered into separate but identical contracts with Licocci and Papp by the terms of which Licocci and Papp, beginning July 31, 1979, would become representatives to sell Cardinal's products to fund-raising groups, such as bands, glee clubs, and cheerleader groups, in certain defined, but separate territories in Illinois. The contracts continued from year to year but could be terminated by either party by written notice delivered at least 30 days prior to the termination. The contracts contained covenants not to compete forbidding Licocci and Papp after termination from: (1) soliciting any Cardinal client for 60 days; (2) engaging in any sales activity in the particular territory for 60 days; and (3) selling similar products to former clients for one year after termination. This clause was held valid in a prior appeal of this case challenging a temporary injunction in Licocci v. Cardinal Associates, Inc. (1983), Ind., 445 N.E.2d 556. That case determined only the propriety of a temporary injunction. The case was remanded for trial on the merits.

By the terms of the original contracts, Licocci and Papp were paid solely on a commision basis, and Clause Five thereof constituted them as independent contractors. However, on January 17, 1980, Licocci and Papp each executed with Cardinal an identical modification of their contracts which significantly changed the legal relation of the parties and the manner of payment. Stripped of formal parts and clauses not relevant to this inquiry, the modification is as follows:

"1. This agreement replaces any previous agreement or attachments concerning REPRESENTATIVES commission, draw, wages, or any form of compensation & specifically deletes Paragraph # 5 of the Representation Agreement dated __________ between the parties hereto.

2. All other provisions of Representation Agreement remain same and unchanged.

3. The Sales Representative shall be permitted to draw the sum of __________ each week, less applicable withholding taxes against commissions either earned or to be earned. Federal withholding taxes will be withheld on taxable income and pursuant to Signed W-4.

4. Draw will be reviewed and/or amended between the last week of each 13 week quarter and the first week of the next quarter. This quarterly review will be subject to the following exceptions.

A. Immediate review of the amount of Draw if commissions accumulated should fall below ($3,000.00) three thousand dollars.

B. ($1,000.00) One thousand dollars must remain in account to cover prizes, returns, credit memos, bad accounts, etc.

5. Twice yearly REPRESENTATIVE may draw upon written request up to but may not exceed 20% of his accumulated commissions less draws and in compliance with paragraph 3. This extra draw may be taken between the (1) first and (15) fifteenth day of December and the (15) fifteenth day of April. Employer requests (1) week notice before draw is taken.

6. EMPLOYER'S fiscal year ends each June 30th. The year-end draw from the Reserve account will be computed as follows:

A. Commissions on units sold and delivered are computed throughout the fiscal year and credited to the sales Representatives' reserve account. The * * *

net amount remaining in said account on July 31, is due and payable on September 15 of the same year.

* * *

The Sales Representative shall receive such resulting amount as a year-end draw, payable on or before September 15th; provided his commissions between July 30th and September 15th have equaled or exceeded this weekly draw for that period and $1000 remains in the account as stated in Paragraph (4-B). If his commissions are less than his weekly draw during July and August, then the year-end draw will be reduced by an amount equal to such excess draw.

The aforesaid draw by the REPRESENTATIVE from the EMPLOYER shall be in effect only so long as the REPRESENTATIVE shall devote his full time exclusive of any other employment of activities for compensation to the performance of the REPRESENTATIVES' obligation under aforesaid REPRESENTATIVES' AGREEMENT and in the event that the REPRESENTATIVE herein shall for any period of time receive and accept the aforesaid draw during which time the said REPRESENTATIVE shall not have devoted his full time as aforesaid to the performance of said REPRESENTATIVES' AGREEMENT, the EMPLOYER shall have a cause of action against the REPRESENTATIVE and be entitled to recover from the REPRESENTATIVE the amount of such draw less the actual amount of commission earned by the REPRESENTATIVE during such period.

In addition to other consideration for this amendment the EMPLOYER will hereafter by paying the EMPLOYER'S share of social security taxes on the SALES REPRESENTATIVE, which had previously been paid by said REPRESENTATIVE."

Cardinal's fiscal year ended on June 30. Thus, the four thirteen-week quarters ended on September 29, December 29, March 30 and June 30. Papp sent Cardinal his letter of termination dated March 2, 1981. Cardinal responded with its letter dated March 11, 1981, in which it terminated Papp's employment contract 30 days after receipt of Papp's letter, i.e., as of April 4, 1981. Licocci mailed his letter of resignation to Cardinal on March 6, 1981, terminating the contract as of April 6, 1981. Cardinal, by letter, terminated Licocci's contract as of April 9, 1981, thirty days after the receipt of Licocci's letter. ¹

At the time of the terminations the weekly draws of Licocci and Papp were $800.00 and $1,200.00 respectively, which amounts had been agreed upon by the parties subsequent to the January 17, 1980, modification. At termination, Papp's escrow account of accumulated commissions was $29,061.51 and Licocci's escrow account was $14,714.36. In conjunction with their termination letters, Licocci and Papp each requested payment of the April biannual 20% draw, which was requested more than seven days prior to April 1, 1981.

On March 20, 1981, Cardinal cut Papp's weekly draw to $800.00 per week, and on April 10, 1981, Cardinal cut both Papp's and Licocci's weekly draw to $400.00 per week. By May 1, 1981, Cardinal had reduced both Licocci's and Papp's weekly draws to zero. Cardinal also refused to pay Licocci and Papp their April biannual 20% draws. In addition, Cardinal had never paid Papp his 1980 year-end settlement, due and payable on September 15, 1980. On April 22, 1981, Licocci and Papp filed separate suits against Cardinal seeking payment of their accumulated commissions. Cardinal, on May 1, 1981, filed its counterclaim against Licocci and Papp claiming that Licocci had been in violation of the covenants not to compete since April 9, 1981, and that Papp had been in violation of those covenants since April 4, 1981. Upon trial, the court found that Cardinal owed Licocci $14,714.36 as of September 15, 1981, and that it owed Papp $29,061.51

since that date. However, it denied their claim for double damages and attorney fees under IND. CODE 22-2-5-1 and 2. It also found for Cardinal on its counterclaim and awarded it damages against Licocci for $37,407.96, and against Papp for $48,064.87. It is from these judgments that Licocci and Papp appeal.

ISSUES

Licocci and Papp claim on appeal that the trial court erred in:

I. Finding that Licocci and Papp had violated the covenants not to compete.

II. Finding in Cardinal's favor on the counterclaim.

III. Using an erroneous method of calculating damages.

IV. Finding that the accumulations of Licocci's and Papp's earned commissions were not wages for purposes of IND. CODE 22-2-5-1 and 2 which would entitle them to double damages and attorney fees.

Cardinal raises a cross-appeal asking an additional $12,658.00 in damages because programs which Papp had sold prior to termination had subsequently been cancelled. Because our decisions on Issues II and IV are dispositive of this appeal, we will address only those issues.

DISCUSSION AND DECISION

Issue II. First Breach.

As shown in the Statement of Facts, Cardinal failed to pay Papp's September 15, 1980, year-end settlement. Additionally, on March 20, 1981, after notice of termination had been given but while Papp was still an employee, Cardinal unilaterally cut his weekly draw. Cardinal again cut his weekly draw on April 10, 1981, terminated it altogether on May 1, 1981, and refused to pay him his April biannual 20% draw. By the clear terms of the contract Cardinal owed Papp the September 15, 1980, year-end settlement plus the April biannual 20% draw. Regarding the weekly draw, Cardinal could review it within one week on either side of the quarter ending March 30, 1981, or when accumulated commissions fell below $3,000.00. However, neither of these conditions occurred. Cardinal also refused to pay Licocci his April biannual 20% draw despite his having given the proper request, and cut his weekly draw on April 10, 1981, to $400.00, and terminated it altogether on May 1, 1981. Licocci and Papp contend that these acts of Cardinal amounted to the initial material breach of...